INDIAN PORTS

Port Sector: Issues & Challenges India’s seaborne trade 95% by volume & 67% by

value Length of the coastline 7,517 km - 9 maritime States & 5 UTs ( including 2 island groups) Parallel competing port management & legal

Systems - 12 under Major Ports Act, 1963 - 1 (Ennore) under Company Act - 184 Non-major portsPort legislation & Structure - Indian Ports Act, 1908 allows Maritime States to set up their

own port systems - Major Port trust Act, 1963, regulates 12 major ports. Major Ports fall under operational & financial control

of M/O shipping & subject to tariff regulation by LawMinor ports: under State Maritime Boards & free from

formal tariff regulation

Growth dynamics of cargo traffic (2000-2011)Overall annual growth (major & non-major) 9.2%Major ports (7.3%) & Non major ports (13.7%)As a consequence share of non major ports in

cargo handled rose from 24% in 2000-01 to 36% in 2010-11

Capacity utilisation around 90% at Major portsHighest annual growth in container traffic (15%)Containerisation at about 2/3rd of general cargo

compared to global levels 80% plus.Container traffic has grown, but is uneven in pace,

demand centred in North West Hinterland (60%)Indian ports have low draft, makes access of large

bulk vessels problematic. Entails higher unit shipping cost for low value items.

Leads to higher turnaround time & small parcel size.

Major & Minor Ports: Share in Cargo Traffic

(In Million Tonnes)

PORTS 1990-91 2000-01 2005-06 2010-11(P)

Major 151.67(92.2)

281.13(76.3)

423.57(73.2)

569.92(64.4)

Non- Major 12.78(7.8)

87.37(23.7)

155.42(26.8)

314.55(35.6)

All Ports164.45(100.0)

368.50(100.0)

578.99(100.0)

884.47(100.0)

Figures in Brackets indicate percentage to total

Recent developments – select projects

Dhamra: IO & Coal, 2009

Gangavaram: Coal +, 2008

Krishnapatnam: Coal, IO, 2008

Karaikal: Coal +, 2008

Select recent projects and

expected dominant

commodities

• Recent capacities added to minor ports

•Dominated by bulk capacities on the east coast

World Top 10 Cargo PortsPort 2008 (Million Tonnes) 2009 (Million Tonnes)

1.Shanghai (PRC) 582.0 590.0

2Zhoushan/Ningbo (PRC) 520.1 570.0

3.Singapore 515.4 472.3

4.Rotterdam 421.1 387.0

5.Tianjin (PRC) 355.9 380.0

6.Guangzhou (PRC) 344.3 375.0

7.Qingdao (PRC) 300.3 315.5

8.Qinhuangdao (PRC) 252.2 243.8

9..Hongkong (PRC) 259.4 243.0

10..Busan (S.Korea)) 241.7 226.2

India (total) 744.0 (2008-09) 884.5 (2010-11)

Major Ports 530.8 (2008-09) 569.9 (2010-11)

Kandla 72.2 (2008-09) 81.9 (2010-11)

Source:For S.No.s 1-10, Port of Rotterdam ,Statistics,2010

World Top 10 Container PortsPort 2008 (Million TEUs) 2009 (Million TEUs)

1. Singapore 29.92 25.87

2.Shanghai (PRC) 27.98 25.00

3.Hong Kong (PRC) 24.49 20.90

4.Shenzen (PRC) 21.40 18.25

5.Busan (S.Korea) 13.45 11.98

6.Guangzhou (PRC) 11.00 11.19

7.Dubai Ports (UAE) 11.83 11.12

8.Zhoushan / Ningbo (PRC) 11.23 10.50

9.Qingdao (PRC) 10.32 10.26

10.Rotterdam (Netherlands) 10.78 9.74

India

Major Ports 6.59 (2008-09) 7.54 (2010-11)

JNPT 3.95(2008-09) 4.27 (2010-11)

Source:For S.No.s 1-10, Port of Rotterdam Authority, May 2010.

