A move towards the landlord port?

In what must rank as a significant event, the board of trustees of the Jawaharlal Nehru Port (JNP) decided that the time had come to privatise the only container terminal that is run by the port. A resolution to this effect was passed in a recently held meeting of the board. As was expected, the resolution was opposed by the two labour trustees on the board but was nevertheless carried by majority.

Of the five container terminals in the JNP, the port itself runs only one. Of the others, one is run by APM Terminals, another by the Singapore Port Authority and two by DP World. Indeed, JNP is the only state-owned port in the country that runs a container terminal. In other ports, private parties do so, while the port itself carries out only a landlord role.

The move to privatise the container terminal has come on the heels of developments in the last few years. In this time, the terminal has seen a precipitous fall in the number of containers it handles. As recently as FY 2017, it handled 1.53 million twenty-foot equivalent units (TEUs) as against its capacity of just 1.35 million TEUs. This fell in the next year to 1.48 million and in the subsequent two years to 1.04 million and 0.72 million, respectively. The first three quarters of the current year have only emphasised this trend. The port terminal handled 0.56 million TEUs compared with 1.69 million, 0.81 million, 0.77 million and 0.64 million TEUs by APM terminals, the Port Singapore Authority, and NSIGT and NSICT (the two terminals run by APM), respectively. In January 2021, Wan Hai Lines, the Taiwanese shipping company, followed Hyundai Merchant Marine in shifting its business from the JNP terminal.

The reasons for this are not difficult to find. Handling containers is a global business with multiple international links. Typically, each operator runs terminals in different ports all over the world. Shipping companies usually prefer to deal with one operator in the maximum possible ports at which they call. By doing so, they ensure competitive handling rates, preferential treatment in securing calling windows and less delay in discharging cargo. The least preferred choice is the owner of a single terminal who is unable to offer handling facilities in other ports around the globe. Container shipping companies that get a better deal when they work with the same operator in different ports of call usually ignore such terminals.

As the owner of a single terminal in their own port, the JNP has no comparable advantages to offer. It is not part of an international chain with facilities in several countries, so its USP depends solely on what it offers in Mumbai. And this is not a great deal. By and large, most container terminals have the latest handling equipment, and the port’s container terminal is no exception. But a government-run enterprise usually lacks the dynamism and the ability to take quick decisions that characterise the working of private operators. Traditionally, state enterprises are hamstrung by government oversight in the shape of the CAG, the CVC and the CBI, while their competitors in the private sector suffer from no such constraints.  

Other than the fact that volumes are dropping, however, there are other reasons why JNP should not run its own container terminal. It is actually the landlord of the port and its conservator. It controls the pilotage in the port; it runs the vessel traffic management system; and it controls the tugs that escort ships to berth and the launches that pilots use to access ships requiring assistance in navigating the approach channel to the port. As the landlord, it owns the railway facilities in the port and should act as an impartial arbiter between the claims of the different operators in accessing these facilities. When it runs its own terminal that is in competition with other private service providers, questions will always arise about its ability to be completely impartial in offering access to these facilities.

As a conservator also, the port has to play a vital role in pollution control. As long as all the operators within the port are distinct and separate from the port management, there can be no allegations of partiality in the treatment of, say, an oil spill or a loss of containers in the channel. But whenever the port, as the conservator, must sit in judgment over the acts of its own terminal, it is in effect judging itself. If a question arises about which of the several operators is to blame for an act of pollution, the fact that the conservator itself is one of the operators makes it difficult for it to be seen as an impartial third umpire.

The case for privatising the container terminal, therefore, is really a no-brainer and is something that should have been done earlier. There is, however, one pitfall that must be avoided when privatisation bids are called. The attempt should be to see that no one operator is able to dominate container handling in the port by securing control over a significant number of terminals. So far that has largely been achieved. Currently, three operators run the four terminals in the port. Even this situation arose as a result of a takeover. The terminal was the first to be privatised as early as 1997 when P&O Ports won it in an open competition. In the next round of privatisation, DP World won the right to run the adjoining terminal. Some years later, DP World acquired P&O and thus inherited the terminal that the company ran. 

Efficiency in a port, as in most undertakings, is enhanced when monopoly situations are avoided and full competition occurs. Thus, when a terminal operator knows that there are other, equally competent operators that can attract the business of any shipping company, service levels rise. On the other hand, when the bulk of the terminals is controlled by one entity, monopolistic tendencies appear. Earlier, in their determination to spread ownership of the terminals as widely as possible, JNP had gone to the extent of debarring existing terminal operators from participating in bids for new terminals. Whatever method is followed, it is important to see that there is no concentration of power in the container handling business in the port.

The writer retired as Union Shipping Secretary