Arvind Mahajan, Partner and Head-Infrastructure and Government Services, KPMG Advisory Services Private Limited, interacts with Janaki Krishnamoorthi on the constraints and issues that need to be addressed in the Indian port sector.
What are the key constraints under which major and non-major ports in India are operating today? What are the major issues that need to be addressed?
Poor hinterland connectivity, limitations on the land use policy, tariff and PPP contract structures, with the latter impacting the interest of the private sector, are the key constraints under which the major ports are operating today. The constraints at non-major ports are lack of efficient hinterland connectivity and delays in land and environment clearances.
A review of the terms of the concession agreement on the PPP model providing select flexibilities to the terminal developer to respond to market conditions, through predefined procedures would enhance the interest of the private sector. For instance, there is no provision in the concession agreement for re-negotiation of the contract, in response to critical changes in business environment that adversely impacts cargo traffic over which the port or the concessionaire have no control. For example, an iron ore export terminal that was empty since the ban on mining of iron ore was not allowed to handle imported coal. The issue of unregulated stevedoring charges at major port terminals versus regulated total cargo handling charges at PPP terminals should also be looked into.
Non-availability of adequate skilled manpower to handle the new facilities and equipments at their intended productivity with safety, trained labour for undertaking certain manual tasks in break-bulk or agricultural commodities, especially during peak season of cargo movement, is another area of concern.
How is inadequate hinterland connectivity affecting the performance of the logistics sector? What measures should be taken to improve the situation?
Poor hinterland connectivity is affecting the speedy movement of cargo and consequently the performance of the ports. Unless there is efficient evacuation, cargo tends to pile up at the terminating points, which causes choking of the gateway and ultimately congestion. Congestion affects the ability of the port to service the vessels and turn them around faster.
The connectivity is poor in several major ports in India and projects planned to improve them are all on the slow track. For instance the major ports at Chennai, Cochin, Marmugao, Haldia/Kolkata, Tuticorin, and Visakhapatnam have single line rail connectivity. Out of the 14 projects planned under NMDP (National Maritime Development Programme) Phase-1 and Phase-2, for improving the connectivity of port railways, only 1 project has been completed on time. In all the ports, the exit points open into roads common for general traffic and there are no exclusive port roads except for short ones in Kandla and Visakhapatnam. The railway link between Paradip-Haridaspur and doubling of Kulem-Castlerock rail link have been pending for many years.
The situation can be alleviated by expediting the Western and Eastern Dedicated Freight Corridors, rail connectivity to non-major ports and enhancing the line capacity at major ports; enhancing the freight rolling-stock capacity so that adequate capacity for transport of cargo is available once the track capacity is augmented and promoting coastal shipping with suitable financial and policy support.
Do you think relevant State governments should have a stake in running major ports?
By providing the State government a holding stake in the port, one can ensure the State's participation in the development and expansion of ports. States can contribute significantly in several areas which are of local nature including hinterland linkages. It can foster a stronger collaboration between the different Central and local agencies and expedite the planning, development and operations of ports.
What are the challenges ahead for port owners and operators in our country?
The growth of the economy is expected to expand the growth of trade and cargo volumes at ports over the next few years. The different constraints and issues notwithstanding, port companies will have to work towards enhancing the customer connect and integrating their port operations and systems with those of the customer to offer a seamless supply chain experience.
Building scalability in the underlying processes as companies grow to multi-berth and multi-location operations will be another challenge. As operations scale up, the complexity of transactions tends to increase multi-fold with increased bunching of vessels, diverse cargo types, differing customer demands etc. While each terminal or unit may be operating optimally, players would need to identify and squeeze efficiencies through shared services for transactional areas, leveraging knowledge from one unit to other and deriving economies of scale in procurement and sales contracts.