India’s Major Ports:APBT (2010-11

Enno

re

NMPT

Chenn

ai

Vizag

Para

dip

Cochi

n

Kolkat

a

Mum

bai

Tutic

orin

JNPT

Mor

mug

ao

Haldi

a

Kand

la0

5

10

15

20

25

30

35

40

00.7000000000000011 2.3 2.54.6 5.8

7.79.4

13.7 14.2

27.6

36.2

Average Pre- Berthing Time (APBT) in Hours

Ports

Hours

Draft and Average Parcel Size

Port PPT KOPT HDL TPT MBPT JNPT COPT PT KPT CHPT NMPT

MOPT ENNORE

Draft (Mtr)

12.8 5.3-8.4 6.7 10.4 10.9 11.0 12.8 10.7-20.0

4.6-23.5

12.0-17.4 (OH)

15.4 14.4 16.0

Chenn

ai

Kolkat

a

Haldia

Tutic

orin

Mum

bai

JNPT

Cochin

Viza

g

Kand

la

New M

anga

lore

Mom

ugao

Para

dip

Enno

re0

50001000015000200002500030000350004000045000

28687227

14986 16510 1742019582 19833

27259 28555 3001333883

3710139494

Average Parcel Size (Tonnes) 2009-10

Ton

nes

Major Ports: Non Working Time at Berth

JNPT

Kand

la

NMPT

Enno

re

Mor

mug

ao

Cochi

n

Tutic

orin

Chenn

ai

Vizag

Mum

bai

Para

dip

Kolkat

a

Haldi

a0

10

20

30

40

50

60

12.817 19

21.5 23.4 23.8 25.8 27.6 28 29.432.3

36.7

49.5

Percent of idle time to total time at Berth

Ports

Perc

en

tag

e

Port Call Charges (US$) (24Hrs stay of 50000 GRT vessel 2009-10 )

Sing

apor

e

Jebe

l Ali

Colom

bo

Hong

Kong

Shan

ghai

Cochin

JNPT

Chenn

ai0

10000

20000

30000

40000

50000

60000

23876958 9552 9733

18946

2633031727

50634

Ports

Port

Call C

osts

US

$

Source: Task Force on Transaction Cost in Exports, 2011, Ministry of Commerce and Industry

Efficiency of Container Terminals at Major Ports:2009-10

Performance Indicators of select container terminals

Port/Terminal Moves/Hr TEU/Mtr.TEU per

EmployeeDwell Time

(Days) TRT (Day)

Tuticorin 25 1187 3008 2.6 0.8

Chennai 27 1286 2797 2.0 1.1

JNPCT15 1142 829 2.0 2.0

JNPT - NSICT24 2553 3563 2.5 1.6

JNPT - GTICT30 2462 3265 2.9 1.1

Cochin16 536 579 6.4 1.4

TEU per meter of Berth

Global Median=945

Tutic

orin

Chenn

ai

JNPC

T

JNPT

-NSICT

JNPT

-GTICT

Cochin

Busa

n

Shan

ghai

Hong-

Kong

Sing

apor

e

Dubai

0

500

1000

1500

2000

2500

3000

1187 12861142

2553 2462

536

2122 2061

2661

2109

1418

Productivity of Gantries (Moves/Hr), 2009-10

JNPT

COCHIN

VCTP

L

NSICT

PSA

SICAL

CCTL KPT

GTICT

Salalah

PSA

Shan

ghai

Port

Klan

g

Hong

Kong

Dubai

0

5

10

15

20

25

30

35

40

45

15 1620

24 2527 28

30 30

35 35 35 3640

Port

Global median mover per hour 30

Turn Round Times: Global Comparisons

10

10

10

11

12

12

18

19

20

22

48

59

Singapore

Shanghai

Dubai

Hong Kong

Rotterdam

Los Angeles

JNPT

Chennai

Tuticorin

Mundra

Pipapav

Cochin

13

14

16

17

18

18

27

28

29

32

37

46

Los Angeles

Cochin

Hong Kong

Singapore

Rotterdam

Mundra (Adani)

