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Ports Sector

The international shipping industry accounts for around 90% of the world trade and the last few decades have seen it emerging as a reliable and cost effective means of transportation over long distances for all import-export activities. According to the United Nations Conference on Trade and Development (UNCTAD) estimates, merchant ship operations generate an estimated annual income of around US$ 380 billion in freight rates, representing about 5% of the total world trade. The world fleet is registered in over 150 nations with round 50,000 merchant ships involved in international trading of products ranging from petroleum, oil, lubricants (POL) to agricultural products. Container ships, which account for over 70% of the value of world international seaborne trade, are mostly involved in transportation of manufactured goods and products; bulk carriers carry iron ore, coal, food grains, and tankers are used for transporting crude oil, chemicals, and petroleum products.

According to WTO statistics released in 2007, world merchandise trade grew at a CAGR of 12% during 2000-2007 to US$ 25 trillion. The past decade has witnessed an overall reduction in trade barriers due to globalisation and has thus stimulated free trade and demand for consumer goods. The shift in manufacturing facilities from conventional production centres in the West to Asian developing countries has resulted in rapid growth of trade routes linking Asian and the western regions. Asia in particular has emerged as an important link in the global shipping scenario. Global terminal operators headquartered in Asia such as Cosco Pacific, DP World etc, together account for half of the world’s total throughput of containers. Around a quarter of the world’s bulk carriers fly an Asian flag. Around 21% of the world’s fleet of vessels above 100 GT are registered in Asia. Hong Kong and Singapore, each with 32 million GT lead the largest registries, followed by China with 23 million GT, the Republic of Korea with 10 million GT, and India with 8 million GT.

In 2006, developing countries in Asia turned out to be the largest traders and accounted for 36.1% and 32.9% of world goods loaded and unloaded at ports, respectively. Regional Trade Agreements (RTA), such as the Asia-Pacific Trade Agreement (APTA) between Bangladesh, China, India, Republic of Korea, Lao People's Democratic Republic and Sri Lanka, are expected to affect the seaborne trade in a positive manner in near future. According to WTO statistics, 380 RTAs were notified to the GATT/WTO till July 2007.

Indian Ports

India’s trade has been witnessing robust growth and is displaying a tendency to move higher in future. According to the Department of Commerce, during March 2008, India’s exports were valued at US$ 16,282.79 million and rose by 26.59% over March 2007. During the same period, imports witnessed a growth of 35.24% and were valued at US$ 23,174.94 million. India’s total merchandise trade grew by around 29% during 2003-2007. Maritime transport accounted for 95% by volume and 70% by value of the country’s overall international trade. India also ranks among the 20 leading merchant fleets all over the world. The country’s maritime transport along the 7,517 km coastline is carried out through 12 major ports and 200 non-major ports, among which, 60 are handling traffic. While 11 major ports are run by Port Trusts, the Ennore Port operates under the aegis of the Central government. FDI of 100% is allowed for port development projects under the automatic route and 100% income tax exemption is allowed for a period of 10 years. The Tariff Authority of Major Ports (TAMP) is the regulatory body for determining tariff rates charged by major ports/port operators (not applicable to minor ports).

According to the Economic Survey FY08 statistics, the total traffic carried by both major and minor ports during FY07 was estimated at around 650 MT. The 12 major ports accounted for three-fourths of the total traffic, with Visakhapatnam Port emerging as the top traffic handler in each of the last 6 years. Average output per ship berth day stood at 9,267 tonnes and showed 5% improvement y-o-y. Pre-berthing waiting time, however, increased from 8.77 hours in 2005- 06 to 10.05 hours in FY07.

In FY08, the volume of cargo traffic handled at major ports grew by 11.94% on a y-o-y basis. In FY08, liquid bulk vessels accounted for nearly 30% of the total vessel traffic. Container traffic showed 25% growth y-o-y as exports accounted for a higher marginal share over imports at 52% in the total container traffic in 2007. Indian container traffic displayed a highest CAGR of 16% during 2004-2008 as more than half of the world’s goods were containerised during that period.

In FY08, POL was the major commodity carried through major ports and contributed 32.5% in the cargo mix during FY08. Container cargo was the next largest commodity in the cargo mix, and contributed 19% followed by iron ore at 17.7%. Container cargo increased by around 24.9% as compared with last year. Notably, trade of finished and raw fertilisers grew at a CAGR of around 22% followed by containerisation at 16% and iron ore at 12%.

