P. Manoj Venunath
reporter and columnist,
Anyone who has spent time in India trying to dissect the ports, shipping and logistics industries here knows it can be tough to find clear talk among the scores of periodicals that cover the sectors. Most do little to provide answers and generally add to the confusion and lack of perspective inherent in such a fragmented and diverse country.
One source of clarity, however, is Manoj, a reporter and columnist for Mint, a daily business newspaper launched in February 2007 by the Hindustan Times, in collaboration with the Wall Street Journal (www.livemint.com). He has spent a decade covering maritime and transportation infrastructure issues for the Hindu Group, and writes a twice-monthly column on all things maritime and logistics. He recently spoke to Namaste about port privatization, container terminal revenue sharing and rail logistics.
Namaste: Where to begin? There are so many topics to discuss. Let’s start with one you recently wrote about — autonomy from the national government for the country’s major ports. You wrote that a report from the Port of Rotterdam said India’s shipping ministry needs to focus on commercializing operations in its major ports. How much of this report do you think will be taken on board by the government? How close are we to seeing lean, mean port administrations? And which ports today do you think run most efficiently, from the trust side?
Manoj: It really depends on how much will the government or the shipping minister has to implement these suggestions. Some of these decisions are worker-sensitive while some others are government-sensitive. The worker unions at major ports are so strong that cutting flab would be impossible for the government. That’s why the government has stopped new hiring at major ports at the lower- to mid-levels and also introduced a voluntary retirement scheme for those who want to leave. This has resulted in the workforce getting reduced from about 96,000 a few years ago to about 66,000 now. Still it is much higher than many of the global ports. And, with increasing mechanization taking place, the number would have to be lowered even further to streamline efficiency and operations and stay profitable. I don’t see this happening in the near future. By government-sensitive I mean shipping ministers are extremely reluctant to let go of their turf and would want to have a control over these ports. Though corporatization was planned about a decade back, it is yet to become law. (Jawaharlal Nehru) Port and Ennore are run efficiently, though these ports are tied down by extremely a slow decision-making process in a dynamic sector such as ports. Port management has to run to Delhi for all approvals.
Namaste: Does the government truly understand the depth of the problems facing containerization in India? It seems more concerned with giving political favors and staking jurisdictional territory. For instance, I recently heard that there are seven or eight ministries that have some jurisdiction over movement of goods in the country? How can the government enable better container movement going forward?
Manoj: India’s cargo containerization is much lower than the global average. With more cargo getting shipped in containers, policy makers in the shipping ministry are undertaking piecemeal decisions to deal with the situation. That’s why you find the ministry trying to regulate the stakeholders in the shipping trade, many of whom either don’t want or cannot be regulated and the cosmetic amendments planned in the Multi-Modal Transportation of Goods Act. Like many maritime nations that have one land-maritime transportation ministry, ideally India should have one ministry to deal with rail, road and sea transportation issues for seamless transportation as all three are inter-connected. But in India’s political setup, this may not be possible as there are too many leaders who have to be accommodated as ministers. Until this integration happens, each ministry would be interested in guarding their own territory, leaving many key issues unresolved. For instance, there is no point in seeking to regulate the ocean shipping carriers until you lower the inland rail haulage rates, which are very high in India.
Namaste: Staying with the ports sector, what’s your feeling on how the revenue sharing concessions for container terminals will go in the future? I would think that the government would ease its demands for such high sharing requirements, but it seems to be only going higher, what with PSA-Sical agreeing to a 46 percent revenue share in the new terminal in Chennai. When will the terminal operators be able to keep more of their revenue?
