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Monday, Jan 06, 2003

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With cargo growth, Indian ports in full sail

Sajeev Kumar V.

The trade volume in India has been growing at an annualised rate of 7 per cent over the past decade, and is set to increase. Huge private investments and a shift in operating models are called for if ports are to meet the growing demand successfully.

THE cargo traffic at all major Indian ports is expected to reach about 537 million tonnes in the next three years and would require massive investments for developing new facilities through private sector participation. The trade volume in India has been growing at annualised rate of 7 per cent over the past decade and to meet this huge demand, further investments are required from the private sector coupled with a gradual shift to the "landlord" type of functioning from the "service port model".

Addressing the annual general meeting of the Cochin Steamer Agents Association, the outgoing president, Mr Bharat S. Asher, said that the port sector had shown substantial improvements in the last decade by way of facilities and cargo handling. Keeping with the global trend, nearly Rs 15,000 crore investments have been made till date, he added.

In recent years, most noticeable about Indian shipping is the port infrastructure development. The 12 major ports and about 25 active (out of about 130) minor and intermediate ports together handle about 380 million tonnes of cargo annually, but without competing among themselves.

However, things have changed in recent times with the opening up of the domestic port sector to private operators. Entrusting private operators to manage terminals through concession agreements has led to the gradual privatisation of Indian major ports, he said. Growing demand for handling of large size vessels throughout the world has also made significant impact on the competition between existing and new ports. While Mundra Port in Gujarat has been commissioned with a deep draft to berth large vessels, all the new port projects in the pipeline in Dhamra (Orissa), Gangavaram (Andhra Pradesh), and Karwar (Karnataka) would be deep-water ports. It is understood that as these may not be major ports, they will not be under the purview of TAMP. Therefore, to give some more autonomy to the major ports, the Ministry has down-sized and re-defined the powers of TAMP at the request of major ports, he said. About the Indian shipping scene, Mr Asher said that the container trade in India was a reflection of the international operations, as the shipping lines are common to both. In the past, the only hub port was Nhava Sheva (JNPT), which attracts almost all the mainliners and still handles the maximum containerised traffic. The other ports on the West Coast and the entire East Coast were dependent on feedering to Colombo, Dubai, Singapore, etc.

However, 2002 had seen a big change, with the JNPT/NSICT combine bettering its own capacity and output. While other ports like Tuticorin, Chennai, and Kandla have invested heavily in infrastructure through private participation, it is a only a matter of time before they attract more mainliners.

As a country, India's contribution to the mainline container trade is through its national line, the Shipping Corporation of India offering container services to Europe, the US and the Far East. The container traffic in the country is slated to increase in the coming years. While most of the traffic will be routed through the closest port, there will always be an element of competition among the southern ports of Mangalore, Kochi, Tuticorin, and Chennai, which share an overlapping hinterland.

With regard to the container market, Mr Asher said that the use of larger vessels with capacities in excess of 6,000 TEUs, the trend towards mergers and acquisitions in the liner shipping industry, carefully selected sector wise consortiums and other cost cutting methods were all some of the key factors adopted by the lines to stay ahead in the container shipping trade.

Container shipping being one of the most competitive activity in the shipping field, it appears that majors have adopted a twin business strategy: a) Better per unit earning due to economies of scale and b) booting out the competition by re-aligning the basic freight levels. However, the reported losses by most of the major lines, higher charter rates, the effects of ORSA (Ocean Shipping Reform Act), new legislation, presumed increase in insurance premiums due to the US customs 24 hours Advance Cargo Declaration Rule are all the negative factors.

Yet, container shipping is a business for optimists. Hardly any major industry has posted worse financial results in the recent decades, but that has not stopped ocean carriers from investing in new ships. With shipping volume on the rebound, operators are reacting in predictable fashion by ordering new ships. The current boom in vessel orders is fuelled by strong demand for space in many trade routes and by optimism that volumes will continue to grow.

The tanker trade in India has remained steady in the traditional areas, however, it may be observed that private investment in the refining sector by companies like Reliance has augmented volumes and enabled the use of private ports. As a result, oil majors like HPCL and BPCL are forced to undertake certain cost cutting measures which included setting up of SBMs (single buoy mooring) and or insisting on better facilities from the Indian ports.

Mr Asher said that the last year and a half had been beneficial to the tanker trade and the trend may continue. However, it is estimated that the asset values may drop in the case of 15-year-old VLCCs to about 15 per cent and for Suezmax of same age to about 13 per cent. In contrast, the asset value of the younger fleet (mostly dominated by Aframax class) is estimated to gain about 5 per cent. Thus, the tanker market is now more dependent on freight gains.

Outlining the changes taking place in the world shipping, Mr Asher said the opening up of the Chinese economy and the increased production levels in North America and the EU have all contributed to the buoyancy in the dry bulk shipping market in the recent past.

Despite the world political events, the dry bulk market can look forward to both a strong demand and a beneficial supply situation. This has also given the owners an opportunity to replace tonnage.

It is estimated that the order book (with shipyards) stands at a three-year high of 12.3 per cent of the existing fleet. Despite the drop in the drought- affected grain trade, pig iron production is up and it is anticipated that the dry bulk market will sustain in 2003.

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