How can ports be put on the fast track to development?

The ports sector has undergone considerable change since the nineties, but reforms and development have taken a backseat. Janaki Krishnamoorthi examines various approaches to boost this crucial sector.

The Indian port sector has witnessed significant growth in the last decade. Over 95 per cent of India's international trade by volume and 70 per cent by value of international trade in India takes place through ports today. Several proactive policies and programmes undertaken by both the Central and State governments have no doubt provided the necessary fillip to the development of both major and non-major ports. Private sector participation has played a significant role in the development. Till date 30 projects under PPP (Private Public Partnership) have been completed, 19 are under implementation and 23 are under bidding.

No doubt the ports sector has undergone considerable change since the nineties but there are still several areas that need improvements at a faster pace. Though significant investments have been earmarked for the port sector, execution has not kept pace with plans. Reforms suggested and accepted by the government with necessary policy changes like corporatisation of major ports more than a decade ago are yet to take off. As a result the ports, particularly the major ports still face several constraints like inadequate infrastructure, poor hinterland connectivity, shortage of skilled manpower, etc. On the other hand, non-major and private ports managed by State governments present a more positive picture attracting larger private investments resulting in modernisation, faster capacity addition due to investor-friendly State government policies. As a result, over the years, the traffic share of non-major ports in the overall port traffic has been slowly increasing while that of the major ports has been going down.

The National Transport Development Policy Committee led by Rakesh Mohan has in its report recommended several measures including development of four to six mega ports in the next 20 years, corporatisation of major ports, development of coastal shipping and inland water transport, restructuring of TAMP, (Tariff Authority for Major Ports) formation of a regulatory authority, rationalisation of restrictive policies including the various direct/indirect taxes etc.

These measures are considered essential not only to enhance the ports performance but also to attract private investments which reportedly have been decreasing in the last few years, particularly in the major ports. “The economic liberalisation and 100 per cent FDI has brought in foreign investment, modern technology, competition and operational efficiency in the port sector. However, there has been a substantial drop in private investment in the last five years, due to the government's inability to keep up their side of the commitments in the PPP projects. There has been no firm commitment from the government in various areas like dredging, connectivity, project environmental clearance, etc. Nor is there any penalty for delays. As a result all the risks are transferred on to the private operator,” laments Pradip Agrawal, Chief Executive Officer, Gateway Terminals India Pvt. Ltd (GTI). “Areas of concern in non-major ports are environmental clearance, dredging, hinterland connectivity, infrastructure in and around the port area. If the governments address these issues it will definitely boost private investment in ports,” he adds. GTI is a joint venture between APM Terminals and Container Corporation of India, set up for terminal operation at Nhava Sheva's Jawaharlal Nehru Port.

Inadequate infrastructure

Inadequate infrastructure continues to be a major issue in many ports, which are not equipped with modern dedicated and efficient cargo-handling facilities. The future generation of mega vessels require a draft of 13m to 15.5m, whereas several Indian ports cannot handle vessels that have a draft requirement of more than 12.5m. The average turnaround time is also high at Indian ports, especially due to evacuation limitations. This results in congestion within the port and pressure on the evacuation infrastructure leading to bottlenecks through the logistics chain.

The logistics sector on the other hand is lagging behind due to several inefficiencies in transportation, poor storage infrastructure, low rate of technology adoption and poor skill levels of logistics professionals. In India road is the predominant mode of transportation of freight cargo, despite it being considered less efficient. Road is preferred over rail as important rail networks are oversaturated, Indian rail freight rates are one of the highest in the world, transit times are long and uncertain as freight traffic is frequently subordinated to passenger traffic on the railway network. ” In our country 60 per cent of freight traffic is carried on 16 per cent of the rail route, that is called the Golden Quadrilateral. The busiest rail route is Mumbai-Delhi, that carries maximum container traffic, and it is fully saturated,” says Anil Kumar Gupta, Chairman and Managing Director, Container Corporation of India. “Other rail routes are also highly saturated and the situation becomes more acute during vacations/festivals when Railways runs holiday specials. The situation will improve with the early commissioning of the Western Dedicated Freight Corridor that will give huge impetus to running of container trains. Simultaneously, the design of higher capacity wagons needs to be expedited so that larger loads are transported. This will facilitate running of double-stack trains, bringing in the benefits of cost and time economies,” he adds.

