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Infrastructure & Design

Giving Impetus to Port Infrastructure
- Manish Saigal, Partner and National Leader – Transport and Logistics Industry KPMG
Despite having a huge coastline, Indian ports are not able to match capacity and capability of international ports in terms of efficiency, mechanisation and hinterland connectivity. Indian ports infrastructure is not able to support growing demand of handling cargo. The sector needs to overcome financial and lack of basic infrastructure bottlenecks and gain the firm footprint in global market through PPP model coupled with congenial policy and regulatory framework in place.

India’s ports serve as gateways to the country’s international trade and facilitate the 90 per cent by volume and 70 per cent by value of country’s external trade via maritime traffic. The country’s long coastline spans across 7,500 kilometers (kms) with 13 major ports governed by the Centre and about 176 non-major ports, of which only 60 are operational, governed by respective state governments and union territories. Of its major and non-major ports combined, 139 are along the west coast, while the remaining 50 ports are along the east coast.

The Indian port traffic has witnessed significant growth over the last decade, growing at a CAGR of 8.4 per cent from 384 mmt in FY02 to 934 mmt in FY13. Following a temporary deceleration in cargo traffic due to the global economic slowdown between FY08 and FY13, cargo traffic across Indian ports is expected to touch 1,304 mmt by FY17 at a CAGR of 8.7 per cent, with major and non-major ports expected to grow at a CAGR of 8 per cent and 10 per cent respectively.

However, development of port infrastructure has not kept pace with the increasing demand for better cargo handling facilities at ports. As a result, the majority of Indian ports are operating at an above optimum capacity than required for efficient ports performance.

Port infrastructure

The Government of India (GoI)’s ambition to replace the National Maritime Development Program (NMDP) with the more comprehensive Maritime Agenda 2010–20 is in line with its objective to increase port capacity. It intends to encourage private investments in major and non-major ports and bring port performance on par with international standards. Through this program, the GoI plans to invest Rs 2,870 billion in generating total port capacity of 3,200 mmt and cater to an expected cargo traffic of 2,500 mmt by the end of 2020.

Given the pivotal role it plays in the economy, the Indian ports sector appears to be well-poised for a longterm growth wave. The key growth drivers that will lead to the path of development include public-private partnership (PPP), growth of non-major ports, increased containerisation and east coast ports.

Public-private partnership (PPP)

PPP is expected to play an important role in the ports sector, particularly in the development of non-major ports — private investment is expected to contribute 66 per cent and 98 per cent of total investments in major and nonmajor ports, respectively. The development of two new major ports is expected to reduce the above-optimum capacity levels in existing ports.

Growth of non-major ports

Between 2007–08 and 2012–13, cargo traffic at non-major ports increased at a CAGR of 14 per cent over a CAGR of 1 per cent at major ports; its share increased from 28 per cent to 39 per cent, clocking 389 mmt in total traffic versus 545 mmt at major ports.

During this period, cargo-handling capacity at non-major ports also witnessed higher growth than major ports. Capacity overruns at major ports aided by a substantial increase in the cargo traffic of fertilizers, building material and coal, have resulted in significant investments in the development of non-major ports.

Under the Maritime Agenda, maritime states have set ambitious targets to create additional capacity of Rs 1,290 mmt at an estimated investment of Rs 1,680 billion between 2010–11 and 2019–20.

The growth in traffic at non-major ports over the past few years has been primarily led by the development of ports in Gujarat, mainly Mundra, Pipavav and Hazira ports. These non-major ports are expected to cater to the northern region’s cargo traffic, thereby reducing load on the Jawaharlal Nehru Port Trust (JNPT) and Mumbai ports. With the emergence of ports in Dhamra, Gopalpur, Gangavaram, Kakinada, Machilipatanam, Krishnapatnam, Kattupalli and Karaikal, the east coast is also expected to contribute to the development of non-major ports.

Containerisation

The EXIM container market in India has grown at a CAGR of 12 per cent in the last five years, as compared to the 8–10 per cent growth of other commodities such as POL, iron ore and coal in the same period.

Growth in the container market is expected to continue in the medium term as a result of rising containerisation levels and growth in trade. At 51 per cent, the containerisation level in India continue to fall short of that in developed countries, which have achieved significant levels of 70–80 per cent.

The following trends are expected to drive growth in containerised cargo:
  • Increasing containerisation level for former break-bulk commodities (eg steel, cement, rice and sugar)
  • Healthy growth prospects for industries contributing to container cargo (eg textiles, food products, machinery, paper and scrap)
  • Development of dedicated freight corridors (DFC) and the Delhi-Mumbai industrial corridor (DMIC) along the north-west corridor: expected to drive demand for container logistics infrastructure
  • Growing thrust on developing container terminals on the east and west coasts of India
  • Development of dedicated logistics parks for handling container and bulk cargo
  • Development of new terminals with facilities to handle deep draft vessels operated by Main Line Operators (MLOs)
East coast ports

With their contribution to India’s total trade expected to increase from 23 per cent in 2010 to 34 per cent in 2014, the 50 ports along the east coast — situated along the 2,630 km-long eastern coastline that stretches from West Bengal to Tamil Nadu — are expected to significantly drive growth in the ports sector. Through the Maritime Agenda 2010–2020, the GoI plans to create additional port capacity of 900 mmt and invest Rs 1,126 billion to boost cargo-handling capacity at ports along the east coast. Non-major ports are expected to contribute 57 per cent of the total investments and 46 per cent to the total capacity added in east coast ports.

Traditionally, east coast ports, which are closer to iron ore/coal deposits and power, steel or fertilizer plants, have handled bulk commodities, as opposed to west coast ports, which mainly handle POL and container cargo. The container-handling capacity at the east coast ports is expected to increase from 2 million TEUs in 2009 (20 percent of India’s total container handling capacity) to 10.8 million TEU by 2020 (33 per cent of India’s total container handling capacity).

Historically, west coast ports have dominated cargo traffic due to their proximity to India’s major consumption centers and the industrial belt of northwest India. With China’s emergence as India’s leading trade partner, India’s ‘Look East’ policy and overcapacity at west coast ports, east coast ports present significant development opportunities.

Outlook

Higher investments, private sector participation and stringent regulations play an integral role in the development of world-class ports in India. Simultaneously, development of hinterland connectivity options, enhancing levels of IT, and facilitating quality manpower training would drive operational efficiency of Indian ports.

The implementation of the Port Regulatory Authority Bill is expected to be a step in the right direction, as it is likely to increase confidence among private investors. The introduction of single-window clearance method at centraland state-government level would encourage greenfield projects, thereby reducing long gestation periods.

Thus, innovative solutions and a proactive approach are the need of the hour if the Indian ports sector has to gain a competitive edge, especially as it is far more vulnerable to international competition than other infrastructure subsectors. Measures are being adopted and implemented, and the outlook for the sector appears positive. With the government responding to multiple factors, such as infrastructure constraints, financial bottlenecks and administrative hurdles, the future of the ports sector looks bright.