Ocean logistics: charting India's future

With India placing significant emphasis on manufacturing and international trade, the maritime sector has acquired prominence. Lionel Alva explores the implications of key policy changes in the shipping industry and assesses whether these initiatives would meet the infrastructure needs of the country’s manufacturing sector.

India is on the verge of a sea change, in terms of manufacturing and logistics. With the weakening of China’s economy, India hopes to take centre-stage in the world trade scenario. A confluence of factors, led by a regime change and further liberalisation of Foreign Direct Investment (FDI) are driving the country’s growth story.

Considering India’s aspirations of becoming a leading international manufacturing hub, there has been an increased emphasis on developing logistics infrastructure. Ergo, to enhance connectivity, the country’s Ministry of Railways will be taking up 21 port-rail connectivity projects, at an estimated cost of more than Rs 20,000 crores, as identified under the port-connectivity enhancement objective of Sagarmala, the flagship programme of the Ministry of Shipping. Under the programme, emphasis will be placed on port-led direct and indirect development and to provide infrastructure to transport goods to and from ports quickly, efficiently and cost-effectively. Therefore, the Sagarmala Project shall, inter alia, aim to develop access to new development regions with intermodal solutions and promotion of the optimum modal split, enhanced connectivity with main economic centres and beyond through expansion of rail, inland water, coastal and road services. Especially considering that most of the country’s trade happens by sea, the focus has been on boosting the country’s maritime capacity. So much so that around 95 percent of the country’s trade by volume and 70 percent by value is done by maritime transport, according to the Ministry of Shipping. With a coastline of 7,517 km, the country is the sixteenth largest maritime nation, in the world. Presently, the country has 187 non-major ports and a dozen major ones. Cargo traffic is expected to reach 1,758 MMT by 2017 from the present 1,052 MMT. Recent government initiatives such as 100 percent FDI under the automatic route for port and harbour construction as well as maintenance projects has provided a further boost to the sector. Dahej Port - ADANI Group

Port sector overhaul Recognising the importance of the port and terminals, The Indian Minister for Shipping, Road Transport and Highways, Nitin Gadkari, announced a significant investment in India’s ports and roads sector, which is likely to help boost the country’s economy.