Coastal shipping and inland water transport are yet to take off in India with only 7 per cent of domestic cargo transported by coastal shipping and inland water transport accounting for less than a 1 per cent share of goods transported within India through various modes.

“We have over 7,000 km of coastline, yet a minuscule portion of cargo transportation is done by coastal shipping today, with 80 per cent carried by road and 10-15 per cent by rail. This needs to change drastically with more emphasis on coastal shipping as it is more time and cost efficient, can carry much larger load and at the same time reduces fuel costs and pollution,” avers Shashi Kiran Shetty, Executive Chairman, Allcargo Logistics Limited.

Adds Gupta: “The major advantage of multimodal transportation is the elimination of any en-route handling of cargo between origin and destination. Unfortunately this is not happening in India due to various factors. The major challenge today is on account of imbalance of imports and exports to/from the hinterland and also at ports. This is resulting in majority of freight cargo getting stuffed/de-stuffed in port-side CFSs (Container Freight Stations), despite the emergence of a very strong network of hinterland dry port facilities like ICDs (Inland Container Depots) and CFSs. This increases the transaction cost for shippers and places financial strain on logistics companies who have to bear the otherwise unavoidable costs for movement of empty wagons and containers.”

In addition most rail terminals (goods sheds) used for loading/unloading of freight are antiquated and also suffer from issues of access and evacuation. Warehouses are insufficient in number and wanting in quality. So are cold chain facilities.

“Hence moving cargo to and from India is still a major challenge for all the stakeholders. India presently spends around 14 per cent of its GDP on logistics costs, whereas international countries spend about 9 to 10 per cent. We need robust, dedicated road & rail connectivity and implementation of this alone will increase Indian ports' efficiency manifold. There have been some initiatives undertaken by Central and State governments but all have been in isolation,” explains Shetty.

Coordinated efforts by the State and Central governments is the need of the hour says Anil Singh, Senior VP and Managing Director, DP World Subcontinent. “To ensure the success of the port sector in India what we need is an interface and co-ordinated efforts across various infrastructure departments at Central and State levels to address connectivity issues. It is essential to have a land-side efficient road & rail network connecting the port to key markets in the hinterland, and also equally important for the marine infrastructure on the sea-side to be able to service ships that would call the port today as well as 20 years into the future,” he says.

Tariff Trouble

TAMP has been a major sore point in major ports for several years. Many private players opine that tariff should not be regulated and it should be determined by the market. The government has been revising the tariff guidelines over the years. Last year it was revised again to make it performance related and in line with a market-driven environment.

Logistics companies for their part find the existing regime complicated. Payment of multiple State and Central taxes at various checkpoints results in considerable loss of time in transit for road freight. A uniform tax structure to be introduced through the GST (Goods and Services Tax) is touted as a panacea, though several companies are already wondering about the final shape the Bill will take, given the differences between several State governments and the Central government on the issue. “The existing tax regime and its underlying regulations are focused more at State levels than at Central levels. This has resulted in a multi-level taxation system. We need a tax regime which is centralised and applicable uniformly across all States. GST is the first step towards it,” says Shetty.

Seconds Gupta: “GST needs be rolled out as soon as possible. It will give a boost to warehousing and bring down the logistics costs. This, together with FDI in multi-brand retail, should force a strong network of supply-chain management in India. This will improve logistics management and bring value addition to customers.”

Corporatisation Conundrum

Major ports are dependent on the Ministry of Shipping for approval of expenditure beyond a particular limit as also for other significant decisions. “Corporatisation is desirable because corporate entities, covered under the Companies Act, will have more autonomy in terms of project execution, pricing, governance. It will, per se, lead to better productivity and also better incentives to employees/officers. Port Trusts will also have access to capital markets to meet their capital and revenue needs,” says Janardhana Rao, Managing Director, Indian Ports Association (IPA).

