The 7,500 km-long Indian coastline is dotted with over 200 ports, transporting over 90% of the country's total trade by volume and 70% by value, and in today’s globalised world is nothing less than the lifeline of the Indian economy. What's more? The total cargo at Indian ports is projected to increase to about 2,800 MMT by 2020 from 980 MMT currently. But can Indian ports handle the added pressure? The Dollar Business, which has over the last year and a half made it regular business to be on the ground at some of India's major ports, analyses how equipped India's gateways to the world are to take on the mantle
Satyapal Menon And Sisir Pradhan | November 2015 Issue | The Dollar Business
While India ranks 3rd in GDP (PPP) in the world, features amongst the top 20 importing and exporting nations in the world, and has recently replaced China to become the fastest growing major economy, our ports remain woefully inadequate to cope with the growth that we hope to achieve. That is not to say that our government and the Ministry of Shipping are sitting on their hands. A slew of new projects and initiatives have been announced to alleviate pains at our seaports. For instance, on October 11, 2015, Prime Minister Narendra Modi laid the foundation stone for the Rs.7,900 crore 4th terminal project at Jawaharlal Nehru Port (JNPT), which should double the capacity of the country’s largest container port in two years. What's more? The ambitious ‘Sagarmala’ project has also been announced by the government to give a fillip to trade growth and develop port infrastructure that can cope up with that growth. Not to say, 100% FDI through the automatic route is already permitted into the sector.
Although the government has initiated the process of reorienting strategies and infusing fresh ideas to transform India’s major ports into viable, feasible and productive assets, the real change could still be hundreds of miles away.
India has nine coastal states which accommodate 12 major ports. Except Maharashtra and Tamil Nadu, the remaining seven states have one major port each and most of the country’s maritime trade takes place through these ports. However, in the last decade a few private sector ports like Adani Port at Mundra in Gujarat, Krishnapatnam Port in Andhra Pradesh, and APM Terminals-operated Port Pipavav in Gujarat have come up with some world-class infrastructure that has given traders options beyond major government-run ports.
A major differentiating factor for private ports, as far as business competitiveness is concerned, is the fact that they don’t come under the purview of Tariff Authority for Major Ports (TAMP). TAMP is an independent authority that regulates all tariffs – both vessel and cargo related – and rates for lease of properties in respect of major ports and the private operators located therein. Private ports are free to fix their tariff as per market condition and requirements.
While many of the major ports were pressed into service during the British rule, it was in the 60s and 70s that the Indian government took up the task of modernisation of existing ports and establishment of new ports. The more recent additions were the Kamarajar Port at Ennore in Tamil Nadu and the Jawaharlal Nehru Port at Nhava Sheva in Maharashtra. However, despite being in operation for several years none of the major ports in the country have made it to the top 20 ports in the world in terms of cargo volume. The inadequacy of the Indian port sector can be gauged from the fact that it was only in 2014 when for the first time, an Indian port – Adani's Mundra Port – handled 100 million metric tons of cargo in a financial year.
Gateway Terminals India (GTI), at JNPT, has a capacity to stack 45,000 containers, and has 840 plugging points to feed power to refrigerated containers.
What’s more worrisome is that many of these ports remain underutilised at a time when the demand for capacity is continuously increasing with the steady growth of foreign trade. To address this anomaly the government has announced the ‘Sagarmala’ project to “evolve a model of port-led development so that India’s long coastline becomes the gateway of India’s prosperity”.
Oh! The Middle Path
With the ‘Sagarmala’ project, the government has been making the right choices and backing them up with investments. Union Minister of Shipping, Road Transport and Highways Nitin Gadkari expects investments to the tune of Rs.70,000 crore in the project over the next few years. But as is the case in many well-intentioned projects commissioned by the Government of India, there are several hurdles to implementation.
"We are focusing on inland navigation from South to North on our National waterway and planning to develop the three portions on this route, i.e., Kollam to Kottapuram, Kollam to Manjeswaram and Kovalam to Kollam." - Oommen Chandy Chief Minister of Kerala
For instance, caught between the devil and the deep sea, the much-touted corporatisation of the major ports is getting confined to the back burner. Entangled in the dilemma of whether to pay heed to the furore raised by the labour unions or to extricate the public sector ports from their plummeting performance levels, political compulsions seem to have held sway over more economically logical options. The government seems to have finally conceded to the demands of the labour unions to retain status quo in the structure and functioning of the ports. The government is now contemplating to take the middle path, i.e., spruce up the functioning of the ports with corporate culture and not convert the ports into company entities. It is difficult to surmise what this new line of thinking actually means, since the problems afflicting the port sector cannot just be solved in a jiffy by corporatisation or privatisation alone.
Gateway Terminals India (GTI) at JNPT, is a 74:26 joint venture between APM Terminals and Container Corporation of India
Attempting an analysis of the port sector can be as complicated as riding on rough seas. It is like factoring in an entire economic ecosystem with all its complex linkages. There are many questions as to why Indian ports are not performing at par with global ports and why they are not able to live up to their innate potential. The Dollar Business, which has over the last year and a half made it regular business to be on the ground at some of India's major ports, delves into these aspects and takes a look beyond the superficial parameters of traffic and cargo handling stats – though at the end of the day this is what matters – to identify fault lines in the interlinked chain of components that need focus and attention to revamp and rectify India’s sea trade dynamics.
Indian ports (mostly the major ports) have always come under fire for their operational inefficiencies. Well, almost always. But who is to be blamed? The fault lies with not just top management at the various ports but all stakeholders of the port sector. Successive governments in India have failed to realise the potential of the sector to generate employment and contribute to the economy. Hence, there has never been any comprehensive long-term road-map for the sector.
A panoramic view of the Port of Amsterdam. The Port uses a lock system (Noordersluis sea lock) that minimises the need for dredging.
If India can have a long-term policy with regard to stand on foreign affairs or foreign trade, why should the port sector be treated any differently? After all the ports are the gateways for Indian products to the world and vice-versa. India’s policy flip-flops related to fixation of tariff and revenue sharing, taxation or more recently decisions like restriction on ZPMC cranes, etc. have affected the port sector negatively.
Port-based SEZs is quite an example of dichotomous policy decisions in the sector. When idea was floated, it was quick to gather both hype and hope. When implementation started, hope faded. These SEZs have become non-starters. The reason is simple. The levying of MAT (minimum alternative tax) on these fledgling projects discouraged potential developers to invest in these SEZs!
A visit to any of the ports is an eye-opener. You don't need to jump off one of the docked ships to understand reasons behind the poor functioning of ports. The Dollar Business found the ports to be replete with obsolete assets and found an equally antiquated mindset ruling over functioning of the ports. From connectivity to storage infrastructure, India’s major ports have been found wanting in keeping pace with the fast growing demands of the markets.
