India’s port industry has been experiencing significant growth over the years. Both major and non-major ports are contributing to the robust growth in cargo movement. The government has been undertaking various initiatives such as the Maritime India Vision 2030, with an emphasis on establishing megaports and trans-shipment hubs, to expand Indian ports and compete with global ports.
Traffic trends
The cargo traffic movement at Indian ports, both major and non-major, has recorded significant growth in recent years. Between 2019-20 and 2023-24, major ports had a notable increase in cargo volume, growing at a compound annual growth rate (CAGR) of 3.05 per cent. Meanwhile, during the same period, non-major ports have grown at a CAGR of around 2 per cent.
Major ports registered a cargo volume of about 820 million tonnes (mt) in 2023-24 as against around 784 mt in 2022-23. In terms of commodities at major ports, in 2023-24, petroleum, oil and lubricants (POL) accounted for the highest share in traffic at 33.8 per cent, followed by coal at 23.43 per cent and containers at 22.16 per cent. In the meantime, traffic handled at non-major ports increased from 588.07 mt in April 2022–February 2023 to 655.85 mt in April 2023–February 2024. With regard to commodities at non-major ports, during April 2023-February 2024, coal accounted for the highest share in traffic at 28.87 per cent, followed by POL at 22.67 per cent and containers at 18.69 per cent.
Current policies in place
The government is implementing several policy measures to support the expansion of the ports and shipping sector, including increased budget allocation. The Ministry of Ports, Shipping and Waterways has received an allocation of Rs 23.46 billion (budget estimate). The allocation is 5.72 per cent higher than the budget estimate of Rs 22.19 billion and 2.05 per cent lower than the revised estimate of Rs 23.95 billion for fiscal year 2023-24. Of the total allocation, Rs 1 billion has been provided for assistance to shipbuilding, research and development. The centre has provided a grant of Rs 10.87 billion to the Inland Waters Authority of India and Rs 700 million for the development of minor projects. Meanwhile, funds worth Rs 7 billion have been earmarked for the Sagarmala programme.
Many other policy measures have been undertaken by the government. These include the tariff policy for major port trusts, tariff guidelines for the build-operate-transfer mode, tariff guidelines for future public-private partnership concessionaire, SAROD-Ports (Society for Affordable Redressal of Disputes-Ports), a draft green port policy and a revised model concession agreement. These policies are helping to enhance traffic at ports as well as improve operations.
These policy interventions are expected to improve competitiveness among ports and facilitate future growth. With these initiatives, there will be an improvement in the competitiveness and efficiency of ports. Port projects are expected to become more investor-friendly, along with improvements in cargo handling flexibilities at ports.
Key financial transactions
Over the past few years, several major financial deals have taken place in the ports and shipping sector in India. These include Adani Ports acquiring Krishnapatnam, Karaikal and Gangavaram ports, the JM Baxi Group acquiring the project logistics business of Allcargo Logistics and Lift and Shift, Hapag-Lloyd India Private Limited acquiring a 40 per cent stake in JM Baxi Port Private Limited, the Adani Group acquiring the inland container depot of Navkar Corporation Limited at Tumb, Aurobindo Realty and Infrastructure Private Limited acquiring the GMR Group’s stake in Kakinada special economic zone and a major stake in the Kakinada Seaports Limited, and JSW Infrastructure Limited acquiring the Chettinad Group’s terminals at Kamarajar and New Mangalore as well as a majority stake in PNP Port from the Shapoorji Pallonji Group.
In a recent development, financial closure was achieved for the mega container terminal project at Tuna-Tekra in Kandla port. Hindustan Gateway Container Terminal Kandla Private Limited, a special purpose vehicle formed by Hindustan Infralog Private Limited (a joint venture of DP World Limited and National Investment and Infrastructure Fund) completed the financial closure. The National Bank of Financing Infrastructure and Development (Rs 17.5 billion) and Axis Bank (Rs 17.5 billion) have approved a loan worth Rs 35 billion. Additionally, Axis Bank has also approved guarantee and hedge facilities worth Rs 1.4 billion and Rs 1.5 billion respectively.
Impact of Red Sea conflict on Indian industry
After an enormous rise during the Covid-19 outbreak, container freight rates have been declining. This is due to the tightening monetary policy actions, which have decreased demand worldwide. Furthermore, a spate of new vessels joining the marine fleet in 2023 and slated to join in 2024 has also put downward pressure on container rates. Several international container shipping companies have chosen to for ego the Suez Canal in favour of the lengthier route that circles the Cape of Good Hope (South Africa). However, rates have increased in recent months due to the intensifying Red Sea war. This increased travel distance and time, coupled with higher insurance premiums, have pushed container freight rates up within a short period.
The Indian shipping industry is anticipated to be impacted by this. Risks associated with higher freight costs will arise from macroeconomic headwinds, which will increase prices for Indian players. Additionally, there is concern about China dumping in export markets. As other routes to the Suez Canal require a transit period of approximately 15 days longer, the working capital requirement may increase. Furthermore, the rise in containers has been the primary driver of cargo growth in Indian ports. Container flows could be hampered if the conflict continues or gets worse, which would affect the expansion of cargo at Indian ports.
Challenges and future plans
Despite efforts to enhance operations and capacity at ports in India, several challenges remain. These issues include infrastructure and logistics-related challenges, tariff-related risks, implementation challenges for new initiatives and project execution risks. For instance, there has been a significant improvement in the turnaround time, but it still remains high and the Maritime India Vision 2030 targets a reduction in TRT to less than 20 hours by fiscal year 2030 by undertaking measures such as mechanised handling, better yard management, improved evacuation infrastructure and multimodal logistics. Moreover, there are issues such as long timelines for the implementation of new bills/resolutions, lack of adequate coordination between the central and state governments, non-resolution of legacy tariff issues and inadequate coordination, leading to increased costs of compliance. Additionally, there are concerns about cybersecurity risks caused by increased digitisation.
The government has set a target of raising the country’s port capacity to over 10,000 mt per annum (mtpa) by 2047 from the current 2,600 mtpa. In line with this, the role of private players in the sector is being progressively augmented. With PPP terminals currently handling about 50 per cent of the cargo at major ports, efforts are under way to raise their share to approximately 85 per cent in the coming decades.
The sector is also expected to witness an energy transition towards green ports and green shipping, increasing the share of renewable energy to 60 per cent of the total power consumed from the current share of less than 10 per cent. The government is also working on developing green hydrogen infrastructure at the ports. The Deendayal, Paradip and V.O. Chidambaranar ports have already been identified for development as hydrogen hubs and export terminals for green hydrogen/green ammonia.
Additionally, in a bid to reduce logistics costs, the government is promoting cargo transportation through inland waterways to double its share in the cargo modal mix to 12 per cent by 2025 from the current 6 per cent. There is also a focus on developing greenfield international container ports to bridge the infrastructure gaps and facilitate an increase in the size of vessels. To this end, two of the key projects are a mega international container trans-shipment port at Galathea Bay on Great Nicobar Island and an international container port at Vadhavan.
Thus, adopting cutting-edge technologies, enhancing capacities at ports, developing new infrastructure and improving processes are expected to result in holistic improvement in the sector.