Pipavav

Shanghai

Dubai

JNPT

Tuticorin

Chennai

Indian ports have much longer vessel turnaround times than global best practices

1 Derived from several months of Maersk Line’s recorded statistics of port entry and exit times of their vessels

SOURCE: Maersk Line website

Vessel time spent in port1, hours, 2010

MAERSK LINE EXAMPLE

Actual time spent in port … … normalised for 1,000 TEU call

Indian ports

Quayside Productivity: Global Comparisons

141

166

189

192

207

Terminal quayside productivity at Indian ports is far below global figures

1 Pipapav is in ramp-up phase

SOURCE: Containerisation International

2008

▪ Mumbai is the only port that comes close to quayside performance of best practice ports

▪ Quayside performance partially affected by scale

▪ Mumbai is the only port that comes close to quayside performance of best practice ports

▪ Quayside performance partially affected by scale

Pipapav1 188

Cochin 612

Mundra 666

Tuticorin 1,185

Chennai 1,356

JNPT 1,639

Colombo 1,259

Port Klang 1,307

Singapore 1,730

Hong Kong

2,205

T. Pelepas 2,593

= /32

86

84

146

171

164

173

141

126

123

126

100

84

87

80

112

127

TEU/quay meter/yr ’000 TEU/STS crane/yr STS crane spacing (m)

Dwell Time: India Vs BestIndian ports have much higher dwell times than global best practices

SOURCE: Report of the inter-ministerial group on reduction of dwell time in Indian ports, 2009

Number of days, 2006

Import Export Import Export

+86%

Best practice 14

Indian worst 64

Indian best 13

Indian average 261

+43%

14

34

13

201

+186%

0.6-0.8

8.2

1.2

2.0

+443%

0.6-0.8

6.5

1.0

3.8

Dry bulk Container

1 Recent Indian average figures from Indian Ports AssociationNOTE: Based on best practices at Rotterdam and Singapore ports. Singapore is a transshipment port and thus, may not be exactly comparable

Impact of External Factors-Dwell Time

Parameter India Singapore Denmark

Automation Few processes automated

All custom procedures processed on line via trade net; 90% within 10% minutes of submission

All customs declaration filed & processed electronically

Single Window No single window concept in use

Single window facility via trade net with links to 34 agencies; unique registration no. required

Single window service single unique registration number required

Examination Risk management system (RMS) in operation; 50% still physically examined

Mainly post audit controls and use of non intrusive technology for examination

3 tier RMS & only 2 to 5% goods physically examined

Help desk No single help desk exist Outsourced call centre 24*7 Outsourced call centre 24*7

Duty structure Reduced levels but multiple rates with exemptions makes export promotion cumbersome & complicated

Single low duty rate, GST not paid on input for exports

Single low duty rate, duty refund on inputs used in exports

Source: Based on Task Force on Transaction Cost in Exports, 2011, M/o Commerce and Industry

Moving Containers: Distribution of costs

The cost of moving a container fall into five major categories and the distribution of costs (as percentage of total costs) of moving containers is as follows:

- inland transport (25%) - the ship/ocean freight costs (23%) - ports and terminals (21%), including

stevedoring - the containers (18%), including maintenance - other costs, including container repositioning

(13%)

Source: Jean-Paul Rodrigue, Hofstra University; Martin Stopford, is the drive for ever bigger container ships irresistible? Lloyd’s list shipping forecasting conference, April, 2002 quoted in Fairplay.com.uk

Costs & Procedures in Foreign Trade

India China Malaysia

Korea Singapore

Documents for Export (Numbers)