During our visit to various major ports, we came across cargo and containers strewn across open tracts of land and unwieldy roads breaking and giving in under the burden of over-loaded trucks. Pollution was rampant. It is evident that the Indian ports have failed to get attuned to the latest trends in spatial and technological management process which ensures efficient and healthier operations. As a cynical old timer working at Cochin Port points out, “I have seen managements come and go, but the port has not changed even a little bit since the time I joined here.” Then he rues rather philosophically, “Port operations will continue mechanically and as a matter of routine in the same manner with the same infrastructure, even without any management.”
The root cause of many of the problems that afflict the ports is attributed to space constraints. That this situation is incomprehensible becomes evident from the fact that the major ports have vast tracts of unused land at their disposal. According to one estimate, all major ports together possess a cumulative 2,64,000 acres of land. Policy initiatives for optimal use of these lands had been in place, but implementation has always been mired in a maze of insinuations and doubts raised over the intentions behind such decisions. However, continuing the efforts of its predecessor, the NDA government recently announced a slew of initiatives to create dedicated infrastructure alongside industry hubs on these lands through the PPP mode. The initiative is somewhat similar to Chinese model of port-centric economic development. It remains to be seen whether this latest decision would materialise and produce the expected results.
Chettinad International Coal Terminal’s wagon loading system at Kamarajar Port. The wagon loader can load 1,600 tonne/hr, thereby loading 1 rake of 59 wagons in 2.5 hours.
According to the Ministry of Shipping, Cargo handled at Indian ports have grown at a CAGR of 8.35% between FY2003 and FY2013 and is expected to grow at a CAGR of 9.6% over the next decade or so. In FY2015, total cargo handled at Indian ports registered a moderate increase of 8.2% to 1,053 million tonne from 976 million tonne during FY2014 (ICRA report). Sounds good. But beneath the surface of growth rates in cargo handling lies a debris of accumulated liabilities accrued through years of inefficiency and myopic functioning of the ports. The management of the ports have been surprisingly satisfied with what they think are good enough performance indicators. Just mention below par performance and they are quick to point out that 60-70% cargo traffic and the 4% to 5% growth rate year-over-year was on a par with international standards. So, the big question here is why are the ports anchored on a pile of debts and sparse profits?
“No surveys were carried out to find out whether this port is capable of accommodating mother vessels. No mother ships are coming here. Only feeder vessels from the Colombo ports come here.” - Antony Kottaram Convenor EXIM Forum, Kerala Chamber of Commerce and Industry on Vallarpadam IICT
Numbers Don't Lie
The low margins and pile of debts is reflective of the cascading impact of high operational costs and delays consequent to functional lows when it comes to average turnaround time (ATT), dwell time and pre-berthing (PBT) and berthing time. ATT of major ports in India are in days, while in ports like Rotterdam, Hong Kong, China and Singapore, the arrival, loading and return of the ships on call happen within hours. ATT for Indian major ports is a dismal 3 to 5 days, while those at the above global ports range between an eye-popping 3 to 8 hours. Ironically, the much-hyped corporatised Ennore Port Limited has the highest turnaround time of 5.69 days – which can definitely be considered as an aberration on efficiency – followed by Paradip Port (5.68 days), Kandla Port (4.96 days), Visakhapatnam Port (4.52 days), Tuticorin (4.28 days) and Mumbai Port (4.07 days).
Traffic handled by Haldia Dock Complex in FY2014 was significantly lower than what it had handled even a decade back, despite it having a massive hinterland to cater to.
The average pre-berthing hours (PBT) among the ports also present a mixed picture with inefficient highs and extremely efficient lows. While Chennai Port and Ennore Port facilitates a smooth and immediate passage to the ships for berthing, the waiting time for JNPT, Tuticorin and Mumbai Ports average 13.44 hours, 12 hours and 11.89 hours respectively. Coupled with ATT and PBT, other parameters like average output per ship berth day of around 14.8 million tonne, number of hours spent at the berth for loading or unloading the cargo and the dwell time indicate that major ports across India have failed to perform to potential and have a long way to go before they reach anywhere near the standards of Singapore, China and Rotterdam ports. The lackadaisical performance has had its inevitable repercussions, culminating in high operational expenditure and decreased profits.
"In my opinion, the dredging costs should be paid from the consolidated fund of India, so that the Port can make up losses and also offer competitive rates for the services." - A. J. Tharakan President, Seafood Exporters Association of India
Confronted with such problems many users of major ports are gravitating towards other non-major gateways, a change that guarantees them hassle-free and time-bound options at charges lesser than the major ports. For instance, during the last five fiscals, non-major ports in the country increased their share of cargo handled from around 34% in FY2011 to 44% in FY2015, while that of the major ports declined from around 66% to 54% – clearly indicating that the former’s gain was the latter’s loss. Not to say, Mundra and Krishnapatnam, the biggest gainers among the non-majorports, carved out the largest slices out of the major ports' cake accounted for a share of around 24% and 8% respectively amongst non-major ports during FY2015. [To compare, Mundra’s share vis-à-vis volume handled by the major ports was 19% during the same period.]
“Corporatisation/privatisation will give more freedom to the management for developing ports and also to compete with private ports.” - D. Mahadevaiah Traffic Manager – New Mangalore Port Trust
Further, a CAGR analysis of the five year period from FY2010 to FY2014 points to the fact that non-major ports have been gaining momentum (CAGR of 8.37%), while major ports (CAGR of 0.39%) have been losing steaming. Revelations of non-major ports handling greater volume of cargo by the day – including some like Mundra, Kandla, Hazira, Cochin, KPCT (cargo volume at KPCT leapfrogged from a little over 15 million tonne in FY2010 to 60 million tonne in FY2015) – are signs encouraging enough for the future of non-major ports in India. But as much as the indicators reveal a widening chasm between the major and non-major ports (and the growing preference for the non-major ports, specifically the private ports), they are a sign that major ports do have room for more muscle flexing if need be. The average operational ratio of major ports ranges between 60-65%, which clearly shows how they do bear the capacity to span their wings when the need arises. So we don't want to write anyone off yet.
Containers stacked at Inland Container Depot (ICD) Sanathnagar in Hyderabad. The depot is a key component for the success of trade in Telangana.
It would be unfair to read too much into these stats and be critical about the performance of the major ports, without actually considering the reasons. It is quite a paradox, but some credit should be given to the ports for achieving whatever they had with obsolete machinery, policy incoherence and an extremely volatile workforce.
