New Delhi: A capacity crunch at India’s ports, in terms of handling cargo shipped in steel containers, is severely hampering the country’s external trade, raising transaction costs and delaying the time taken for exports and imports.
Experts say India is beginning to pay the price for not creating adequate port capacities in advance. About 95% of the country’s external trade by volume, and 70% by value, moves by sea.
Containerized cargo represents about 30% by value and 55% by volume of India’s external trade and this proportion is growing rapidly as more high value goods are shipped in containers. Globally, 75- 80% by volumes of trade happens through containers.
At a growth rate of 18-19% a year, India’s container cargo traffic is estimated to reach 21 million twenty-foot equivalent units, or TEUs, a year by 2016. A TEU is the standard size of a container and is a common measure of capacity in the container business.
“The container traffic growth at Indian ports has been stifled by low capacity creation,” said S.N. Srikanth, founder and senior partner at maritime consultancy firm Hauer Associates.
The situation has reached a critical stage at the country’s biggest container port, located in Navi Mumbai, which accounts for more than 60% of India’s container cargo traffic of about 7.5 million TEUs.
Overloaded: JN Port handled 4.06 million TEUs last fiscal, though its three terminals are designed to handle only 3.6 million TEUs a year. (Ashesh Shah / Mint)
“Each of the three terminals at Jawaharlal Nehru Port are operating at 110-120% of their capacity when, ideally, they should not be operating at anything more than 90%,” said D.K. Tewari, chief executive officer of MSC Agency (India) Pvt. Ltd, the Indian unit of Mediterranean Shipping Co. SA, the world’s second biggest container shipping firm.
JN Port handled 4.06 million TEUs in the last fiscal year. Its three terminals together are designed to handle only about 3.6 million TEUs a year. The three terminals are respectively run by DP World, the world’s fourth biggest container port operator, owned by the Dubai government; a consortium of APM Terminal and state-owned Concor; and by the government-owned port itself.
JN Port gives windows to container shipping line operators to call at the berths on a back-to-back basis for a certain time without taking into account productivity of the terminal and other factors. “If the terminals are congested and the productivity comes down in terms of number of crane moves per hour, ships are not able to unload and load containers within the stipulated time allotted by the port. Yet, ships are asked to move out before the loading is completed because there are other ships waiting at the anchorage. This is exactly what is happening at JN Port,” said Tewari.
The result: Every day, more than 50,000 containers pile up at the berths waiting to be cleared. “There are evacuation blues at JN Port. The situation will worsen during the monsoons. And, if the cargo doesn’t get evacuated, then the shipping lines will start imposing a surcharge,” said Anil Devli, executive director, Shreyas Shipping and Logistics Ltd.
Ships will have to pay penalties (called demurrage) for staying longer at the berth beyond the stipulated time for unloading and loading cargo. Extra days spent at a port also mean revenue loss for shipow-ners because the ships are not available for hire elsewhere.
“Ships waiting at the port is bad news for the country. The shipowner will pass on the extra charge and ultimately the trade pays for that,” said Sandeep Mehta, chief executive officer of Mundra Port and SEZ Ltd which runs the Mundra port in Gujarat.
Container terminals at Chennai and Tuticorin ports on the country’s eastern coast could also run out of capacity soon. All this is taking a heavy toll on India’s exporters and importers who are already burdened by higher transaction and logistics costs and cumbersome documentation. “In terms of transaction and logistics costs, documentation and time, India is very expensive,” said Sudhir S. Rangnekar, managing director and group chief executive officer of Chennai-based logistics firm Sical Logistics Ltd.
According to the World Bank, it costs $1,148 for importing a cargo container into India and $820 for exporting one from India. In comparison, importing a container costs $367 in Singapore while it costs $390 for exporting a container from China, an export-driven economy.
It takes 21 days each for importing or exporting a container into and from India. It takes three days to import one in Singapore, and just five to export one from Denmark.
In India, nine documents need to be filled out by firms importing cargo in containers and eight by those exporting. The comparable figures for Denmark are three and two.
In most countries, container traffic grows at three times the GDP growth rate. But, in India, growth in container traffic has behaved strangely.
“Even as the GDP was rising steadily over the past three years, the container traffic growth went up, then down and up again. It’s been bungee jumping,” said Srikanth of Hauer Associates.
Container traffic grew by 17.1% in 2003-04, slowed to 7.8% in 2005-06 and went up to 18% in 2006-07.
“This bizarre movement in port container traffic when the GDP has been rising can be attributed to the fact that about 56% of port development projects announced have not been initiated on time,” Srikanth added.
The result is overcapacity for those that do. Gateway Terminals India Pvt. Ltd, the newest of the three container terminals at JN Port, run by APM Terminals-Concor consortium, handled 1.29 million TEUs in its first full year of operations to March 2008. It started operations in October 2006. According to the 30-year contract between the firm and the port, the terminal was mandated to reach this level of traffic in its fifth year of operations. “So, in less than two years, the terminal has reached saturation point,” said Srikanth.
This terminal has surpassed all projections of traffic, he added.
The JN Port management has been pushing the shipping ministry to develop a fourth terminal at a cost of Rs6,035 crore that can handle 4.6 million TEUs and another small terminal at a cost of Rs600 crore that can handle 600,000 containers a year. These, though, are yet to be approved by the government.
Even if they are approved now, it won’t help tide over the capacity crunch. The government typically takes several months to complete the bidding process and award contracts in the ports sector. It then takes between 18 months and 24 months, on an average, for the private firm that wins the contract to develop the project and start operations.
“Any delay in capacity creation will create havoc with the trade,” said S.G. Shyam Sundar, principal at IDFC Private Equity Co. Ltd.
“That’s why it is very essential to create capacity ahead of demand,” said Mehta of Mundra Port.