Many industry professionals are also in favour of corporatisation of major ports ” The Port Trusts should be corporatised as it will bring in flexibility along with accountability. There will be a professional approach and decision making will be faster,” reiterates Agrawal.

In 2001, India's first corporate port was set up at Ennore near Chennai and the government had planned to progressively corporatise all the existing major ports with JNPT slated to take the lead. To facilitate the process the government had to amend the Major Port Trust Act of 1963. However, the amendment Bill, the Draft Indian Ports Bill 2011, is yet to be passed by Parliament.

Corporatisation is also expected to facilitate participation of the maritime States in the development, functioning and expansion of the ports, which in turn would be beneficial to the ports performance. At present, maritime states do not have any stake in the running of major ports. But corporatisation may not be easy to implement as it is likely to have long-term implications for dock labour who fear retrenchments and exploitation. This is why major ports' trade unions across the country are against corporatisation, and a major reason why corporatisation of JNPT has been delayed.

In addition to the above, reforms are also necessary in the regulatory framework which has today many regulators and multiple legislations. Streamlining the procedure for project approvals, environmental clearances, revision of concession agreements to keep pace with the changing economic and market conditions and upgradation of manpower skills are the other measures suggested by industry pundits.

Road to Reform

Evidently there are several areas in the port sector where reforms are still required and these need to be implemented at a faster space to put ports on the fast track. Rao says that many measures have already been initiated and many more are on the anvil: “There are several measures underway and in the pipeline. Two major ports are proposed in the coastline of Andhra Pradesh and West Bengal under the PPP mode. A committee has been constituted to review the hinterland connectivity by both road and rail and prepare a short term (5-year) action plan to address the immediate needs and a long term master plan to ensure that each port has minimum 4-lane road connectivity and double line rail connectivity. Stevedoring policy and dredging policy are being reviewed to capture the market dynamics and enhance the productivity. A policy decision has been taken to promote coastal shipping to boost the modal split of cargo transport through inland waters and coastal movements.”

Evidently the road to reform is still way too long and much will depend on how quickly and effectively the road is traversed.

List of Major Ports

(There are 12 major ports under the purview of the Central government. Eleven are Port Trusts governed by the provisions of Major Port Trusts Act, 1963 and one, Ennore Port, is a corporate port)

1. Kandla (Gujarat)
2. Mumbai (Maharashtra)
3. Jawaharlal Nehru (Maharashtra)
4. Marmugao (Goa)
5. New Mangalore (Karnataka)
6. Cochin (Kerala)
7. Tuticorin (Tamil Nadu)
8. Chennai (Tamil Nadu)
9. Ennore (Tamil Nadu)
10.Visakhapatnam (Andhra Pradesh)
11. Paradip (Orissa)
12. Kolkata, Haldia (West Bengal)

(There are 187 non-major ports under administrative control of the respective State Governments)

List of Rakesh Mohan Committee recommendations for port sector

• Put in place an overarching long-term strategy for national port development that prioritises and guides investments and paves the way for regulatory reforms and suitable governance structure.
• Invest in four to six Mega Ports over the next 20 years, with two to three on each coast.
• Introduce changes in the governance structure of Major ports through corporatisation and decentralisation.
• Expand coastal shipping by setting up coastal terminals at Major ports and by developing five to six Non-Major ports as designated coastal shipping ports.
• Develop inland water transport with adequate intermodal connectivity to reduce congestion on roads/rail and reduce CO2 emissions.
• Restructure TAMP under a new Major Ports Authority Act and allow it to regulate tariff setting on a normative basis till it is found essential for lack of competition. TAMP could also act as the Appellate Tribunal for all tariff-related matters where tariff is determined by service providers.
• Constitute a new regulatory authority, Maritime Authority for Ports (MAP), under a modernised Indian Ports Act, suitably empowered to regulate competition and port conservancy across all the major and non-major ports.
• Rationalise restrictive policies, particularly related to imposition of a variety of direct/indirect taxes to provide the Indian shipping industry a level playing field for it to grow and compete globally.