Transforming days into hours and hours into minutes in terms of time efficiencies can be difficult, but is by no means impossible. Operational expenditure can be drastically reduced by equipping the ports with state-of-the-art cargo handling facilities which would redeem the ports from a chronic state of financial distress. According to The Dollar Business' evaluation, modernisation of handling facilities would mean a possible decrease of about 7.5% on operational expenditure. But there is one catch to these projections – they are based on modernisation, which implies mechanisation, automation and a requirement of skilled manpower to handle these equipment combined with a reduction of unskilled workforce – something that is anathema to the unions! Just the mention of corporatisation, modernisation and privatisation has had labour unions going for the vitals of economy through strikes and bringing the functioning of the ports to a grinding halt. This had the government beat a hasty retreat. According to industry estimates, the loss incurred by the ports due to such strikes is around Rs.500 crore per day in cargo handling revenues. Expensive!
Starve To Feed...
Attributing failure of the major ports for not capitalising on their potential to just time inefficiencies and dearth of state-of-the-art equipment would be wrong, since there is one big natural impediment that is affecting their performance – the lack of adequate depth or draft to accommodate big vessels. This problem plagues most ports. Dredging to provide the required draft has consistently proved to be a drain on revenues with many ports ending on the negative side of the balance sheet. Cochin Port – which is already cash-strapped and debt-laden, with debt amounting to over Rs.700 crore, has been pouring around Rs.60 crore annually for dredging operations at the International Container Transshipment Terminal (ICTT, Kochi). Most Indian ports have an average draft of about 10 to 12 meters which is not enough to accommodate ‘Mother’ vessels in case of containers and ‘Panamax’ and ‘Capesize’ vessels in case of bulk cargo.
This problem has had ramifications not only in terms of expenditure for dredging, but also revenues that could have been created through transshipments. In terms of value, India’s trade through the sea route accounts for 68% ($534.48 billion) of the country’s cumulative exports and imports valued at $786 billion. More than half of this trade is routed through foreign ports, specifically Colombo and Singapore. According to estimates, Indian ports are losing a whopping $260 billion due to routing of trade through these ports. The Colombo Port gets around 80% of its containerised cargo from India and it is fast scaling up its capacity and developing new terminals at Hambantota to further tap Indian-origin cargo. People from shipping industry opine that Sri Lanka’s economy largely depends on ports and tourism and that’s why it has maintained a long-term disciplined approach towards these sectors. The manner in which we're starving our ports (in terms of revenues) to feed a neighbour's, makes us deserving of a Nobel Prize in social service!
Lack of clarity on cabotage laws has been another major contributory factor to transshipment trade being diverted via Colombo and Singapore. One classic example is the International Container Transshipment Terminal (ICTT) at Vallarpadam near Cochin. When the Indian government wanted to develop a transshipment port at Vallarpadam near Cochin Port to save on transshipment time and cost, DP World in 2004 through a competitive bidding won the mandate to take up the responsibility of developing a container hub port to counter the rising outbound number of containers to Colombo Port. Hence, ICTT came into existence and became fully operational in 2011. The first phase, which has been completed, has the capacity to handle 1 million TEU (twenty-foot equivalent unit), however the port is operating at less than 35% capacity utilisation. Among others, one major reason was the cabotage policy. As per policy, no foreign ship can engage in coastal trade in India except under a licence from the DG (Shipping). This restriction is one of the main factors that discourages mainline foreign vessels from calling at ICTT, Vallarpadam. The Indian government took more than a year and a half to take a decision to relax the law for the terminal and Colombo used that time to build a definite market position for itself.
This has not however alleviated the woes of Vallarpadam.
Ever since Vallarpadam ICTT was accorded SEZ status, conflict between the Customs Act and SEZ Act has created a lot of disenchantment. The SEZ Act and The Customs Act are all entangled because the former states that the latter does not apply in this jurisdiction. This has caused a lot of confusion amongst users of this terminal. This along with chronic siltation has given a body blow to the terminal’s ambition to be an alternative to Colombo.
Of Cartels And Unions
Another major challenge for importers/exporters at major ports is cartelisation by stevedores and Custom House Agents (CHAs). It’s worth noting that Haldia Bulk Terminal Ltd., a joint venture of ABG Infralogistics Ltd. and French shipping firm Louis Dreyfus Armateurs SA, which had won a tender for mechanical cargo handling at the Haldia Dock Complex, closed its operations just two years into its 10-year contract, citing worsening law and order situation.
Workers pushing the hydraulic system to release cargo from a BOBR (bottom open bottom release) wagon. Paradip Port has a capacity of evacuating as many as 25 rakes in a day.
Similarly, during our visit to Paradip Port last year, we found that a cartel has an iron grip over labourers in and around the port. If you believe certain stakeholders, it is Paradip Port Trust that is facilitating such a situation. “All over India, with only one (stevedoring) licence, stevedores can load and unload cargo inside a port. But here, another licence called CFH (Clearing, Forwarding and Handling) licence is required. And although PPT is issuing stevedoring licenses to everyone, it is issuing CFH licenses to only a few. As a result, many are sitting idle. Despite agreeing to fulfil all requirements, we are not getting the licence,” Seaways Shipping Assistant Manager (Operations) Mahendra Kumar Swain tells The Dollar Business.
“The vision behind the Vallarpadam ICTT project has, unfortunately, not fructified because of varying issues.” - Paul Antony Chairman, Cochin Port Trust
Cry Me A River!
Changes to the existing laws and policies have often been contemplated and confabulated, but as is always the case, not much has emerged in terms of implementation or pragmatic solutions. For instance, the optimum utilisation of India’s inland waterways – which would have facilitated transshipment and solved the problem of connectivity to hinterlands to a significant extent – continues to be a distant possibility. From perspectives of financial viability and regulatory hurdles, India's inland water ways don't emit any encouraging message. Not yet. Except for a few rivers like Brahmaputra, most of the Indian rivers have shallow beds and will require large-scale dredging that might ground the project at the drawing board stage! Moreover, many villages which are situated on the banks of rivers are dependent on these rivers for their livelihood and any decision that remotely affects these people will adversely affect the region’s geo-political harmony and regional political leaders will never allow that.
“New Mangalore Port is in a pathetic state because of lack of road connectivity. It is partly due to topographical factors because we are surrounded by the Western Ghats.” - Nigam.B.Vasani President, Kanara Chamber of Commerce & Industry
Policymakers and think tanks in India have a tendency to compare everything with that in China; even in the case of ports. But China is miles ahead! Secret – its long-term holistic planning. China started to develop its port sector in the 80s with a comprehensive roadmap backed by a robust ground and air connectivity network. Special export-oriented industrial zones near ports were developed to make ports economically self-sustainable and make nearby industries internationally competitive by cutting down on transportation cost both for inbound and outbound cargo. There is a need for a similar robust development plan for this sector in our country. India needs to build a national level consensus on the importance of ports and inland waterways, and incentivise local governments to participate in this ambitious project through development of trade and industry in and around inland waterway ports.
Adani Hazira Container Terminal at Hazira Port, operated by the Adani group, has seen container cargo grow fast over the last few years.
