A positive landscape for private investors

A leading executive of one leading logistics major makes a simple point: despite India’s many economic successes, Bangladesh has a far greater share of the garment export business to Europe. He cites severe congestion at ports and shortage of adequate road and rail links to them as one of the key reasons for India’s lack of competitiveness in certain price-sensitive export markets.

Put simply, the cost of international trade is too high for Indian shippers. Indeed, he points out, transport is often three or four times more expensive per transaction compared with Europe and the US.

India is, however, taking steps to improve matters. The most comprehensive ports study, by India Brand Equity Foundation (Ibef), dates back to 2008 but still offers illumination. Ibef found that the Indian coastline was dotted with 12 “major” ports and about 200 non-major ports which together handled some 95% of India’s international trade. The 12 major ports handled about three-quarters of total seaborne traffic.

Ibef said the projected increase in port traffic would necessitate huge capacity expansion and identified some 276 projects entailing an investment of $13.70 billion. These included the development of new berths, expansion and upgrading of existing berths, deepening of channels, equipment modernisation and the improvement of rail and road connectivity.

Several states had drawn up major capacity expansion plans to meet the expected surge in port traffic over the next five years. These included 115.5m tonnes per annum of new capacity in Gujarat, 84.3 mtpa in Andhra Pradesh, 83.2 mtpa in Maharashtra, 30 mtpa in Tamil Nadu, 27.5 mtpa in Kerala, 25.2 mtpa in Orissa and 17 mtpa in Karnataka.

The cargo-handling capacity of India’s non-major ports, both existing and new ones, was projected to rise to 839.16m tonnes by 2012. The capacity addition, it was projected, would require an investment of $8.97bn, of which $7.15bn, or 80%, was expected to come from private companies.

The massive expansion plans and heady growth forecasts from Ibef certainly attracted plenty of investors. “The Indian port sector has witnessed both foreign and domestic investors rushing to cash in on the maritime boom, in addition to several public private partnerships in recent years,” says Gracias Thevar, country manager for logistics services at GAC India.

Singapore’s PSA now operates five ports in India and APM Terminals, part of the AP Moller Group, recently identified the country as one of its investment priorities. “In my opinion, the investment landscape for private investors is positive in India and both central and state governments are actively trying to attract private investments in this sector through PPP model and privatisation policies,” says Drewry analyst Abhishek Tandon.

However, as Sanjay N. Tejwani, India director of Oceanfreight at DHL Global Forwarding, points out, the privatisation process remains tediously slow. “The port privatisation policy launched a few years ago has resulted in private ports coming up, but in recent years almost every new port project seems to be stuck in legal webs with one of the bidders going to court on some pretext or the other,” he says. “Private rail has not taken off as expected and we continue to have major issues in railing containers across the country. The road infrastructure is well below acceptable standards.”

He says these factors were limiting India’s potential to handle more export and import cargo, resulting in congestion at ports and inland facilities.
The problems are most pronounced in the container trades where key facilities at major ports remain congested and new capacity has been slow to come on stream.

According to Drewry, container traffic in India grew at a CAGR of 14% over the past decade and 13% over the past five years. The financial year April 2009-March 2010 saw a slight decrease in container traffic, with Indian ports registering traffic of around 7.5m teu. “However, in FY10 the container traffic has grown to 8.1m teu,” says Mr Tandon. “In the current trading conditions, the container traffic might grow at a CAGR of 10-11% over the next five years.”
He points out that northwestern coast and lower east coast ports are witnessing explosive container traffic growth and ports in those regions are unable to cope up with increasing demand.
Issues such as customs procedures, planning permitting processes, worker relations and hinterland connectivity have all played a part in the current congestion which has seen some lines divert or cancel services to key major ports, he adds.
“I do not see any dearth of initiative from the government to improve hinterland links, improve customs facility and provide planning permission for new facilities,” he says. “[But] most of the recent major capacity expansion projects have been mired by legal issues such as the recent court cases related to the selection of final bidders for Ennore port and the JNPT [Jawaharlal Nehru Port in Mumbai] 330 m berth expansion and fourth container terminal.
“The legal issues have delayed capacity expansion at Ennore and JNPT by at least three years. There has been also a highly political issue of rehabilitation and resettlement of affected population resulting in delayed land acquisition for the projects. Chennai port has not been able to improve its landside connectivity due to this problem.”
As volumes have mushroomed post global recession, ports such as JNPT and Chennai have simply not been able to cope – despite government efforts to introduce EDI facilities at most ports to increase customs efficiency, and massive proposed and ongoing investments in “dedicated freight corridors”.

As times passes, India’s major ports are likely to see traffic rediverted to new facilities, although the opening of a new 1m teu container terminal in Cochin in southern India later this year is unlikely to help domestic industry a great deal – the facility is largely geared to competing with Sri Lanka’s port of Colombo for international transshipment traffic.
“In terms of container traffic, the major container handling ports like JNPT are facing intense pressure on existing infrastructure,” says Mr Tandon. “However, as ports in the upper west coast in the state of Gujarat are currently operating under capacity, we expect volumes to divert from JNPT to these ports in future.
“Similarly, Chennai might see a significant move of container traffic when container handling facilities at Ennore port are commissioned. Therefore, there would be a move from existing major gateways to alternative facilities which are either existing or upcoming.”