India's political push

21 Aug 2014
Grand slam: when fully developed DP World's ICTT will be the largest terminal under a single operator in the region

Grand slam: when fully developed DP World's ICTT will be the largest terminal under a single operator in the region

A new government has the potential to do wonders for India's port and terminal industry as Iain MacIntyre explains

A feeling of positivity appears to be largely embracing the immediate prospects for the Indian port and maritime scene in light of the conclusive election of a new Government and subsequent commitments made in its first budget.

In a sweeping victory, the Bharatiya Janata Party-led National Democratic Alliance recently won the right to form the largest majority Government since the country’s 1984 elections, defeating the incumbent Indian National Congress-led United Progressive Alliance.

Soon after, Indian Shipping Minister Nitin Gadkari announced his department’s aim of heralding a “new beginning in developing a state-of-the-art shipping industry in India”.

“We in the Ministry of Shipping ... have an onerous task in hand and it will be our endeavour to develop the maritime strength of our country which is crucial for India’s socio-economic progress,” he stated.

“Efficient ports, increasing India’s share in the global shipping, promoting coastal shipping and strengthening our inland waterways are among our main goals.”

These sentiments have been reinforced within the 2014-2015 Budget announced on July 10 by Minister of Finance Arun Jaitley.

“A policy for encouraging the growth of Indian-controlled tonnage will be formulated to ensure [an] increase in employment of Indian seafarers,” he stated when referencing the issues of infrastructure/shipping.

“Development of ports is also critical for boosting trade. Sixteen new port projects are proposed to be awarded this year with a focus on port connectivity. Rs 11,635 crore will be allocated for the development of Outer Harbour Project in Tuticorin for Phase I. Special Economic Zones (SEZs) will also be developed in Kandla and Jawaharlal Nehru Port Trust (JNPT).

“A comprehensive policy will also be announced to promote Indian ship building industry in the current financial year.”

 

Making inroads

With the new Government exhibiting a stable and “more cohesive working” style, Indian port sector expert Surendra Sharma expresses hope inroads will be made to streamline the historically bureaucratic-laden path to progress in the sector.

“The focus of the Government appears to be now on achieving targets and delivery for which many processes are now being made investor-friendly and online,” he tells Port Strategy.

“This has helped in the confidence level of both the industries and the investors. Projects in the port sector are no exception. Six months down the line we can expect revival, fast-tracking of projects and more global interest as the economy picks up and business environment improves.

“India’s developmental policy now appears to be globally-oriented, starting from being regionally-focused rather than country-limited. This is expected to increase investments/bilateral trade opportunities and cargo movement from the whole region in which India with its long coastline would have a dominant role to play, especially in the port sector.

“Hence, it appears fair winds and high seas for the maritime sector.”

 

Opening windows

DP World Subcontinent region senior vice-president and managing director Anil Singh sees the advancement of a single-window clearance system - eradicating previous multi-ministry involvement - as expediting growth and attracting investment.

“We expect the Government to implement the single-window clearance system to ensure swifter transactions in the overall infrastructure sector in the country,” he says.

“The Union Budget 2014 has made provisions for the growth of the Indian port sector and we are hopeful to see a positive change. These proposals will give a tremendous push to the sector.”

However, one senior Indian port sector executive (who asked not to be identified), expressed concern that despite the apparent positive intent, there remained a “lack of strategic vision as to what exactly needs to be done”.

“ ... and Central Government gets pressurised to put investments in each coastal state to keep each state happy,” he says.

“Also, the way some minor ports have been privatised is wrong. Because the State Government did not want to spend any money, they have given the full marine, berth and landside work to the private concession holder which in the long run is creating a local monopoly situation, as well as driving up costs for the trade.

“The major issue for India is the high level of logistics costs - way above the world average at 15%-16% - and part of the solution is to keep port costs low. In order to do this, Government has to be prepared to spend money on: (a) marine infrastructure, ie, dredging, channel maintenance etc; (b) landside connectivity road and rail; and (c) act as start-up investor for new facilities where there is a long-term not a short-term return.

“I think the present mix of major Government ports and private deep water ports will continue. What is missing is the network of multi-purpose common-user shallow-draft jetties along the coast; without these, the coastal trade cannot develop.

“So far the whole coastal trade discussion has been about ships. The ships are the easy part, the missing part of the infrastructure and the discussion is how to go about developing this network of jetties along the coast. India had jetties and anchorages all along the coast earlier, and no thought has been given to developing these for the needs of the 21st Century. This is where the new Government needs to step in and take a policy lead.”

 

Getting nowhere

In this vein, the senior Indian port sector executive laments to date the country has “got nowhere” in regards capturing a decent share of the region’s transhipment cargo.

“The focus seems to be on capturing Colombo transhipment cargo by building facilities close to Colombo. This approach of trying to destroy your neighbours’ business fails to understand the dynamics of the trade.

“So far Vallarpadam project has been a failure and promoters are still talking of another transhipment project at Vizhinjam. Neither port has a significant domestic cargo hinterland.

“If you look at Jebel Ali, this port handles a huge transhipment volume yet is way off the main trade routes. Ships call there attracted by the large base of local and Free Zone cargo.

“Similarly, India can build up Nhava Sheva as a transhipment hub in the long run. The North India trade will slowly but surely switch to Gujarat ports as the inland distances are less, leaving capacity in Nhava Sheva to build up transhipment capability.”