As compared to the 8% of GDP that the developed countries spend on logistics, India’s expenditure on logistics is 14.4% of GDP. Increasing productivity and efficiency at ports, and creating industry hubs around them, could significantly reduce this expense and make our goods more competitive in the global market. This in itself should be a motivating factor for policymakers as it toys with the 'Make In India' idea.
Taking into perspective India’s maritime history and experience, the country’s port segment could have evolved to become one of the best in the world. While ports in China and other countries have been growing from strength to strength, developing infrastructure, increasing efficiency through state-of-the-art terminal handling facilities and ensuring smooth passage of services, Indian ports are lagging by many nautical miles. In 2013, Shanghai port handled a volume of 33.2 Million TEU as against JNPT’s 4.2 Million TEU. It's like a soccer matchwhere China's best beats India's best 8-1! Can we even call that close competition?
New Mangalore Port, situated on the West Coast of India, is well equipped to handle bulk, liquid chemicals, hazardous cargoes, POL products, heavy lifts, machinery, containers, etc.
Comparing India with China or for that matter with Rotterdam or Singapore may not be justified, but taking them as role models and adapting their policies, systems and structures to suit in India can transform the country’s ports from what it is now – congested, chaotic, obsolete, and sailing in policy wilderness – into a more productive environment for unhindered trade.
A view of the Vedanta General Cargo Handling Berth (VGCB) at Visakhapatnam Port: VGCB is a 74:26 JV between Sterlite Industries India and Leighton Welspun Contractors.
While corporatisation and privatisation will help, what is required is massive revamp of infrastructure and creating port-related hubs on available tracts of land complemented by proactive policies and functioning. Better late than never! The ‘Sagarmala’ project is a great initiative which takes into consideration the policy and infrastructural challenges that Indian ports face, and is surprisingly transparent in enumerating what ails the industry. It also takes a holistic and integrated approach, with a 30-year time horizon in view, to modernisation and development. ‘Sagarmala’ realises the need for a robust institutional framework for coherent and accelerated development and envisages a 15-time increase in coastal and internal waterways traffic over the next 20 years.
Container trailers lined up at Kandla Port. Limited draft is an obstacle to the Port’s growth. Kandla is a tidal port and ship movement is possible only during high tide.
While the intentions sound great and doable, it is the actual implementation on the ground that will decide the future of the India's gateways to the world.
All that the Indian port sector needs at present is the right policy direction aided with honest intentions. Or should we conclude in an Einsteinian mood by saying – "Success: One percent politics and 99 percent strategy!"
“TAMP imposed the tariff with retrospective effect of three years. Why should I come to a port which charges from retrospective effect?” - Ameen Mohammed Managing Partner, Hasan Hajee & Co, Mangalore
“A Competitive Market Regulates Tariff More Effectively”Julian Michael Bevis Senior Director – Group Relations,South Asia, The Maersk Group
TDB: What are the changes in policy, in terms of investment and fixation of tariff by private operators/PPP partners, that could help the growth of ports in the country? Do you think having TAMP-regulated mechanism is productive for both ports and the trade?
Julian Michael Bevis (JMB): On regulation of various port charges by the Tariff Authority for Major Ports (TAMP), I think, the feeling in the industry is that the country’s port sector has an effective market and price regulation is not required. Hence, the role of the TAMP should change. I think that is also the view held by the government, though it has not been formally declared.
The question that arises is how those ports which are on pre-existing regulatory regime would be transitioned? There is a problem because the government seems to be wanting to apply conditions, specifically, it is asking those who want to transition to be subjected to a process of re-tendering, which is something we are not very happy about. If we take our case, we are about ten years old into a 30-year concession at JNPT and we are suddenly confronted with the possibility that we have to put the whole thing up for tender. The industry feels that it is not a good idea obviously because of the uncertainty with regard to policy. I think there is a need for further dialogue to deal with all this.
TDB: How do you view the overall port sector and the issues related to the industry?
JMB: The sector is going in the right direction and that is particularly because the current administration has understood the requirement to develop the port sector. I have had the privilege of being in this country for 14 years and I have observed that there has been a great deal of progress. I think there is a need to recognise that scale is important, particularly in the container shipping sector. Economies of scale is a critical factor, which is why bigger ships are being built. I know it is difficult for policymakers, but one needs to see that infrastructure is built ahead of demand. The third point is that we need to try and restrict the temptation to regulate. Regulation is much better done by having an effective market.
TDB: India still has a negligible contribution in handling mainline vessels compared to neighbouring international ports like Singapore and Colombo. India’s busiest terminal JNPT doesn’t even feature among top 20-25 ports in the world. How do you think this can change?
JMB: They, international ports which you referred to, are known to build in a way such as to handle large units efficiently and cost-effectively. The degree of state intervention and regulation is much less in the international ports. For instance, a container transhipment at Colombo or Dubai ports happens quickly because of their minimal documentation process. Doing the same in India is a challenge since there are several procedural complications and long clearance processes that cost time and money.
TDB: As far as investment is concerned, do you think, despite India’s flip-flop on policy, people would still be interested if given a better business environment?
JMB: Clearly, there is considerable interest in investing in India. Going by the fact that now ports are run by DP World, PSA, APMT and, of course, the private sector. So yes! There is some interest. People look to invest their money wherever they can get the best returns. Similarly, investors in infrastructure will look at various potential investment markets and will pursue the same decision-making process. With regard to the PPP model, there has to be a balance between the investor and the government. This has to be a two-way street. Currently, the balance is swung in favour of the government. I won’t say these projects are not bankable but in a competitive marketplace, then they have to be relatively more bankable.
TDB: How much a stable policy related to fixation of tariff and revenue sharing can affect the port sector?
JMB: Policies should always have the ability to accommodate trends. The policy structure should adapt as per time and the market requirement. Policy and stability are not what they should have been. The 30-year concession period is a long-time and things change with time. Hence, there should be a possibility for discussion to make changes in the interest of all parties. Policy and stability is an act of balancing. It should be stable and adjustable.
“Ports Like Rotterdam Can Extend Themselves By Reclaiming Land From The Sea”Anthony van der Hoest Cluster Manager, Logistics, Port of Amsterdam
TDB: You once mentioned that you have partnered with Indian shipping company Samsara Group. Please tell us how Port of Amsterdam can contribute to the Indian port sector?
Anthony van der Hoest (AH): We have a partnership with Samsara – they are our representatives in India. We also have a subsidiary, Port of Amsterdam International, which looks at investment opportunities and partners in port management, especially in cruise terminals. The main focus of our partnership with Samsara is increasing trade between India and Amsterdam, and enhancing trade between Europe and India. As far as Amsterdam Port is concerned, we have a similar draft as Mumbai and JNPT, which means we can accommodate similar-sized vessels. This is one of the reasons we chose India as our focus country.
TDB: Most liners now have bigger vessels, as it helps cut down transportation costs. In such scenarios, how do you see Indian ports with limited draft sustaining in the future?