8 7 7 3 4

Time to export (Days) 17 21 18 8 5

Document to import (Numbers))

9 5 7 3 4

Time to import (Days) 20 24 14 8 3

Cost to export * 945 500 450 742 456

Cost to import* 960 545 450 742 439

* US $ per container. Source: Doing Business 2010, IFC

Port Management ModelsPort Type Infrastructure Super

structureStevedoring

labourOther

functions

Service port(Major Indian Ports

Public Public Public Mainly public

Tool port(France,some African nations)

Public Public Private Mainly public

Landlord port(Antwerp,Rotterdam,Singapore etc

Public Private Private Mainly private

Private port(UK,New Zealand)

Private Private Private Mainly private

When to Regulate?Market powerImperfect & Asymmetric information:

Operator (Agent) has an informational advantage over the Government/Regulator (Principal)

Externalities: occur when production or consumption of goods/services impose costs/benefits on others which are not reflected in the prices charged for the goods & services being provided

Joint provision & consumption

Starting Point: Efficient Markets

P

Pc

Qc Q

D

S = Marginal Cost

Pc = Marginal Revenue

Optimum: MR = MC

Social Welfare = Consumer Surplus + Producer Surplus

Philosophy of RegulationCase for Economic Regulation

exists when:◦Activity or industry has elements

which bestow advantages of natural monopoly, it occurs when: Industry/Activity has large sunk costs

and falling average costs Significant barriers to entry Locational advantages which bestow

near monopoly advantages on the operator

The economic Characteristics of Port Infrastructure

The basic port infrastructure is: - indivisible & requires large sunk costs -long lived -constructed in a specific space for a specific

use=> Perfect conditions for the existence of scale

economiesThe most obvious difference with other public

services: - Multiple services associated with the port

infrastructureThis multitasking dimension matters a lot when

thinking about economic regulation, including pricing

- the infrastructure provide a service: you can charge a price

- the infrastructure is an input: you can charge a price

Why Tariff Regulation in PortsPort Trusts (PTs) can not regulate

their own tariffs or of Terminal Operators due to◦Conflict of Interest◦Being Competitors◦Need to safeguard user’s interests

Therefore, the need for 3rd Party Neutral Regulator

Charter of TAMPTo fix scale of rates :For services rendered by the portsRentals for use of port trust propertiesFix charges for services rendered by port

operators (BOT, concessionaries etc. under MPT

Prescribe conditions for services rendered by Port Trusts/operators.

Guiding PrinciplesSafeguard the interest of port users;Just and fair return to operatorsPromote economy in use of resources &

efficiency

Tariff Guidelines 2005: ApproachAnchored on cost plus basisCost as per estimate for future & ROCE

determine tariffRevenue share/royalty not treated as cost

- Except in cases prior to July 29, 2003 subject to a maximum of second lowest bidder

ROCE is on sum of net fixed assets plus working capital

Return on capital allowed 16% as of now- full ROCE allowed for capacity utilization of 60% & above.

Tariff Guidelines 2005 ApproachTariff approved by TAMP valid for 3 yearsRates fixed by TAMP are ceiling rates

-Ports/operators enjoy flexibility to offer rebates

Tariffs fixed are -Vessel related (port dues, berth hire on GRT basis) -Pilotage sliding rates (higher for higher GRT)-Cargo related (wharfage rates) based on cargo handling

Concessional tariff for coastal cargo/containers/vessels -60% of normal tariff applicable -coal, POL & iron ore are not eligible.

Tariff Guidelines 2005:IssuesInformation intensive exerciseToo much emphasis on individual

operator’s profitabilityWeak incentives for efficiencyDisallowance for revenue share

in tariff and its long term effects◦Partial pass through of

royalty/revenue share for private terminals which came prior to July 2003.