“The 12 major ports in the country saw capacity addition of a record 94 million tonne (MT) last fiscal ended March 31, earning a Rs 4,268 crore profit on the back of various government initiatives. Projects worth Rs 72,818 crore have been awarded for ports modernisation as well as new port/terminal development. We have made several improvements in port sector. In two years we will have better port rail connectivity. If we keep thermal power plants near ports we can have a benefit of Rs 10,000 crore in terms of power savings. We are building eight more ports. Three are being built this year. Technology is the key. We can have massive savings with automation and Indian ports must keep up with the best ports in the world,” highlights Nitin Gadkari, Union minister for roads, transport and shipping, Government of India in a conference held at Mumbai recently. Recently, the minister also held bilateral talks with Anthony Foxx, the US Secretary of Transportation, in Washington with an objective of strengthening and expanding India’s relations with the US by enhancing bilateral cooperation in infrastructure sector. The minister highlighted investment opportunities for the US in the Indian maritime sector. The government has plans to develop 10 coastal economic regions to revive the country’s Sagarmala project. Under the plan, these zones would act as manufacturing hubs, enabled by port modernisation projects and could span 300-500 kilometre of the coastline. The zones would be converted into manufacturing hubs, supported by port modernisation projects, and could span 300–500 km of the coastline. These initiatives are especially pertinent with the country’s growing international trade. For instance, one of the major trade lanes is between India and the Port of Hamburg, which is a major European port. Recent statistics depicting trade highlight that the total throughput in container traffic between India and the Port of Hamburg in 2015 was 237.000 TEU showing a growth of 2.1 percent compared with 2014. This is in accordance to information provided by the Port of Hamburg. India is among Hamburg’s top 10 partners in container trade. This year the first-quarter 2016 again shows with 4.1 percent growth an increase in container traffic with India. Total seaborne cargo throughput was shaped especially by lower container traffic with China, the Port of Hamburg’s most important trading partner by a wide margin. Down 8.0 percent at 651,000 TEU, container traffic with China was 57,000 TEU lower than in the previous year, and as the largest volume fall affected the global total. Overall, according to provisional port statistics provided by JOC.com, India’s major ports controlled by the union government recorded a three percent year-over-year increase in container throughput in fiscal year 2015-16, which ended March 31. The country’s 12 public port trusts cumulatively handled 8.2 million TEUs, compared with 7.96 million TEUs in fiscal 2014-15. Containerised tonnage was also up three percent to 123 million tons. Of that, Jawaharlal Nehru Port Trust accounted for 4.49 million TEUs in 2015-16, up about 0.5 percent year-over-year, surpassing its previous yearly high of 4.47 million TEUs recorded the prior fiscal year, even as congestion and other challenges. Atul Kulkarni, advisor, Indian Ports Association, observes, “Location and the hinterland connectivity are the two most critical factors for economic viability of sea ports. The ships are getting bigger and bigger resulting in emergence of strong ‘hub-and-spoke’ arrangement of ports globally. Ports need deeper draughts to allow higher capacity ships to call which provide economies of scale to EXIM trade. The government is also looking to develop the inland waterway sector as an alternative to road and rail routes to transport goods to the nation’s ports and hopes to attract private investment in the sector. Kulkarni adds, “Intermodal cargo movement is now becoming the necessity considering the emergence of new economic power centres away from the port locations. It is therefore essential to develop a strong network of multimodal comprising of rail, road and water transport facilities. Logistics parks, consolidation centres, etc are emerging projects across the length and breadth of our country. 'Make in India' campaign is aimed at creation of port-based economic activity which will generate new markets for consumption of raw material or creation of finished goods.” As it stands now, the country has allocated less than $4.4 million of public funds for infrastructure development across majors, for the fiscal years 2016-17. Ostensibly, the country, in a bid to increase private sector investment has set up a new department to facilitate private investment, in port and maritime-related projects. Recent government initiatives have also helped India move ahead in the World Bank’s Logistics Performance Index by an astonishing 19 places, this year. Murmugao Terminal - ADANI Group Highlighting recent technological developments, Brijesh Lohia, managing director of Global Ocean Group, said in a press statement, “The application of innovative tagging and tracking, which enables in-transit visibility and real time status update, has been so far successfully adapted in many advanced nations such as America, Japan and Germany. Introduction of the same in India is unquestionably claiming India’s strong position in the global trade map.” Lohia also added that the failure of addressing the logistical issues was the major set-back in the growth of the sector, but this is a history now. The new score will positively benefit country’s economic prospects and we are fortunate to be part of this new wave of developments and recognition, which is expected to get only better once the industry begins to reap. However, despite the widespread acclaim for government initiatives driving the growth in the ports sector, the lack of a long term master plan is cause for much consternation. Deepak Shetty, director general of shipping, Government of India, highlighting the role of the Ministry of Shipping, says, “Clearly we are an organisation that needs to reform further. There is a need for a new framework for the shipping and ports industry every five years. Ergo, we need to look for a more concrete long term plan for the industry. There is a need to bring in more efficiency and optimisation. Today, 75 percent of our procedures are now online. We hope to put in place a new framework for e governance to transform the directorate of shipping to being more user friendly.” While the Sagarmala initiative is a good move, there is much that needs to be done in the sector and a long term vision is perhaps the need of the hour. Since there has to be a focus on developing specialised terminals and other facilities to cater to manufacturing requirements. Vivek S Anand, president, Mumbai and Nhava-Sheva Ship Agents Association (MANSA), asserts, “Two parameters need to be looked at by the government before investing because these are very high investment sectors. One point would be whether India has a master plan or not. What exactly do they want to achieve and what are the timelines for that. In this respect I would think that having anything for a period of five to ten years would not make sense. We need to have a plan that is valid and can be updated but the plan itself should be for fifty to hundred years. They should be able to service the community for that period of time. We must have a master-plan and need to know what kind of terminals and ports we need in which areas.” There is thus a need for ports and terminals to address the specialised requirements of the industry; a need for an overhaul in certain ports and a blueprint for effective terminal design. And while the Public Private Partnership (PPP) model with the liberalisation of FDI would be effective towards bringing in investments, a clear vision of what the requirements of competitive port and terminal design is imperative. Special attention must also be placed on port connectivity to road and rail networks. An all round statutory framework that addresses these requirements would provide the much needed impetus to the ports industry in the country. Vinita Venkatesh, director, KPCT, emphasises upon the need for an all round statutory framework, ‘Krishnapatnam Port is a model port in terms of large port area, plan for 6M TEUs capacity, 18.5 m deep draft, modern cargo handling equipment, uncongested road and rail connectivity. We are keen to march in step with the government to ensure growth of India’s throughput at a rapid pace. In addition to the physical infrastructure, it is important that an all -round statutory framework is in place covering customs, Plant Quarantine, Assistant Drug Controller, Annual Quarantine , etc., so that the trade benefits from the port infrastructure in real terms.” There is also a need to look at international ports and terminal design approaches. Port restructuring is essential if Indian exporters are to be given an opportunity to enjoy the efficiencies and low costs in transportation as are available to their competitors elsewhere. The need of the hour is to build specialised cargo berths and terminals that can cater to the specific needs of the industry. To achieve this, port and terminal design has to be prepared to evolve to the changing dynamics of world trade. Providing an international perspective, Alex Duca, director of terminal design and automation, APM Terminals, highlights, “We are implementing a modular approach to port operation design and optimisation. We are breaking down the facility in smaller and reusable terminal modules, or operational interfaces, and we document those as standards and then deploy/reuse same cross terminals and projects. Decoupling each operational interface in terms of operational approach and performance should provide a better visibility over the bottlenecks and actual scope of optimisation at the terminal/port level.”