AH: India has lot of transshipment passing through Colombo, partly because the cabotage ruling limits transshipment. If the cabotage ruling is relaxed, it may let domestic Indian ports handle transshipment traffic. Some Indian ports have limited draft, but others like Mundra and Vallarpadam have sufficient draft. There are ports with infrastructure ready to handle transshipment cargo, and others can be developed to handle transshipment if there is more clarity about the cabotage ruling.
TDB: There is apprehension in India that if there is no tariff regulation, port operators might inflate user charges. What's your take on this?
AH: India is developing quite a few big terminals. There’s a lot of competition – at JNPT, you have DP World and APM, and in Mundra, you have Adani and DP World. I know it is difficult to abandon the idea, but as long as competition is there, the market will regulate itself. The challenge is to balance increasing cargo handling capacity; the market can’t enforce very high rates. In North-West Europe, we don’t have tariff authority. It is all market-driven pricing, and there is a lot of competition, so there’s no need for it.
TDB: In India, port operators spend a lot of money on dredging. Is it a global practice? How can you arrest this spending?
AH: Take the example of Amsterdam-Rotterdam-Antwerp range. These three ports are completely different from each other. Ships to Antwerp have to sail through Scheldt River, so dredging is required to maintain appropriate depth to allow bigger vessels to sail through. In Rotterdam, a ship has to sail a relatively short distance to the large container terminals from open sea. The channels need to be dredged to maintain appropriate depth. But the dredging at Rotterdam is different from that at Antwerp. On the other hand, Amsterdam has a lock system, so it requires limited dredging within the port area. As soon as a ship passes the lock, the level of water is uniform. We are constructing a larger lock which will finish by 2019. Antwerp Port is quite far from open sea, but has shown significant growth. On the other hand, Rotterdam can extend itself by reclaiming land from the sea. So, each port in Europe differs from another, and each one has different requirements.
At JNPT or Mumbai, dredging is expensive because the channel is long. Some ports require breakwaters which are costly to build. A natural harbour with in-depth deep draft would be the best location for a port.
TDB: In terms of efficiency parameters like average frequency of ship calls, average waiting period before berthing, turnaround time, dwell time etc., how can Indian ports improve?
AH: It is difficult to separate a few things. For instance, the turnaround time of a ship is driven by factors like terminal operations, customs issues, and port efficiency. At Port of Amsterdam, we focus on obtaining the data on the ship in time to ensure that when the ship arrives, all the information is digital and available to us and other stakeholders. So, everybody is informed and the ship can go into the port effectively. Seamless communication between stakeholders is one of the things that determine the efficiency of a port. We recently implemented a digital port management system to ensure minimum delay for the ships from anchorage, and when they leave.
TDB: What is the administrative setup at your port to take decisions on both day-to-day as well as long-term policy issues?
AH: We are a landlord port, so we rent out land to operators and earn revenue in two ways – concession fees and port use charges. We don’t handle any cargo ourselves, but are responsible for all area inside Port of Amsterdam. We have stakeholders like Customs, Ministry of Transport, Ministry of Hygiene, etc. All these agencies are involved when giving approval to build a new terminal. If a new terminal operator comes in, we play the key role. But, they also need to talk to environmental authorities to get approval. As a port authority, we consider it our strength and responsibility to streamline the communication between the terminal management and environmental authorities. Amsterdam Port is owned by the city of Amsterdam. Ministries are always communicating with us regarding port development, but the way the port is structured is like an efficient, limited company and we have a supervisory board with members appointed by our shareholder – the city of Amsterdam. Like a limited company, we have a management comprising of CEO, COO and CFO.
TDB: How do you streamline customs-related communication and speed up Customs clearance?
AH: We have a digital port community system called Portbase. Most of the Customs-related processes have been automated to speed up Customs formalities. We also have authorised economic operators, who are certified by Customs to carry out tasks which they used to do. This has helped improve things in the last few decades. It is an ongoing process and we continue to play an active role in optimization of Custom-related issues.
“Port & Infrastructure Should Come First. Cargo Will Follow”Capt. Ashok Kumar Bhattacharjee Secretary General, IPPTA
TDB: What's the state of current infrastructure of ports/terminals run by private operators. What are the competitive advantages that a private port operator has over major ports?
Capt. Ashok Kumar Bhattacharjee (AKB): India’s concentration on private ports and terminals have mainly been restricted to dry bulk and containers. A major advantage that terminals at non-major ports have is that they are out of the purview of Tariff Authority for Major Ports (TAMP). However, TAMP still controls private terminals that are based in major ports. While a private terminal can take quick decisions on waivers relating to force majeure situations, it is difficult to get this from government bodies in major ports.
TDB: India has a negligible contribution in terms of handling mainline vessels compared to neighbouring international ports like Singapore and Colombo. How do you think this can change?
AKB: This can be achieved by bringing industry, SEZs and manufacturing units closer to the shore line, similar to what China has done, giving time-bound environment clearance and having pragmatic environmental clearance and land acquisition rules. We need changes in the way of redefining the cabotage rules and encourage transhipment which is the mainstay business of ports like Singapore and Colombo. Custom procedures also need to facilitate transhipment.
TDB: What policy changes in terms of investment and fixation of tariff by private operators could improve the port sector in the country?
AKB: TAMP should be removed at major ports for the growth of port sector in the country. The port management in major ports should be professionalised and the management should be given autonomy to take decisions. The government should create and maintain seaways like national highways by state funding. There should be an equalitarian approach to risk sharing and a review mechanism should be in the Model Concession Agreement (MCA).
TDB: Dredging is one of the major capital expenditures for Indian ports. Is it because of the geographical location of Indian ports? What can be done to reduce this cost ?
AKB: India never focussed on dredging. It always looked at creating berths and handling small size ships. So, ships were ordered on the basis of prevailing drafts and never with the future in mind. So, the idea of “capital” dredging was never there. It was always based on “maintenance” dredging. Our suggestions would be: Initial selection of port site should be done carefully; use water jet injection dredgers for self-flushing; and invest in capital dredging; and give dredging contracts on maintenance of LAD (Least Available Depth) .
TDB: How do you rate Indian ports in terms of efficiency parameters like average frequency of ship calls and turnaround time?
AKB: There is a need for equipment, navigational aids, cargo handling, stowage, etc., in order to be modernised. Port expansion and creation of capacities should be planned ahead of time. There is also a dire need to create road and other allied infrastructure outside the port.
TDB: Despite the entry of multinational terminal operators like DP World and PSA, containerisation in India continues to be low. What factors are holding the sector back?
AKB: Container “penetration” is slow. India’s road connectivity is not as seamless as it is supposed to be. Containers stop at every check-point, at every state border and at single waive of hand of the cops. Obviously it will take 4 days and more to go from Delhi to JNPT. There is a need for lesser border checks and something like a “TIR Carnet” that will allow trailers to pass through every border.