Tariff Guidelines 2008Simple & Norm basedNo provision for midterm review

◦Unchanged Tariff for 30 years May not encourage regular investment by

operators or May bestow windfall gains on operators if

any change in planning/parameters

Norms do not cover all areas of operations

Upfront Tariff Guidelines 2008Committee on infrastructure found that

combining cost plus model of tariff and revenue share model of bidding was untenable

Recommendations ◦Upfront tariff◦Uniform tariff cap at the same port◦Normative cost based with fair return on

capital◦Capacity utilisation of 75% ◦Tariff caps to be reviewed once every

five years to adjust for any unforeseen events

◦Tariff indexed to 60% of WPI variationGuidelines for upfront tariff setting for PPP

projects◦ Notified in the Gazette on 26.2.2008

Salient Features of 2008 Guidelines

TAMP to fix upfront tariff cap before bidding based on proposals from major ports◦ Bid document to incorporate the upfront tariff◦ Tariff cap set for a port would be applicable to all

projects bid out subsequently for identical cargo during the next five years

Approach – Normative cost based approach◦ Estimated capital and operating cost based on

norms prescribed◦ Fair rate of return on capital employed (presently

@ 16%)Annual indexation of upfront tariff

◦ 60% of the variation in the WPI of the relevant year

TAMP to review tariff caps◦Once in five years for extra-ordinary events◦Revised tariff caps applicable to

subsequent PPP projects

Fixation of Upfront Tariff

Capacity Tariff to be fixed with reference to the

optimal capacity irrespective of traffic forecast

Indicative norms for capacity are prescribed in the guidelines for handling containers, iron ore, coal, liquid bulk and multipurpose cargo

Optimal capacity is 70% of the maximum capacity◦ Lower of the quay capacity and stack yard

capacity is to be adopted

Current Issues: Port TariffsTariff Models

◦Tariff Guidelines 2005◦Tariff Guidelines 2008

Non Major Ports outside tariff regulation

Inadequate Statutory Powers◦No power to compel submission of

information & documents◦No power to enforce its Orders

Rate of Return RegulationTariffs are set to generate Annual

Revenue Requirement enough to recover operating costs and fair/predetermined return on capital;◦In essence limits the level of profit to be

earnedOperator’s cost are reviewed & costs

deemed unnecessary eliminated.◦Problem in determining allowable costs

No incentive to operate efficientlyOperator may over invest

Guiding PrincipleRegulator sets regulated rates or tariffs for

the regulated entities so that the regulated rates allow the entity to earn a revenue that covers the “justified costs” of their operation, that is the costs that are necessary, unavoidable and reasonable and offer a predetermined return on assets to render regulated service at a predefined level of quality

Revenue Requirement=Total Cost=Variable Cost+(Rate level*Rate Base)

Pitfalls of Cost Plus RegulationMotivation for over-investment

(increased rate base) – ‘gold plating’No motivation to increase productive

efficiencyContinuous pressure for price increase No incentive for selection of right

equipmentInformation asymmetry at the

regulator’s side: - no up-to-date operating cost

information - no data on future business plans

(investments, cost-reduction, etc.), - obscure picture on demand side.

Port pricing Models: Theoretical PerspectivePresence of economies of scale

=> problem to implement a first best pricing policy (price equal to marginal cost) => not possible to recover investment costs.

Second-best alternatives, common to other transport sectors, are:

- Average-cost pricing, - Two- part tariffs, - Long-run marginal cost pricing,

and the use of rental fees from concessionaires.

Port pricing Models: Theoretical PerspectiveThis possible alternative: long-run

marginal cost (LRMC) It is defined as: short-run marginal cost (SRMC)+ the marginal cost of capacity (MCC)

LRMC = SRMC + MCC which keeps the idea of social optimality, and at the same time, achieves full cost recovery

The idea could be: SRMC: paid by the ships MCC: paid by port services operator

Regulation Versus Market FailureAre there regulatory errors in

setting prices?Is regulation intrusive and costly?Does it discourage long term

investment?Too much focus on short term

cost/pricesIs regulatory innovation desirable

Issues in Port Sector• Why are vessel related charges higher at Indian Ports.• What makes high turnaround time and pre berthing

detention at Indian Ports- lower levels of technology & lack of coordination amongst stakeholders

• How to make Indian Port sector vibrant?- Change in institutional structure(Trusts versus Corporatized entity)- Does ownership matter ? All Ports in Europe (except in the UK),Dubai, Singapore etc

owned by the State

- Synergy with trade and industrial policy (SEZs and FTZs).

