Ports, Ahoy!

Although the government is trying to provide a major fillip to port-led development, their new policies are yet to show results.
India, due to its long coastline, is richly endowed with natural maritime advantages. The country´s 7,500 km coastline covers 13 states and Union Territories. A number of ports along the long coastline lie along key international trade routes. There is huge potential even for inland water transport. India has 14,500 km of navigable and potentially navigable waterways.

As a result, the country´s export-import (exim) trade heavily relies on maritime logistics. Transport by sea accounts for 90 per cent of exim trade by volume and 72 per cent by value. According to the latest data available, more than 1 billion tonnes of cargo were handled across more than 200 ports in FY 2015.

The way forward for the country´s economy is the development of a robust maritime logistics sector. Though policymakers have understood over the years that coastal and inland waterway transportation is energy-efficient, eco-friendly and reduces logistics costs for domestic freight, the Indian coastline and river networks have historically remained under-leveraged.

Despite the obvious savings on costs, water transport accounts for only 6 per cent of total freight movement in India (in tonne km terms). Though a few industrial clusters are present along the Indian coast with proximity to developed ports, industrial development has not fully utilised the structural advantages of efficient supply chains leveraging proximity to the coast.

Reduction in logistics costs
There´s scope for the reduction of logistics costs in the country by the development of maritime logistics. These costs account for a large part of the Indian non-services GDP. Exim containers in India have to travel an average distance of 700-1,000 km between production centres and ports. If the figures for China are taken for a comparison, exim containers travel for an average distance of 150-300 km between similar points.

The reasons for the high transit times of exim containers are many. There is lack of seamless connectivity across logistics modes. Adequate road and rail connectivity linkages to ports have not been developed in tandem with port development, resulting in instances of new ports with modern facilities being underutilised due to connectivity bottlenecks.

Again, various statutory procedures related to transport of cargo have not been simplified. There are more factors impacting logistics costs, causing an impediment to smooth cargo transport. For example, Indian container movements, on an average, take seven to 17 days from the hinterland to vessel, compared to a mere six days in China.

The high variability of transit time impacts the trade, since exporters are not able to commit to tight delivery schedules. They are forced to finance higher working capital.

Poor connectivity
Take the example of non-major ports situated along the coastline of southern Maharashtra. There is poor connectivity between industrial centres and the ports. Similarly, inadequate road and rail linkages through the Western Ghats constrain North Karnataka´s development.

Roadways, despite the inherent disadvantages in this mode of transport, make up a huge part of the average modal mix of transport in the country. Despite the advantages that marine transport offers, there has been inadequate focus on part of the authorities on developing coastal shipping and inland waterways for domestic (non-exim) logistics also.

However, freight movement by road has its own challenges. Vivek Kele, President, Association of Multimodal Transport Operators of India, says, ´We have never had policymakers or decision makers looking at logistics from a solution prospective. They have always looked at it from the point of view that it is somebody else´s baby, i.e., a small-time marginal operator or truck driver. These people, with their limited knowledge, intelligence and availability of technology, try to find a solution to the challenge when there are no solutions. Ultimately, they end up bribing their way through a check-post or traffic police outpost to ensure that the vehicle reaches on time. We have always been trying to find a solution by paying a higher amount.ö Kele adds that this situation has deteriorated over time, and the cost of logistics in various categories of goods has gone up to 18 per cent because nobody is paying any attention.

Across the length and breadth of the country, truck drivers need to stop at 132 check-posts in all. Further, separate permissions are needed for multi-axle carriers and over-dimensional cargo. This permission has to be obtained from each and every Regional Transport Office (RTO) along the route of a particular goods transport journey. This means that every inter-state journey is nothing short of a nightmare for a freight carrier.

The industry is frustrated over this state of affairs. Areef Patel, Vice Chairman, Patel Integrated Logistics, questions, ´Unless the government creates the infrastructure changes where it makes one´s life easier in terms of access to credit, roads and access to infrastructure, how are we going to grow?´

In addition, Patel points to the fact the BJP government has been in power for two years but Octroi has yet to be done away within the state of Maharashtra. Also, the Goods and Services Tax (GST) has been debated ad nauseam, but the political logjam over this crucial legislation continues.

Sagarmala Projects
Keeping these factors in mind, the Centre has been turning its attention to port-led development.
The concept of port-led development is central to the Sagarmala vision. Port-led development focuses on logistics-intensive industries (where transportation either represents a high proportion of costs, or timely logistics is a critical success factor).

Such industries can be structurally competitive only if they are developed proximate to coast/waterways. As a result, the government plans to support these industries with efficient and modern port infrastructure and seamless multimodal connectivity. Ideally, the population in adjoining areas to these ports also has to be sufficiently skilled to participate in the economic opportunities on offer.