TDB: Ports like JNPT and Chennai are facing congestion issues, but exporters don’t have many options as number of ships calling at these major ports are higher. Is this a chicken and egg situation for private port/terminal operators?
AKB: Port and infrastructure should come first. Cargo will follow. If there is not sufficient appetite, government should follow VGF (Viability Gap Funding) route to attract private sector investment.
"Risk Allocation In PPP Is Largely Loaded Against Private Investors"Shailesh Garg Director Drewry Shipping Consultants Limited
TDB: Corporatisation of Indian ports is being called the panacea for ensuring performance to potential. Ports’ performances are seriously affected by the cost of dredging, labour problems, shortage of state-of-the-art technology, connectivity infrastructure, and a lack of depth and draft to accommodate big vessels. Can corporatisation solve these problems?
Shailesh Garg (SG): Corporatisation may provide autonomy to major Indian ports, help in expediting implementation of projects, and enhancing capacity and efficiency. However, this alone won’t fix the existing problems and infrastructural limitations. We need inter-sector coordination and integrated transport policy for seamless connectivity with other modes of transport. Security check procedures in India remain cumbersome with inadequate co-operation between security agencies and shipping liners. Many public-private partnership (PPP) projects in the sector have faced delays due to environmental clearances, security clearance and litigation, leading to extended bidding processes. If ports are diligent with statutory clearances before awarding projects, investors may be ready to pay a premium as it reduces project risk and gestation period.
TDB: Proponents of corporatisation believe that it will free the ports from TAMP, leading to competitive user charges. While the private operators/ports offer services at lesser charges, what is the guarantee that charges won’t increase in the near future owing to syndication?
SG: TAMP regulates the ceiling for tariffs charged by major ports/port operators. Current tariff setting mechanism is problematic as it discourages private sector investments in major ports. TAMP follows a cost-based formula, generating an assured rate of return, but improvement in productivity and efficiency needs to be included while fixing tariff. As per 2013 tariff guidelines, operators at major ports can charge up to 15% above ceiling rate. This increase is allowed if the port achieves performance standards, but the revisions only apply to prospective projects. The tariff fixation mechanism needs to match the market-driven approach, thereby incentivising efficiency and productivity of ports. To reduce risk of syndicates and anti-competitive practices, TAMP could be replaced with an body to monitor port tariff, environment, improve standards in port operations, and resolve disputes.
TDB: Vallarpadam couldn’t meet expectations and commitments due to a lack of foresight regarding locational disadvantages. What went wrong with the port?
SG: Vallarpadam port’s location was considered a USP for attracting transshipment traffic. However, location isn’t the only factor influencing the business. Transshipment is price-sensitive, so ports need to be flexible when fixing tariff to compete with the existing hubs in the region, and overcome the initial inertia from the shipping lines.
TDB: Indian Ports have huge tracts of unused land, yet suffer from space constraints for storage. The government plans to convert the lands, though the usage is still unclear. Is this the best option for use of port lands?
SG: All ports need to have a detailed land use plan, providing optimum cargo handling and support infrastructure to ensure maximum revenue for the port.
TDB: Port managements claim that the 60-67% capacity utilisation is at par with international averages. Also, we are witnessing positives like capacity additions at various ports. So, what exactly is wrong with the ports?
SG: Despite a drop in the average capacity utilisation of Indian ports in the last few years, there is cause for concern as some of the hotspots, namely JNPT and Visakhapatnam port, are experiencing high utilisation. Even with investment-friendly policy interventions, progress of PPP-related projects in the sector is slow. Poor project structuring resulted in weak response from potential developers. Furthermore, risk allocation in PPP is largely loaded against private investors. Lack of commensurate road and rail evacuation facilities lead to logistical bottlenecks, capacity constraints and higher dwell time at ports; resulting in congestion and underutilisation of capacity. We need a strong PPP framework and a streamlined approval process to attract greater private sector participation in port infrastructure. This requires review of the Model Concession Agreement (MCA) and risk allocation & entry criteria.
“Customs, Custodian And Infrastructure Issues Need To Be Addressed”Abraham Philip President, Cochin Custom House Agents Association &Trustee, CPT
TDB: What are the common issues that need to be addressed in India's port sector?
Abraham Philip (AP): I will put it like this: Customs, Custodian and Infrastructure. As far as Customs is concerned, whether it is Cochin Port or any other port in the country, the department should be worried about their revenue and prevention of smuggling, etc. If we take the instance of Cochin, the Commissioner is adamant about dwell time with regard to the clearance of import containers. The department is not taking into consideration the obstacles faced by the trade like delay in getting import documents, delay from other government agencies like FSSAI, loading of value by Customs, etc. CHAs can only prepare the Bill of Entry after receiving the import documents and the process of actual movement of container will start once the concerned steamer agent provides the delivery order.
There might be delay in getting the documents, related to multiple agencies like banks, or if a consignment from Colombo comes, the vessel arrives within 12-24 hours but the documents will take a minimum of 7 days to come. However, Cochin Customs is insisting to reduce the free period given to store import cargo at the terminals which will add to the transaction cost for importers. Over and above, the Customs is insisting that all import containers be moved to the CFSs (container freight stations) as is being done in other ports across India. In all major ports of India, there is heavy congestion, whereas in Cochin only 35% of the capacity of the terminal is presently utilised and because of the en bloc movement of import containers to the CFSs, the transaction cost per 20 ft. container has gone up by Rs.10,000, and for a 40 ft. container by Rs.20,000.
TDB: But then, the stakeholders in trade (CHAs and importers) can object to the decision...
AP: On the insistence of Customs Commissioner, Chairman of Cochin Port and the custodian DP World, TAMP took a unilateral decision by bringing down the free storage time to 5 days from September 2015, which will further be reduced to 3 days beginning from December 2015. We believe Customs is indirectly trying to promote CFS at Cochin. CBEC and the Ministry are propagating for reduction in transaction cost for both imports and exports, but at Cochin Port it is the other way round. The terminal handling charges, ground rent and other service charges levied by ICTT (International Container Transhipment Terminal) is very much on the higher side.
Moreover, for all import containers the Customs is loading the value unreasonably. For example, if a tile manufacturer in India wants to have a curb on imported tile trade, he will influence any of the local traders to import one or two containers of tile at a higher value. So, based on the (inflated) value of the imported tile, duty is calculated accordingly, the duty will be on the higher side. Whereas if a genuine major import trader, imports tiles in bulk, the overall cost will be lower as the trader can negotiate the per unit price and freight rates. So what happens when the bulk tile consignment arrives at Cochin, the Customs will put in place an argument that similar variety of tile has been imported at a higher value, so they ask the importer to load the value. In this case, if the importer wants a clearance from the customs they will submit a letter of consent to the Customs to load the value of the import consignment.