• Are port related charges villain of the piece?- No, port related charges account for around 10-15% of total logistics cost.- High inland transit costs, connectivity constraints influence cargo flows/costs.

Issues: Port Sector Captive versus common carrier terminals Inter port and intra port competition

• Inter port competition constrained by hinterland economic activity, connectivity & inland transit costs

• Intra port competition can serve to mitigate the pricing power • Intra port competition may be ineffective in situations where

ownership is concentrated Financing of port infrastructure Land acquisition and environmental clearance

- long gestation period for green field port projects (15 years)

Scale of operations at Indian Ports- Fragmented and small compared to China- Combined throughput at Major Indian Ports barely matches that of Shanghai alone.

Draft limitation restricts access of large vessels to Indian Ports resulting in: - More number of ship calls leading to congestion- Higher demand for berthing

Hinterland•Level of Economic Activity•Road/Rail Network•Material Access•Feeder Services Port Performance -

Sum of parts!Efficiency improvements should target the entire sphere of activities and

result in increased competitiveness

Technology•Port Equipments •Software applications •IT based custom & security•Communication system

•Master Plan & port capacity •Level of congestion•Ability to handle large ships•Geographical location

•Management practices•Customer satisfaction•Personnel quality & motivation

•Crane productivity•Yard equipment planning & productivity•Gate productivity•Equipment Utilization•No. of berths•Port Charges

Port System Efficiency is the Key

Intangible Factors

Terminal Efficiency

Physical Features of Port

Key Developments during H1 2012-13 (Apr-Sep)

CONCERNING CARGO GROWTH AT MAJOR PORTS:

3% decline in the cargo growth registered in volumes on a yoy basis to 271 MT for the six months period ended Sep 2012.

Ministry of Shipping (MoS) target of major ports crossing the 600 MT cargo mark in FY 13 appears difficult to achieve.

Reasons for degrowth in cargo volumes in the current fiscal: 1. Continued pressure on iron ore exports due to regulatory

issues in the domestic mining sector and weak global demand conditions.

2. Reduced fertilizer and fertilizer raw material imports due to low domestic demand and high global prices.

Modest growth rates in case of other cargo categories including coal, containers and POL ranging from 2-4% on a yoy basis.

CONCERNING CARGO GROWTH AT NON-MAJOR PORTS:

Healthy growth period on period for the non major ports namely Adani Ports and Special Economic Zone Limited (APSEZL); Essar Ports Limited (EPL) and Karikal Port Pvt Limited (KPPL).

Gujarat Pipavav Port Limited (GPPL), the operator of Pipavav port in Gujarat has been the only exception to this trend with degrowth being experienced by it in both bulk and container categories due to market related reasons.

CONCERNING CAPACITY EXPANSION:

Limited progress on new awards at both major and non major ports.

Till date only 3 PPP projects have been awarded, hence the PMO set target of 42 projects for fiscal 2013 appears ambitious and difficult to achieve.

Some initiatives like enhancement of the financial powers of Ministry of Shipping taken recently, however their actual impact in terms of pick up in pace yet to be seen.

Ports: Union Budget 2013-20142 new major ports will be

established in Sagar, West Bengal and in Andhra Pradesh adding about 100 MT of capacity.

A new outer harbour will be developed at Thoothukkudi, Tamil Nadu at an estimated cost of Rs. 75 billion.

THANK YOU