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Port operation -The efficiency factor

Port operation -The efficiency factor

Slow evacuation of cargo from ports is only one of many operational hiccups that Indian ports are up against. Unsurprisingly, a majority of Indian ports have not invested sufficiently in mechanised material handling like its global peers. As the private ports live up to their expectedly high efficiency levels, Garima P says inefficiency can no longer be blamed simply on draft or other external and idiosyncratic problems of Indian ports.

As one of the first infrastructure segments to attract private capital, the port sector has traditionally seen a good flow of foreign investment. Against a rise of 9 per cent in capacity in 2010-11, FY2012 saw an increase of only 4 per cent. In 2012-13, though, major ports saw capacity addition of 6 per cent, primarily owing to the poor economic climate. Public-private partnership (PPP) projects have become a major trigger for ports. The inflow of foreign direct investment (FDI) into this sector in 2011-12 was zero, against $10 million in 2010-11 and $65.4 million in 2009-10.

The average time for clearance at our ports is just under four days, whereas it’s only several hours in leading ports abroad. As has been widely reported, non-major ports have grown disproportionately, while the major ones have remained sluggish. ‘The minor ports have been able to develop and move faster, which is good for the economy. The major ports have lost traffic to competition, but the economy hasn’t lost out as a whole,’ said Manoj Singh, Adviser, Transport at the Planning Commission. India’s 13 major ports and 60 operational non-major ports handle 95 per cent of the country’s external trade by volume and 70 per cent by value. Port traffic has increased at a CAGR of 8.1 per cent to reach 884.6 million tonne (mt) with an average utilisation of ~90 per cent, as compared to the international average of 70 per cent.

Operational hurdles
Obtaining clearance for such projects is most challenging due to the absence of a single-window clearance. Apart from clearances, PPP projects are delayed due to slow bureaucratic procedures at most major ports at the pre-tendering and post-award stages; eg, delays in dredging and the lengthy process of fixing tariffs.

Arvind Mahajan, Partner and Head Infrastructure & Government Services, and Sameer Bhatnagar, Associate Director, Infrastructure & Government Services, KPMG, say a major issue is evacuation bottlenecks, both into and out of the port. Another key constraint in port operations is the alignment of multiple stakeholders to enable cargo to flow along the supply chain smoothly and rapidly. These various entities include vessel agents, surveyors, port operators, stevedores, truckers/logistics companies, vessel owners’ representatives, regulatory authorities from customs, health and safety, security and immigration, maritime agencies other than the bankers, consignee and shippers that get involved in each vessel/consignment/parcel. ‘Coordinating the transactions and interactions between all these entities in time is critical to avoid stoppages and delays due to which a common IT platform or Port Community System is required for seamless operations,’ they added.

Quicker movement of cargo from the port back-up areas to the vessel and vice-versa is necessary for quick vessel turnarounds. Thus, provision of proper and adequate evacuation through efficient multimodal connectivity with the hinterland is important to eliminate and avoid congestion and cargo accumulation. Partnering with the various agencies across sectors in the country with an aim to be the catalyst for an inclusive growth of the country, Japan International Cooperation Agency (JICA) as Government of Japan’s Overseas Development Agency has been playing a singularly important role in India’s economic and social development. It also has port development as one of the key focus areas and is at present involved with the Visakhapatnam Port Expansion Project. JICA believes that major ports in the country, such as JNPT, Mumbai and Chennai have been struggling due to capacity constraints and lack of modernisation. Expansion plans at major ports have hit a roadblock due to lack of interest from private port operators due to policy flip-flops on tariff settings. Also, ports like Chennai are facing the continuous congestion due to inefficient logistics management. JICA will start the bottleneck analysis for the management of Chennai Port.

Connectivity issues
Poor rail and road connectivity to the hinterland is another area of concern. ‘JNPT-Delhi rail route is congested beyond its capacity. Also, lack of independence for Major Port Trusts which is leading to delays in essential investments on common infrastructure,’ says Rohit Chaturvedi, Director, CRISIL Infrastructure Advisory. Lack of sufficient draft for larger ships due to delay in dredging projects, makes Indian ports less competitive vis-a-vis international ports. Consequently, Indian ports have low share in international trade and today none of the Indian ports is in top 30-list of ports.