Therefore, the renewed thrust on port-led development envisages the synergistic and coordinated development of logistics, intensive industries, efficient ports, seamless connectivity and requisite skill base.

So far, according to latest government data, over 150 projects have been identified for extensive development under these parameters. Such a holistic and coordinated effort could yield rich dividends – executing these projects could mobilise an investment of Rs.400,000 crore in the infrastructure sector. An additional investment of Rs.700,000 – Rs.800,000 crore could be in the industrial and manufacturing sectors.

Waiting for implementation
However, a large section of the industry feels that the efforts made at the top echelons of government are yet to translate into action on the ground. ´The government has been trying their best because they have realised that the cost of logistics is a very important aspect for a developed country. However, the action on the ground is not the same as what they have been saying. There is a huge disconnect,´ says Captain VK Singh, CEO, Shreyas Shipping and Logistics.

He points to the fact there was some indication from the government about incentives but those never materialised. One Roll-on/Roll-off (RORO) arrived and made history with a transhipment of Hyundai cars but there has been nothing since then. ´If it was so lucrative, then things would have been implemented and there would have been much more action,´ says Singh. He adds, ´We conducted a study in 2003 and found maritime movement was not workable unless the government really gave something to incentivise coastal shipping. Yes, the cabotage has been relaxed and this means that you can operate like an Indian vessel. I am saying that even if you own an Indian vessel, it does not work.´

The problem is multi-dimensional. On one hand, cabotage has been relaxed. On the other hand, terminals do not want to handle transhipment cargo due to better tariffs from foreign trade. Currently, interest for transhipment is mostly at ports that do not have enough throughput to utilise their existing capacities.

Moreover, there is talk of developing dedicated berths for coastal shipping and some ports are looking at this. However, there is a need to develop the requisite infrastructure to handle coastal container cargo. ´Ultimately, container vessels will have to go into other terminals where the foreign vessels are also calling,´ laments Singh.

Ivan Da Costa, President, Global Ocean Group, adds,´Currently, we feel the inconvenience in the Container Freight Stations (CFS) and in port handling. There surely has to be a more convenient, mechanised system for faster clearances and cargo handling. How can anyone find a particular container if they are dumped in such large numbers at a spot? A negative impact is created in front of foreign investors and vessel owners.´

Port modernisation
Increasing port efficiency facilitates trade. India has 12 major ports and around 200 notified non-major ports. These are all important intermodal units, acting as the interchange point for two modes ù sea and land. However, Indian ports are mostly small. Most lack the necessary draft to handle the largest (Cape-sized) vessels. The average size of a container vessel calling at Indian ports is around 5,000 Twenty Foot Equivalent Units (TEUs) while for China, it is around 10,000 TEUs. At JNPT – India´s biggest container port ù the draft is 14 m while a Cape-sized vessel requires upwards of 16 m. As a result, around 25 per cent of India´s container cargo is transhipped through international transhipment ports.

In 2014-2015, Indian ports handled 1,050 MTPA of cargo, growing at a rate of 4.5 per cent annually. Western coast ports handle more than 60 per cent of this total cargo owing to the large north-west hinterland.

The projected cargo volume at Indian ports by 2025 is estimated at 2,500 million MTPA. The detailed methodology for the cargo and port capacity projections is contained in the Sagarmala National Perspective Plan (NPP).

Much of the growth may come from coastal shipping of bulk commodities. While exim cargo will double over the next decade to 1,671 MTPA, the share of coastal shipping can increase five times, taking its share in port traffic from the current 15 per cent to over 33 per cent.

The path ahead Catering to the increasing traffic over the next 10 years will require augmenting capacity. Cargo traffic at the ports is expected to be 1,650 MTPA in 2020 and reach 2,500 MTPA by 2025. Additional capacities can be created by unlocking about 100 MTPA capacity at existing terminals of major ports through improved efficiency. Capacity can be increased at both major and non-major ports through mechanisation and new terminals. Around eight greenfield ports are also proposed.

However, the projects that are planned have been received with a pinch of salt by the industry. ´Any infra project that comes up is very encouraging as it provides convenience to logistics. The current government´s plans and projects are exemplary but the only problem here is that there is a big slip between the cup and the lip. How long are these going to take? That is more important; and how effective will they be?´ Da Costa wonders.

Captain Singh of Shreyas adds, ´There is an execution bottleneck at the lower levels. Implementation has to be done at the ground levels and if multiple agencies are involved, a lot of it is lost in translation.´

Says Patel, ´India´s problem is not lack of vision. It is in the implementation. I think Prime Minister Modi is a great global statesman. Unfortunately, everything in life is all about timing. The right timing is very critical and we need action on the ground now.´

– Rouhan Sharma