These types of practices by the Customs are putting the trade into unnecessary trouble and increasing its cost burden. The trade incurs additional cost as customs continue to burden the trade by value-addition on import consignment, delay in clearance, etc. All these will force importers to move to ports other than Cochin. Meanwhile, Customs is doing a good job in terms of discharge of duty drawback.
TDB: India got its first major International Container Transhipment Terminal at Vallarpadam. But it has been unable to arrest outflow of transhipment consignments to Colombo or other ports. Has the situation improved now?
AP: The berthing charges and many other charges levied by the terminal operator and port are on the higher side compared to other ports in the country. The rate fixed by TAMP is the maximum. Even CFS was allowed to be operational without having adequate infrastructure. The terminal operator has to take the lead in order to attract more direct vessels to many destinations and more cargo from the southern states of India.
“Indian Ports Should Learn From Their Chinese Counterparts”Rajesh Doshi Marine Engineer & Port Consultant M. V. Kiran & Co.
TDB: In recent years, what are the key policy decisions that have accentuated investment and growth in Gujarat’s port sector as compared to other coastal states in India?
Rajesh Doshi (RD): For the growth of Gujarat’s port sector, the credit goes to location and demand. Gujarat has a location advantage. Ports in Gujarat have a large hinterland, and the entire landlocked regions in north India trade through these ports. This is not the case with other coastal states. Compared to the eastern corner of Bengal, the work culture and sea shore are much better in Gujarat and have therefore helped foster growth of the port sector in a short span of a decade and a half. Moreover, the state has better industrial and labour environment compared to other parts. That’s the reason all large industrial houses have a presence in the state.
TDB: What are the key differentiators in terms of business environment in Indian ports and elsewhere in developed countries?
RD: There are two parts to the development of ports. One is availability of locations that have a naturally deep draft. The other is investment in capacity building. Regarding the draft issue, one can build an artificial island deep into the sea and a port there, but that requires a lot of investment. If one has to draw a comparison between Indian ports and others, then one must study the Chinese ports, and we will know why we are way behind. I was in China in 1981 and their ports were in bad shape then, but they have scaled up their ports. Today half of the worlds top ten ports are in China.
There are very few who are into the port sector keeping in mind their own interest and a vision for the growth of the overall sector. Most of the port developers in the country lack long-term vision and planning, and are limited to their own purposes. There are port operators who have backed out after a few months into the project. Even in Gujarat, only 50% of ports are successful. The remaining ones have left the sector realising that they are not going to make any quick returns on investment, or make big margins in the sector.
TDB: As a port consultant, do you think there have been flaws in selection of locations to develop Indian ports, due to which continuous dredging is required?
RD: I would say dredging should be the last expense that a port should incur. I won’t say that dredging is bad or unnecessary, but I would rather select a place where there is less siltation. However, whether India has such locations where lesser dredging is required depends on how one goes about developing a port. In the last two decades, I have seen that the decision makers are not very experienced in the specific field and that has affected projects.
The key policy or decision makers in our country should have learned from the development in the port sectors in other parts of the world which have grown in modern times. For instance, look at the port sector in Japan or South Korea, where socio-economic and industrial growth took place around the port and shipbuilding sectors. Due to their port and shipping capabilities, these countries have been able to ship out their produce at a faster pace, which has helped growth of their economy. What Japan did in the 60s in the port sector, South Korea achieved that in the 80s and China in in the last two decades. Enough lessons for India.
Dry Port Report - Catalysts For Development
India has 247 dry ports that help connect its manufacturing hubs to its gateways to the world. ICDs and CFSs also help decongest our strained ports. And with inflow of both public and private investment, the sector is raring to go.
A crane stacking up containers at ICD Sanathnagar in Hyderabad.
In shipping and transportation industry there is a saying that the growth of container cargo is directly linked to a country’s growth as an economy. As economic activities increase, it will give impetus to container movements as well. That we are today the fastest growing major economy is a sure fire evidence that economic activity is on an up. Naturally, there has been a lot of interest from operators in developing Inland Container Depots (ICDs) and Container Freights Stations (CFSs). This may also be the reason why many port operators in the country have already started investing or are contemplating to invest to upgrade their container handling capabilities. The port sector always remains a capital intensive sector and given the kind of uncertainties that the shipping industry deals with, developing ICDs seems to be a good way of hedging their bets by diversifying their cargo portfolio. This is good news because for long, India has been reeling under intense pressure, both within the country and outside, to give some serious makeover to its logistics infrastructure so that movement of cargo from point A to point B takes the least amount of time and is done in a most economical way.
The traditional way has been rail and road. Though rail costs the least to move cargo, India doesn’t have a pan-India dedicated freight movement corridor. Hence, the common rail tracks are used to move passengers and freight. Moreover, there is always a dearth of rail wagons. In the presence of these bottlenecks, CFSs and ICDs play a vital role to optimise the use of available road and rail infrastructure by providing cargo storage space and other allied services like stuffing and de-stuffing of cargo and aggregation and consolidation of LCL and FCL containers. Port authorities always charge a premium for using the space inside port-notified area and in any case export and import consignments can be kept inside a port area for a limited period of time, beyond which the importer or exporter has to pay a hefty rental for keeping the goods inside the port area. ICDs and CFSs extend all forms of services just like a sea or airport except for boarding onto a vessel or aircraft and that is why CFS and ICDs are also referred as ‘dry ports’.
Out of a total of 29 states and 9 union territories in India, 20 states and three union territories are landlocked regions, hence ICD and CFS act as gateways for them to the ports and allow seamless movement of containers between these landlocked regions and seaports. While CFSs and ICDs provide almost similar services, ICDs are an extension of CFSs where exporters can get all customs related clearance and containers can move directly onboard onto vessels without further inspections except for the halt outside port entry gates for formalities related to port entry passes. There are also certain custom-bonded CFSs which provide custom related inspection and clearance certificates.
Container Corporation of India (CONCOR) is the largest operator of CFSs and ICDs in the country. According to a report by the Ministry of Shipping, India has about 247 dry ports, out of which 170 are functional and remaining are under implementation stage. Central Warehousing Corporation (CWC) is the second largest operator of CFSs and ICDs in the country. Notably, CONCOR and CWC own around 40% of the total number of dry ports in the country. While container traffic has grown by about 13%, the rising number of CFS and ICD has a crucial role to play for the growth of container traffic as these dry ports have facilitated faster movement of cargo between ports and the hinterland. One of the major hurdles for setting up dry ports is the high cost involved to develop infrastructure. There are also issues like availability of land for railways and highways and delays in getting environment and forest clearances, land acquisitions, and clearance for rail over bridges and rail under bridges.