Major and Minor Ports

According to the Economic Survey FY08, the annual aggregate cargo handling capacity of major ports increased from 456.20 MTPA in 2005-06 to 504.75 MTPA in FY07. During FY08, major ports handled cargo traffic of 519.15 million tonnes, a 12% increase on a y-o-y basis. Dry and liquid bulk constituted around 80% of the total volume of ports’ traffic, with the remaining consisting of general cargo, including containerised cargo.

Kandla Port contributed around 12.5% of the total cargo handled by major ports followed by Vishakhapatnam (12.4%) and Chennai and Mumbai (11% each). During FY08, Kandla Port accounted for maximum number of liquid bulk vessels; whereas Paradip and Mumbai accounted for most number of dry bulk and break bulk vessels, respectively.

The Jawaharlal Nehru Port Trust (JNPT), India’s largest container port, handled roughly 3.3 million TEUs in FY07. It also displayed the least average turnaround time of 1.67 days. In 2008, JNPT handled cargo traffic of 55.75 million tonnes with a y-o-y increase of 24.41%. The increase in traffic handled by JNPT is highest in comparison with other major ports, followed by Kandla (22.48%) and Tuticorin (19.33%).

In FY08, Kandla Port was the forerunner in maritime transport of POL whereas Mormugao and Paradip ports took the lead in shipping iron ore and thermal coal, respectively. Paradip Port registered the highest trade of thermal coke and fertilisers in volume terms. The major ports operated at an average capacity utilisation of around 90% in FY07, with Chennai Port and Mormugao Port functioning at the highest level of beyond 100%, whereas Paradip Port operated at the least efficiency rate of 69%.

The major ports handle about 71.4% of the total cargo traffic and 28.6% is handled by the non-major ports; however, the share of non-major ports in cargo traffic increased from 11% in 1995-96 to 28.6% in FY07. Traffic handled by minor ports increased by a CAGR of 15.3% during 2003-2007. In FY07, POL products accounted for around 47% of the total commodities handled at non-major ports. Gujarat alone accounted for maritime transport of 88% of POL products.

Apart from the increase in India’s seaborne trade, one of the other reasons for rising development of non-major ports could be the proactive behaviour of state governments by enabling private sector participation in various ways. One such example is of the Kerala Government, which has completed a feasibility study of road and rail connectivity to ports with expected investment worth Rs 120 billion for development of minor ports over the next 3 years.

Also, major ports in India are yet to meet international shipping standards in terms of vessel turnaround time, cargo handling, berth occupancy, sophisticated equipment etc. With such bottlenecks, private port developers and shipping companies have started paying special attention to minor ports as a mode of alternative investment and transport. Minor ports are already being recognised as strategic investment points and are being developed by domestic and international private investors — such as the Pipavav Port which is being developed by Maersk, and Mundra Port is being developed by Adani Group (with a terminal operated by P&O). Minor ports can capitalise on the fact that they remain beyond jurisdiction of major port tariff authority. Moreover, they enjoy the advantage of proximity to local manufacturers who can thus incur lower inland transport cost. Thus, minor ports are a formidable factor that will drive economic growth in near future.

Investment Plans

Quality of port infrastructure contributes directly to a country’s global competitiveness and economic growth as its quality facilitates movement of cargo and stimulates trade. In the past, port infrastructure development in India has not kept pace with the growth in economy, especially the growth in merchandise trade; as a result, several major ports are congested and offer inefficient services as they need huge investments to improve their infrastructure quality. The National Maritime Development Programme’s infrastructure development projects includes projects related to port development such as construction of jetties, berths, etc, procurement, replacement or upgradation of port equipment, deepening of channels for improvements in drafts projects related to port connectivity, and other related schemes.

According to the statistics provided by Indian Ports Association, as on March 31, 2008, there were 17 operational projects worth around Rs 51.5 billion, 8 projects under implementation worth Rs 54 billion and 27 projects in the pipeline awaiting confirmations worth Rs 206.5 billion. In a report by the Task Force on ‘Financing Plan for Ports’ released by the Planning Commission in July 2007, the task force estimates an investment of Rs 574.7 billion for port infrastructure development with PPPs accounting for more than two-thirds of the investment.