While the state-owned ports have been incurring losses, the depressed state of the economy has made things worse for them. But the private ports have managed to edge ahead simply because of their ability to capture the entire value chain. The combined profit of the 12 ports controlled by the government has dropped from Rs 1,946.38 crore in 2010-11 to Rs 1,790.92 crore in 2011-12. The cargo volume, too, has declined, from 570 mt in 2010-11 to 560 mt in 2011-12. These ports were once monopolies until private ports started operations at the turn of the century. And their success can be gauged by the fact that cargo handled by Adani ports between April and June was close to 24 mt compared with about 23 mt handled by Kandla, ahead by a whisker. The turnaround time a key yardstick of efficiency is about two to three days at Kandla but is less than one day at Mundra (with an annual handling capacity of 180 mt due to mechanisation, adding to its success).

While Indian port infrastructure suffers from its own set of woes, availability and that too of skilled manpower is also a major issue, compounding the woes. ‘In the ports, the existing stock of managers is not well equipped, especially in the major ports, to keep up with the environmental changes. This is true especially when it comes to PPP. There is lack of understanding of process which in turn leads to longer time in getting approvals,’ says Chaturvedi.

Since Indian operations are more labour-intensive compared to foreign ports, the requirement for manpower across levels (skilled, semi-skilled and unskilled) along with managerial workforce is fairly high. Due to irregular migration patterns as well as changing national, state level, local and regional level policies, getting labour across India and across levels is a challenge. ‘There is a challenge of obtaining sufficient trained and specialised officer manpower due to attractive options in other sectors, especially allied or new service sectors as well as dearth of training institutions. There is an urgent need for certified training and skill development centres along with a proper skill gap assessment for the port operations to develop this industry further,’ says Mahajan.

Port officials and industry executives say the port trusts should be given more power. The port trusts should be allowed to approve projects entailing investment of up to Rs 500 crore, compared with the current cap of Rs 50 crore. ‘The port operating systems often suffer from the fact that there are legacy systems in place for various functions, and often agencies find it difficult to integrate the various modules. Issues pertaining to the availability of trained manpower for operating modernised systems continue to exist. Also, tariff controls have significant impact in decision making for modernisation,’says Samir Kanabar, Partner, Tax and Regulatory Services, Ernst & Young LLP. Most of the major ports were originally designed to handle specific categories of cargo which have declined in time while other types of cargoes gained importance. The ports have not been able to adjust to the categories of cargo which grew the most.

There are thus several berths for traditional cargo, which are underutilised, while a few are over utilised for new cargo.

Will and way
A number of policy interventions are being considered during the 12th Plan to help the sector grow. According to the 12th Plan document, there is a need to consider fiscal incentives for registered multimodal transport operators, shippers, trade/industries that prefer transporting sizeable domestic cargos through coastal shipping. Unfortunately, despite having the lowest unit transportation cost for the sea leg, the overall end-to-end cost of coastal shipping escalates due to inadequate port and land side infrastructure (capacity, connectivity, and so on), resulting in a preference for the road/rail modes by the industry and trade. The burden of customs duties and the perceived cumbersome customs/other procedures, low port productivity and high tariffs, aggravates the problem. There is a need to remove these bottlenecks. ‘The need of the hour is to allow decision making at the port Chairman level to ensure growth of the segment’ says Singh. It is predicted by IBEF that by FY17, cargo traffic at non-major ports in India is expected to grow to 815.2 mt from 351.6 mt.

Another aspect in which Indian ports differ with international ports is the consideration and views on safety and sustainability. Safety is important for any operation and there is a need to have environment-friendly operations at ports in India.

The Maritime Agenda 2020 proposes an investment of Rs 1,280 billion in 424 projects in major ports and Rs 1,680 billion in non-major ports by 2020. It is proposed that more than 80 per cent of the investment in major ports will be made by the private sector. While mechanisation and operational efficiency form a part of the set of goals of the Agenda, the ministry would do well to ensure that adequate budgetary allocations and (importantly) encourage government-owned ports to invest in new technology and resources as a tool to enhancing operational efficiency.

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