Manoj: Despite the problems they face with regard to setting tariffs, global port operators are willing to share almost half of their annual revenues, in some cases, with the government-run ports. One reason could be that these operators find it profitable to run port terminals in India where the volume growth, due to increasing economic activity and containerization of cargo, is averaging 15 percent or more a year at ports compared with other nations. Leaving tariff setting to market forces could be explored — this is already done in non-major ports that are not regulated by (the Tariff Authority for Major Ports) such as Pipavav, Mundra, Krishnapatnam and Gangavaram. The union government feels that the time is not ripe for such an experiment in major ports — which account for 73 percent of India’s ex-im cargo — and expose port users to the mercy of operators. That’s why they have decided to fix the tariff upfront for all future cargo handling projects before inviting bids. This will enable operators to submit price bids based on the price set by the government that will remain the same throughout the contract period of 30 years. Moreover, the rate will rise automatically every year to account for rising costs because the tariffs so fixed are linked to India’s Wholesale Price Index (a measure of inflation) to the extent of 60 percent.
Namaste: I heard discussion at a shipping conference in September about whether India will ever see ships of 13,000 TEUs or more. Some said yes, it can happen, while others said the more likely scenario was that 8,000-TEU ships will be the biggest direct calls to come. Provided that the draft situation at key ports is resolved, will there be enough demand from India to merit calls of all these super-sized ships on order?
Manoj: I would assume so because shippers prefer large ships to achieve economies of scale to lower transportation costs. The depths at many of India’s major ports are currently not deep enough to allow such vessel calls. Given the tight dredging market, India will have to make do with ports that have a depth of 12.5 to 14.5 meters for some time to come and set up one or two transshipment ports. This will require extensive feedering.
Namaste: You speak often with local representatives of foreign ocean carriers. What sense do you get of their impression of India? These companies are operating in dozens of countries around the world, and especially in Asia. Do you sense they feel India is turning a corner with respect to container trade, especially relative to other, perhaps more progressive, markets?
Manoj: They see great potential in India’s container trade. But, India’s growth is also dependant on global economies such as the U.S. and Europe. Any problem these economies face will also affect India. So, India is not insulated from the downturn in the global economy. Having said that, you must remember India is a big market and what we are witnessing is just the tip. So, imports could grow and the demand would remain.
Namaste: How will the end of liner conferences in trades to Europe affect Indian shippers? Carriers don’t seem ready or willing to include surcharges in their base rates, even if they can’t set the surcharges collectively. Will shippers in India be helped or hurt in the long-term by the end of the India Pakistan Bangladesh Ceylon Conference? Is the Competition Commission of India doing the job it was meant to do?
Manoj: The ends of the liner conferences would only help India’s shippers. There is also likely to be a rate war as many newbuildings are due for delivery this year and next and the slowing global economy would lower demand for ships. Liners may look at various other ways to recover costs, including higher terminal handling charges, but this may not be easy under the new regime. The CCI is just about starting life and as it rolls, it will have to handle many tricky issues.
Namaste: India, as a whole, handles less containers per year than several of China’s ports do individually. How did India get so far behind the curve in terms of containerization? I’ve heard that the development of special economic zones near ports could help drive export TEU volumes higher, but what else can facilitate the switch from breakbulk and bulk to containerized goods?
Manoj: Shippers need to realize that shipping goods in steel containers reduces pilferage, saves port time and cut costs. This has started to happen and it’s only a matter of time before it becomes a practice.
Namaste: I haven’t asked anything about rail or intermodal yet, as it’s an area we’ve covered quite a bit in Namaste, but I’ll quickly ask, has the entry of private operators into the freight rail sector been a success? Concor (the state-run container rail company) still controls much of the market, but are things changing at all? Are the private operators biding their time until the dedicated freight rail corridors open?
Manoj: These are initial years. India is just a year into privatization of rail haulage of containers. Concor is doing everything possible to maintain its share. Concor had a first mover advantage having been there for several years. The main problem here is getting land to build (inland container deports and container freight stations). Land prices have shot up so high in India that private operators are finding it difficult to set up these inland facilities, which are key to their operations. So, private operators have to rely on Concor’s facilities for their business. And, this does not come on easy terms. Also, haulage charges levied by the railway ministry for using their track and signaling system from these operators are on the higher side. I think some of the new entrants will have to join hands. Consolidation is bound to happen.