Challenges and Outlook

The Central and state governments are making continuous efforts to improve the situation of major ports. However, in spite of numerous initiatives, ports continue to face problems, in terms of inadequate capacity, higher turnaround time, limited cargo handling facilities, too many manual documents, space constraints, and many others. In fact, inadequate port capacity has turned out to be a major concern for Indian ports. JNPT, for instance, is facing major congestion due to slow evacuation. Major ports are handling cargo more than they are designed to handle. However, capacity enhancement is imperative due to steady growth in India’s merchandise trade and increasing pressure on seaborne trade. The bottlenecks have resulted in average turnaround time in major ports increasing marginally from 3.5 days to 3.6 days and has lower occupancy rate of ports. In India, road network is also quite poor. In addition, roads within most ports are not designed to handle current load of cargo and are also narrow. As a result, there is congestion at the ports and the vicious circle is repeated. Major ports in India also face other problems such as shortage of storage space, low labour productivity, low IT application, and other such constraints.

Indian ports accumulate silt at a faster rate and the amount of dredging for deepening the channels and berths are increasing. Kandla Port, for instance, located in the Gulf of Kutch, requires maintenance dredging in the navigation channel on a daily basis. State-owned and private ports in India tend to recover dredging costs from incoming and outgoing ships through the ship-calling fee. Ports not only have to bear dredging costs, which affects their overall development, but they also lose out on big vessels, who load their cargo at other ports due to silt accumulation.

According to a study by the Inter-Ministerial Group (IMG), dwell time, that is, the duration during which, a vessel stays in the port for service, turned out to be an area of major concern. It was found that the average dwell time for containers at major Indian container terminals is 1.88 days for imports and 3.78 days for exports, whereas in Singapore it is 0.6 days for exports and imports each. Interestingly, it came to light that the port authorities are responsible for 3.5-5.5 hours for import containers and 3.3-5.3 hours for export boxes. Rest of the delay is on account of various external stakeholders such as shipping and clearing agents, customs, transporters, and other parties responsible for various pre-and post-shipment activities.

In the port and shipping industry, ship size is an effective indicator for measuring size and character of ports. Emergence of large-sized vessels is expected to significantly affect functioning of ports. By end of 2008, vessels of 6,000 TEU or more are expected to constitute around 25% of the global container fleet capacity. In FY04, the average dead weight tonne (DWT) of a container vessel was 79,758 and its carrying capacity was 6,425 TEU; and this was expected to increase to 99,000 DWT and 8,100 TEU by FY08. Ports with inadequate draft or depth at berths and channels tend to lose out on bigger ships, which load and unload more cargo. The draft available at international ports ranges from 12m to 23m whereas, except for Kandla, Mundra and Ennore ports, other Indian ports have an average draft ranging from 8m to 12m; hence, they are not able to handle new generation container vessels.


Although traditionally ports have been controlled by governments, the landscape is changing in India too with participation from foreign players such as Maersk, Dubai Ports International, PSA Singapore etc. Comparison with competing ports on average turnaround time for example, Hong Kong at 10 hours as compared to India’s 3.6 days have forced the government to realign port development plans. Initiatives undertaken by the government regarding maritime sector are concentrated on issues of mismatches of capacities and traffic at major ports, technology development through public-private participation, and others.

One such prominent initiative is the 2006 National Maritime Development Programme (NMDP) of 387 projects in major ports, shipping and IWT sectors; of which 276 projects in the port sector have been identified for implementation by 2011-12. The programme envisages a total investment of around Rs 1003.4 billion, out of which, Rs 558.0 billion is chalked out for major ports, and Rs 445.4 billion for shipping and IWT sectors, according to the Department of Shipping Annual Report 2007.

According to the report of task force, the major ports are projected to handle traffic of 708 MMT by 2012. Overall capacity at major ports is estimated to grow from 456 MMT in FY06 to 1,002 MMT by FY12 by more than 100%. Indian ports are in serious need for expansion of their current traffic handling capacity. The country's booming economy along with its foreign trade have given a tremendous boost to the sector, which has been instrumental in increasing India's share in world trade from 0.9% in 2004 to 1.2% in 2006.

The Foreign Trade Policy 2004-2009 is focussed on promoting exports through a plethora of measures such as extension of DEPB scheme till May 2009; reduction of customs duty payable under EPCG scheme from 5% to 3%; lowering of average export obligation under EPCG scheme and extension of income tax exemption to 100% EOUs beyond 2009, among others. With the vision of achieving 5% world trade by 2020, Indian ports will have to play a greater role in the country’s economic development in the near future.