Storage charges making major ports less attractive to users

Ports typically discourage users from storing cargo for extended periods to avoid congestion and to boost capacity. Yet this is an area where the major ports, or those owned by the Central government, are losing out to their private rivals located nearby in attracting cargo.

Major ports and private cargo handlers are by law mandated to give a free time of up to three days for storing containers inside the yard and ten days for other cargo. For a cargo that lies for 10 or 14 days, the rate is more than the terminal handing charges, which is against the overall regulations of the Tariff Authority of Major Ports (TAMP).

According to TAMP norms for setting tariffs, storage charges cannot be more than a certain percentage of the overall revenue, and that percentage is very small.

In comparison, there are no such restrictions at private ports, with some of them offering as much as 90 days of free time to users.

Hence, many BOT projects are in jeopardy, requiring restructuring. Project are stuck because of false/high tariffing on rentals – a universal issue in all the major ports.

The logic behind some ports/terminals collecting very high storage charges after the initial free days is not to make money, but to discourage ports/terminals from being used as storage grounds.

Even if the operator does not charge after the free days, he still needs to shell out the contractually mandated revenue share to the port trust based on the storage charges set by TAMP.

As this is the revenue that is supposed to have accrued to the terminal, the port trust’s percentage of revenue share needs to be given. So there is no incentive for an operator not to collect the storage charges; they might as well collect and pay the revenue share on that to the port trust, otherwise they would have to put that money completely from their pocket.

Storage also plays a key role in deciding the capacity of a terminal and the overall port. A port or a terminal within it is not about storage, says a port industry executive.

For instance, in the container handling business, there are a X number of ground slots inside a terminal yard, which can store Y number of boxes, resulting in Z number capacity.

The faster the boxes move out, greater is the capacity of the terminal.

So it’s in everybody’s interest to see boxes move out faster. Some experts say that ports and terminals need to give a free storage time that is acceptable to the market.

This is particularly so when there is a huge gap between demand and supply, with excess port capacity and less supply leading to price wars in port/terminal handling charges, including storage charges.

A coal importer, for instance, would be keen on knowing the landing costs at his facility, especially if it is located far away from the port through which the commodity is shipped.

The coal handling charges per se at a major port may be lower than a next door private port. But the user would end up paying more on total logistics costs for shipping the cargo through a major port after factoring in the huge storage charges.

Whereas even if the user pays more cargo handling charges to a private port, he would still end up paying less as total logistics costs because of the longer free time available there to help deal with cash flow issues on paying his coal bill or customs duty.

The shipping ministry plans to exclude storage charges from the gross revenue calculations of PPP projects to help major ports compete with private ports.

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