In the last decade Indian cities have grown exponentially and as a result, ICDs and CFSs, which were once in the suburb have now come inside the cities which has led to delays in transportation of goods due to congestion. There are restrictions on movement of trailers inside cities, and therefore idle time for these trailers increases as they can move inside or outside a city only within a given time frame.
As per CONCOR, originating containerised cargo transported by rail increased from 43.6 million tonne in FY2014 to 48.83 million tonne in FY2015, reflecting a growth of around 12%. The level of inland penetration of containers from ports to hinterland was around 19%, which is at the lower side mainly due to high costs and poor turnaround. The containers handled at all ports of the country registered a healthy growth of 10.33%, from 10.45 million TEUs in FY2013-14 to 11.53 million TEUs in FY2014-15. Mundra and Pipavav Ports registered growth of 19.39% and 15.45% in container handling respectively in FY2015, as compared to FY2014. JNPT recorded an increase of 7.45%, from 4.16 million TEUs in FY2014 to 4.47 million TEUs in FY2015. While on the west coast, Hazira Port shows good prospects in the coming financial year, with CONCOR starting services to this Port, in the east, Krishnapatnam Port recorded an increase of around 62% in container handling from around 56,000 TEUs in FY2014 to around 91,000 TEUs in FY2015. Notably, CONCOR moved 36.18 million tonne of containerised cargo during FY2015, up from 32.93 million tonne in FY2014. With increasing trade activities, apart from ICDs and CFSs, various service providers are also coming up with Multi-Modal Logistics Parks (MMLPs) where goods can be shifted from one mode of transport to another and can move seamlessly inside a sea or airport. Most of public and private dry port developers are now not looking at ICD/CFS as a mere location for storage and custom clearance stations but rather as special zones where an entire gamut of economic and trade activities like agri parks, cold chains, bulk handling facilities, collateral warehousing, liquid logistic facilities (liquid silos) can be accommodated.
It seems policymakers have at last learned lessons from Chinese port-based economic zone model. The development of Rajiv Gandhi Dry Port-cum-Multimodal Logistics Hub at Sriperumbudur is a positive step to make Indian manufacturers and exporters more and more competitive in the international market as these dry ports and multi-modal logistics hub will help to save on logistics cost. Similarly, a number of industrial corridors are being developed which will help exporters and importers to reach their domestic as well as international customers at a faster and more cost-efficient manner.
The Union Cabinet chaired by PM Modi in March has given approval for signing and ratifying of the Inter-Governmental Agreement on Dry Ports of International Importance at the United Nations Headquarters in New York. This is a follow up of the Resolution of the United Nations Economic and Social Commission for Asia and the Pacific (UNESCAP) regarding development of dry ports within member countries of UNESCAP, including India. The agreement will promote international recognition of dry ports, facilitate investment in infrastructure, improve operational efficiencies of inter modal transport services, and will help in connectivity and integration of the Asian Highway Network, the Trans-Asian Railways Network and other modes by working towards development of dry ports.
The success of Indian e-commerce has been possible because of seamless transportation of good from fulfilment centres to the customer location. The growth and success of mid-scale and small-scale industries is also giving an impetus to dry ports. The future is here and it seems to be bright.
Air Cargo Report - A Hopeful Future...
The demand for air cargo transportation has increased significantly over the last few years on the tailwinds of growth and the need for rapid deliveries of high-value and perishable goods. But is the sector really ready for take-off?
Slow on the take-off all these years, a bonanza awaits the air cargo sector in India, if the slew of policy initiatives to create infrastructure and potential FDI inflows related to the aviation sector materialises in the next few years. One major sector, e-commerce has become a money spinner for the air cargo industry. This is reflected in the spurt in cargo handled growth rates over the last fiscal and also plans by the operators to expand their services and fleet exclusively to accommodate the increasing demand. The spin-off from the growth of e-commerce is that it has energised and revved up the air cargo sector.
It may come as a surprise to many, but in India outbound air cargo traffic is at times more than inbound air cargo traffic
Flying A Holding Pattern
The history of air cargo in India is a narrative of lost opportunities. For instance, while 68% in value of India’s trade is routed through the sea route, 32% is through other modes of transport which should have to a considerable extent been garnered by the air cargo sector in India. In value terms, it means a significant chunk of trade valued at $253.52 billion out of a total $786 billion up for grabs for the sector. Majority of the commodities transported by air from and into India, comprise electronic products, garments, pharmaceuticals, food products machinery tools and accessories, tobacco products, sports goods, leather goods, engineering goods, etc. The reason we have not been able to capitalise on this is that India does not have the fleet capability, strength or the airport infrastructure to accommodate huge volumes. Secondly, while the open sky policy helped bring in a large number of private players in the aviation sector, the focus was always on passenger traffic. In fact, the health of India’s air cargo sector can be gauged from the fact that while the country’s total trade has risen by 22.4% during the four years leading to FY2015, its total air cargo traffic actually fell 3%!
Since air cargo is mostly used for high-value or time-sensitive cargo, the capacity constraints turned out to be highly problematic for exporters and importers. Infrastructure related to effective cargo handling, including dedicated cargo terminals, cold chain facilities and automated storage and retrieval facilities are woefully lacking not only at the smaller airports but also the privatised metro airports. The importance of air cargo in India is often understated but is evident from the fact that while by volume the share of air cargo is less than 10%, by value the share of trade by air cargo is about 30%. Compared with major airports in Asia, our air cargo volumes remain dismally low. While our total air cargo volume remains at 2.28 MMT in FY2015, there were others who did much more even four years back. Examples: Hong Kong did 4.6 MMT, followed by Dubai with 3.0 MMT, Incheon (South Korea) with 2.7 MMT and Shanghai with 2.6 MMT in CY2011 (as per a KPMG report).
Taking the ongoing efforts of the government to spruce up the aviation sector and presuming that policies live up to promises, there is every possibility that the performance will improve. With extensive connectivity across the length and breadth of the country on the agenda, this will facilitate (tran)shipment of air cargo from different parts of India. Moreover, with India entering into collaborations with foreign companies to set up manufacturing and maintenance facilities for aircraft accessories and repairs respectively complemented by FDI inflows, the country is all poised to witness a quantum jump in operations and performance.
In a reply to a query on why India’s Air cargo segment was stagnant, the International Civil Aviation Organisation (ICAO) stated, “Today, air cargo is faced with a range of challenges. Although aircraft move well over $5 trillion worth of goods by air each year, the significant growth being projected for this sector, not to mention its role as a critical enabler of trade and prosperity, require that its processes, procedures and the international standards supporting its global effectiveness become better aligned with modern demands and capabilities.”
For air cargo to fulfil its potential a slew of solutions need to be in place to stem problems that are hampering productive operations. Volatile ATF prices & high taxes at airports needs to be curbed. The aviation sector also should be equipped with automation and technology to efficiently deal with high value and time sensitive cargo. Hopefully, all that will happen.