 

Transhipment targets

DP World’s Mr Singh contests some of those assertions.

“In the wake of increased demand for transhipment in India, the International Container Transhipment Terminal, which we built and operate, was set up at Vallarpadam off Cochin port in 2011, to meet that very requirement - of creating a hub port within the country to achieve cost savings.

“The terminal has state-of-the-art infrastructure, a natural non-tidal draft that can support large capacity containerships suitable for transhipment. The terminal is the nation’s first transhipment terminal project.

“We have built the terminal capacity ahead of demand to provide the booming Indian economy with a platform to stimulate trade growth. When fully developed in line with market demand, ICTT will have a handling capacity of 4m teu and a quay line of 1,800 metres - the largest under a single operator in the region.”

Adds Mr Sharma: “Infrastructure has been a thrust area for the new Government which is also good news for projects in the port sector. Comprehensive inclusive development covering road, rail network and other supporting infrastructure always leads to efficient cargo movement.

“A hub port to handle main line vessels especially on the West Coast of India has been a critical need. A hub port would have the country’s export-import (EXIM) trade to start with which is a big advantage. India’s EXIM is presently moving via feeder vessels increasing the transhipment volumes being handled at Colombo or Singapore port. This gradually will decrease and lead to a reverse flow of cargo moving from various ports around the region to India.

“Efforts to develop bilateral trade through shipping like the starting of coastal shipping between India and Bangladesh by October 2014 and ongoing projects in rail like the dedicated freight corridor also support and strengthen the functional viability for ports, hence are good tidings for upcoming mainline hub ports.”


Crying out for a cabotage re-think

With regards to the three-year trial relaxing of cabotage regulations introduced on December 2012, Mr Sharma says ultimately there is a need to increase the number of ships available on coastal and feeder routes - be that either foreign-owned or Indian.

“Development of coastal shipping is a win-win situation which helps pooling of cargo to reduce the average freight cost as also increases tonnage on the coastal route.

“Indian coastal shipping requires certain policy and fiscal support to dilute the tax burden which affects their viability keeping the benefits of shifting cargo movement from the land to the sea route in mind. Enhancement in coastal shipping would help bilateral trade and also in growth/consolidation of cargo for hub port working.”

With the intention of the trial being to boost international trade in India, Mr Singh says DP World has welcomed the development.

“But it is taking time for the supply chain to be able to realise the full benefits because a connected change in customs procedures has been slow to flow through. We hope to see shipping lines able to take more advantage of the service at ICTT in the future.”

Observing that cabotage is a more complex issue than generally portrayed, the senior Indian port sector executive emphasises that without dispensation, the regulations state Indian coastal cargo can only be carried on Indian-built and Indian-flagged vessels.

“Such Indian vessels are constructed using Indian inputs or duty-paid imports and so the basic vessel itself is more expensive generally than an international vessel. In addition, Indian vessels have to buy fuel at local rupee prices including all taxes. Thirdly, the crew on Indian vessels are classed as residents and are therefore taxed.

“If cabotage is relaxed and foreign vessels are allowed to carry Indian coastal cargo, then this amounts to a discrimination against the existing Indian owners who will then be driven out of business.

“The approach which I believe the new Government will be taking is to look at the areas of cost differential and try to equalise those. The simplest one to address is the fuel price -- allow Indian vessels to purchase tax-free fuel as an encouragement to coastal trade. I don’t think India is at all ready to simply abandon cabotage and open up the coastal trade to foreign vessels without restriction.”


TAMP: tinkering with a bad system

With regards to the Tariff Authority for Major Ports (TAMP), which embraced new operational guidelines last year, the senior Indian port sector executive reiterates a quote from an industry colleague: “Abolish TAMP - I wouldn’t wish them on my worst enemy.”

“TAMP was initially required to prevent monopoly profiteering by the private terminals in India, primarily at JNPT,” continues the executive.

“Since then more capacity has opened up in India and the need for TAMP has diminished. While the aims of TAMP might be laudable, the results have been bad for India as the operators have been disincentivised from taking on more volume as then TAMP lowers their tariffs (TAMP allows operators a certain rate of return on capital invested and no more).

“The 2013 revisions in the guidelines can be termed as tinkering with a bad system. There are several cases in the courts as a result, which means the basic system cannot be changed until the cases are heard and judgements issued. One way out of the mess would be for the new Government to address the issue directly and come to settlements with the operators, and then change the basic system to a more market-based approach.”

However, Mr Sharma believes the new TAMP guidelines have now turned the focus on infrastructure and the removal of bottlenecks to improve efficiency.

“The 2013 TAMP tariff is market-linked and performance-driven which has necessitated the review of the whole port logistics chain including the development of seaside infrastructure. With [an] improved logistics chain eliminating delays, the total port logistics cost can also come down, even with a marginal increase in port tariffs.”

Mr Singh sees the new guidelines as “definitely” having positively impacted the Indian port sector through ensuring “healthy competition among the major ports in the country along with increased standard of performance”.

“The Government’s intention with the new guidelines was to improve the cargo traffic at the major ports and attract investments in the port sector. This reflects the Government’s effort towards the development of the Indian port sector.

“The Government should, as a priority, move now towards having all operators at major ports move from the 2008 and 2005 guidelines to the 2013. This will drive both inter-port and intra-port competition.”

 

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