Ports on the Go

Achieving the targets of the Maritime Agenda of the Shipping Ministry seems ambitious. The installed capacity in FY14 was 1,400 million tonne (MnT), i.e., 800 MnT for the major and 600 MnT for the non-major ports. In terms of installed capacity in FY14, achieving the projected figures would translate to a CAGR of about 14 per cent, significantly higher than the historic performance. So, it is clear that a significant push from all directions is necessary to achieve India´s maritime vision.

India´s trade volume has increased about five times during the last 10 years. Exports grew at a very healthy CAGR of 15 per cent and imports at 17 per cent. Taking export growth as an example, India´s performance has been strong as compared to the rest of the world. Between 2002 and 2015, exports in developing Asia grew at a CAGR of 10.1 per cent, worldwide growth was around five per cent, MENA grew at 4.2 per cent, the Euro area at 3.9 per cent, and Latin America at 3.6 per cent.

During this period, India has diversified both its export products and export countries significantly. Growth has been partially enabled through a diversification of trade partners, with the Middle East and China becoming the major export regions. Asia is today India´s largest trading partner, both in terms of imports and exports followed by Europe.

Currently, the majority of trade happens in imported intermediate-dependent products. However, the ´Make in India´ campaign of the Modi Government will help India shed its image as a low value added manufacturing destination. A case in point is the resounding success of India as a small car export hub for both domestic and international companies, such as Maruti Suzuki, Hyundai, Renault-Nissan, and Volkswagen.

Maritime transport is the primary mode of foreign trade with over 90 per cent of the country´s trade by volume, and 70 per cent by value being moved through maritime transport. Growth in freight traffic, however, lags the growth in overall foreign trade. With about 972.6 million tonne of total port traffic handled in FY14, the overall CAGR over the last five years amounts to 3.4 per cent. A significant weakness in traffic handled has been seen, starting in FY11 until FY14 due to the overall slowdown in the Indian economy, and factors such as a ban on iron-ore export, etc.

Port performance in India has been very differen¡tiated across the major and the non-major ports. As shown in Figure, the growth in the non-major ports has outperformed both worldwide growth, and that of the major ports by a large margin. In FY14, the non-major ports carried around 43 per cent of total traffic against 26 per cent in FY04.

Private non-major ports continue to witness significant growth in traffic volume due to

• diversified cargo portfolio
• superior operational efficiency
• superior infrastructure
• presence of captive cargo streams

For example, in terms of portfolio, POL (Petroleum-Oil-Lubricants) continues to have the highest share in the total traffic across the major and the non-major ports. However, the non-major ports have shown a steady decline from 50 per cent in FY09 to about 40 per cent in FY14.

Key operational parameters have improved. Average turnaround time on port account at the major ports (FY14) is 2.32 days, and average pre-berthing detention time on port account at major ports (FY14) is 6.91 hours. Both numbers have come down in the last few years due to efficiency measures as well as reductions in capacity utilisation. Strong differences among ports are visible. For example, JNPT achieved a turnaround time of 1.74 days with a capacity utilisation of 94.61 per cent in FY14 as opposed to 2.90 days at a capacity utilisation of 85.04 per cent for Kandla. While these numbers are encouraging, they still are behind global benchmarks. For example, aggregate turnaround times at ports in Hongkong and Singapore in 2013 amounted to just seven hours. Part of the differences is clearly driven by relatively high capacity utilisation rates at the key Indian ports compared to the 70-75 per cent global benchmark rates.

In terms of operational and financial performance, private non-major ports lead the way. APSEZL, for example, boasts of one of the best EBIT and ROCE performance among both Indian and globally leading ports (Singapore, Shenchen). As a consequence, investments in ports are not only needed due to increasing exports and imports, they also make for a very attractive investment opportunity in India. Going forward, investments in the port sector are a must to support further expansion of trade.

Growth drivers are many. General consensus sees India´s GDP growing at 7.5 plus per cent over the next few years, outpacing even China´s growth. This growth will drive consumption and by extension trade. In addition, the government has come up with a range of measures that should drive growth in the port sector. Processes such as getting environmental and forest clearances as well as land acquisition have been simplified. Efforts such as priority berthing of coastal vessels at the major ports and 24×7 customs clearance facilities should provide support to the sector. Efforts to switch from port development to port-led development should provide attractive business cases for investors.

However, achieving the targets of the Maritime Agenda of the Shipping Ministry û a capacity of 1,460 MnT at the major ports and 1,660 MnT at the non-major ports û seems ambitious. The total installed capacity in FY14 was 1,400 MnT, i.e., 800 MnT for the major and 600 MnT for the non-major ports. In terms of installed capacity in FY14, achieving the projected figures would translate to a CAGR of about 14 per cent, significantly higher than historic performance. Taking into account that current project execution of the 12th plan is at 30 per cent of plans at the halfway point, it is clear that a significant push from all directions is necessary to achieve India´s maritime vision.

In terms of traffic, the projected figure is 2,500 MnT in FY20, up from 972.6 MnT in FY14. Again, achievement of targets would require an impressive CAGR of 17 per cent. Even with the current initiatives of the government, achieving such an ambitious target will prove difficult.

Globally, successful and competitive ports are characterised by a number of points:

• Intermodal access to hinterland: Efficient transport linkages to hinterland to allow transport of goods with the best service, the highest speed, and the most competitive prices
• Strong support from government or port authorities: Favourable policies, regulation, tax regime, and incentives as well as minimal bureaucracy in administrative procedures
• Participation of strategic partners: Shipping consortia that invests in the port and ensures fixed volumes and ready access to multi-modal transportation networks
• Superior service levels in comparison to peers: High productivity, efficiency, and service levels save customers´ time and money, differentiating a port of choice from its peers
• Locational and geographical advantage: Factors like proximity to industrial clusters, deep draft, location along major trade routes, etc., naturally attract cargo
• Supportive logistics and maritime ecosystem: Availability of supporting ecosystem, e.g., 3PL and 4PL to drive the efficient movement of goods
• Presence of vibrant industrial clusters: Presence of strong industrial clusters with focussed industry segments in the vicinity supports growth

Several Indian ports already cover a number of the above conditions. Further port and port-led development will improve the performance of Indian ports regarding these parameters. While the timeline may shift by a few years, there is no doubt that India´s ports are well on their way to make their presence felt globally.

The article has been authored by Dr Wilfried Aulbur, the Managing Partner of Roland Berger Strategy Consultants. The views of the author are personal, and should not be considered as those of the firm.