With favourable government policies and the Make in India initiative, the ports sector, along with logistics, is likely to get a boost. However, the key lies in effective execution.
The growth graph of the sector seems to be on a rising trend. Cargo traffic, which recorded 1,052 million metric tonne (MMT) in 2015, is expected to reach 1,758 MMT by 2017. Container-handling in FY2015 expanded to 8 million twenty foot-equivalent units (TEUs) from 7.46 million TEUs. The data also showed that containerised cargo tonnage grew four per cent to 119 million tonne. The handling capacity of major ports in India is sufficient to match trade demand. The capacity of all the major ports as on March 31, 2015 was 871.52 MMT, compared with 581.54 MMT in cargo traffic handled through 2014-15. Thus, the capacity utilisation through 2014Ã»15 was around 66 per cent.
The government has taken several measures to improve operational efficiency through mechanisation, deepening the draft and speedy evacuations. It has allowed foreign direct investment (FDI) of up to 100 per cent under the automatic route for port and harbour construction and maintenance projects. It has also facilitated a 10-year tax holiday to enterprises that develop, maintain and operate ports, inland waterways and inland ports. Make in India is also likely to push the growth of the sector, with an augmentation in import of raw materials and export of finished goods. Public private participation (PPP) is being pitched as a major growth initiative, with the government pegging a higher share from the private players to boost the sector. Nevertheless, viability of the PPP projects is a significant talking point. Having borne the brunt of project cancellations previously on account of deferred finance closure and the like, the private bidders may observe immense caution. Investors can be lured only when road, rail and port evacuation are seamless. Despite having networks of roads, rails, over hundreds of airports, 13 major and 200 non-major ports, last mile connectivity has fallen short of the mark. Land acquisition, MoEF clearance, concession agreement, bidding and dispute resolution process are among other loopholes of the sector.
The formation of a special purpose vehicle (SPV) to provide efficient rail evacuation systems to major ports is a significant step that will enhance handling capacity and efficiency. Rail connectivity to ports will thus expedite last mile connectivity to hinterland. There has been conÂ¡siderable growth in the logistics industry in India. Container handling at Indian ports has shown a CAGR of around 10 per cent over the last 10 years. From a mere combination of transportation and storage services, logistics is fast emerging as a strategic function, involving end-to-end solutions that improve efficiencies.
Logistics companies are facing the challenge of rapidly scaling up their infraÂ¡structure and operations to cater to the large surge in demand from e-tailers. The roll-out of GST is expected to play a major role in the growth of the sector. However, IndiaÂ´s persisÂ¡tent weak industrial activity and low interÂ¡national trade volumes impacting multiple segments of the industry could result in a negative outlook.
A reduction in EBITDA margins significantly below FY14 levels could considerably weaken the credit metrics of industry players. In FY16, the revival of manufacturing and mining activities could boost the logistics sector; however, the possible decline in agricultural output due to deficient rainfall could pose a drag. Dedicated Freight Corridor is also progressing and is likely to be commissioned by 2019, which is expected to give a major boost to last mile connectivity.
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