INDIAN PORTS

Port Sector: Issues &

Challenges
Indias

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 ports
Port

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 Law
Minor ports: under State Maritime Boards & free from
formal tariff regulation

Growth dynamics of cargo traffic (20002011)

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 201011
Capacity utilisation around 90% at Major ports
Highest annual growth in container traffic (15%)
Containerisation at about 2/3 rd 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)

368.50
(100.0)

578.99
(100.0)

884.47
(100.0)

All Ports

164.45
(100.0)

Figures in Brackets indicate percentage to total

Recent developments select

projects
Select recent projects and
expected dominant
commodities

Recent capacities added to minor ports

Dominated by bulk capacities on the east coast

Dhamra: IO & Coal, 2009

Gangavaram: Coal +, 2008
Krishnapatnam: Coal, IO,
2008
Karaikal: Coal +, 2008

World Top 10 Cargo Ports

Port

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)

72.2 (2008-09)

81.9 (2010-11)

Kandla

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

World Top 10 Container

Ports
Port

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

Major Ports

6.59 (2008-09)

7.54 (2010-11)

JNPT

3.95(2008-09)

4.27 (2010-11)

India

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

Indias Major Ports:APBT (201011

Average
Pre- Berthing Time (APBT) in Hours
40
36.2

35
30

27.6

25
20
Hours

13.7

15
10
5
0

0.7

2.3

2.5

4.6

5.8

Ports

7.7

9.4

14.2

Draft and Average Parcel Size

Average Parcel Size (Tonnes) 2009-10
45000
40000
35000
30000
25000
20000
15000
10000
5000
0

Tonnes

27259
14986

16510

17420

19582

28555

30013

33883

37101

39494

19833

7227
2868

Port

PPT

KOPT

HDL

TPT

MBP
T

JNPT

COPT

PT

KPT

CHPT

NMP
T

MOPT

ENN
ORE

Draf
t
(Mtr
)

12.8

5.3-8.4

6.7

10.4

10.9

11.0

12.8

10.720.0

4.623.5

12.017.4
(OH)

15.4

14.4

16.0

Major Ports: Non Working Time

at Berth
Percent of idle time to total time at Berth
60
49.5

50
40
30
20

Percentage12.8

17

19

21.5

23.4

23.8

25.8

10
0

Ports

27.6

28

29.4

32.3

36.7

Port Call Charges (US$)

(24Hrs stay of 50000 GRT vessel
2009-10 )
60000

50634

Port Call
Costs US$
50000
40000

26330

30000

18946

20000
10000

31727

2387

6958

9552

9733

Ports

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/Termi
nal
Moves/Hr
25
Tuticorin

TEU/Mtr.
1187

TEU per
Employee
3008

Dwell
Time
(Days)
2.6

TRT (Day)
0.8

Chennai

27

1286

2797

2.0

1.1

JNPCT
JNPT NSICT
JNPT GTICT

15

1142

829

2.0

2.0

24

2553

3563

2.5

1.6

30

2462

3265

2.9

1.1

Cochin

16

536

579

6.4

1.4

TEU per meter of Berth

3000
2553

2500

2661

2462
2122

2000
1500

1187

1286

2109

1418
1142

1000
500

2061

536

Global Median=945

Productivity of Gantries (Moves/Hr),

2009-10
45

40

40

35

35
30

24

25
20
15

25

27

28

30

35

30

20
15

16

10
5
0

Port
Global median mover per hour 30

35

36

Turn Round Times: Global

Comparisons

Quayside Productivity: Global

Comparisons

Dwell Time: India Vs Best

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

Examinatio
n

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 Single low duty rate, GST

multiple rates with not paid on input for
exemptions makes exports
export
promotion
cumbersome
& Transaction Cost in Exports,
Source: Based
on Task Force on
Commercecomplicated
and Industry

Single low duty rate,

duty refund on inputs
used in exports
2011, M/o

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

Costs & Procedures in Foreign

Trade
India China

Malay
sia

Kore
a

Singap
ore

Documents for Export

(Numbers)

Time to export (Days)

17

21

18

20

24

14

Cost to export *

945

500

450

742

456

Cost to import*

960

545

450

742

439

Document to import
(Numbers))
Time to import (Days)

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

Port Management Models

Port Type

Infrastruct
ure

Super
structure

Stevedori
ng labour

Other
functions

Service port
(Major
Indian Ports

Public

Public

Public

Mainly
public

Tool port
(France,som
e African
nations)

Public

Public

Private

Mainly
public

Landlord
port
(Antwerp,Ro
tterdam,Sin
gapore etc

Public

Private

Private

Mainly
private

Private port
(UK,New
Zealand)

Private

Private

Private

Mainly
private

When to Regulate?
Market

power
Imperfect & 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

Starting Point: Efficient

Markets
P

S = Marginal Cost

Pc

Pc = Marginal Revenue

Optimum: MR = MC

D
Qc

Social Welfare = Consumer Surplus + Producer Surplus

Philosophy of Regulation
Case

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
economies
The most obvious difference with other public
services:
- Multiple services associated with the port
infrastructure
This multitasking dimension matters a lot when
thinking about economic regulation, including
pricing

Why Tariff Regulation in

Ports
Port

Trusts (PTs) can not regulate

their own tariffs or of Terminal
Operators due to
Conflict of Interest
Being Competitors
Need to safeguard users interests

Therefore,

the need for 3rd Party

Neutral Regulator

Charter of TAMP
To fix scale of rates :
For services rendered by the ports
Rentals for use of port trust properties
Fix charges for services rendered by port
operators (BOT, concessionaries etc. under
MPT
Prescribe conditions for services rendered by
Port Trusts/operators.
Guiding Principles
Safeguard the interest of port users;
Just and fair return to operators
Promote economy in use of resources &
efficiency

Tariff Guidelines 2005:

Approach
Anchored on cost plus basis
Cost

as per estimate for future & ROCE

determine tariff
Revenue 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

Approach
Tariff

approved by TAMP valid for 3 years

Rates 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

Tariff Guidelines
2005:Issues
Information

intensive exercise
Too much emphasis on individual
operators profitability
Weak incentives for efficiency
Disallowance 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 2008

Simple

& Norm based

No 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

2008
Committee

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 variation
Guidelines

for upfront tariff setting for PPP

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 Tariffs

Tariff

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 Regulation

Tariffs

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
earned

Operators

cost are reviewed & costs

deemed unnecessary eliminated.
Problem in determining allowable costs

No incentive to operate efficiently

Operator may over invest

Guiding Principle
Regulator 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

Regulation
Motivation

for over-investment
(increased rate base) gold plating
No motivation to increase productive
efficiency
Continuous pressure for price increase
No incentive for selection of right
equipment
Information asymmetry at the
regulators 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 Perspective
Presence

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

Port pricing Models:

Theoretical Perspective
This

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

Failure
Are

there regulatory errors in

setting prices?
Is regulation intrusive and costly?
Does it discourage long term
investment?
Too much focus on short term
cost/prices
Is 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

Port System Efficiency is the Key

Intangible Factors
Hinterland
Level of Economic Activity
Road/Rail Network
Material Access
Feeder Services

Management practices
Customer satisfaction
Personnel quality & motivation

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

Physical Features of Port

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

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

Key Developments during H1

2012-13 (Apr-Sep)
CONCERNING
3%

CARGO GROWTH AT MAJOR PORTS:

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 20132014

2

new major ports will be

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

new outer harbour will be

developed at Thoothukkudi, Tamil
Nadu at an estimated cost of Rs.
75 billion.

THANK YOU