Terminal affliction

India is staring at an incipient - and significant - overcapacity at ports. It's time to alter the sail

India’s port traffic grew at a mere 4 per cent annually to a shade over one billion tonne in the five years to fiscal 2016 because of sluggish global trade. In the same period, port-cargo capacity rose faster, at 9.5 per cent, to touch 1.7 billion tonne.
 
What happened next was no surprise: capacity utilisation dropped like a stone, from 78 per cent to 62 per cent. There’s more: India’s container throughput today is close to 13 million twenty-foot equivalent units (TEUs), while capacity is 50 per cent more at 21 million TEUs.
 
The upshot? Just 65 per cent utilisation. And India’s GDP-to-container growth correlation has fallen below 1, compared with a peak of 1.5 seen in 2012. To boot, growth in ‘containerisation level’ — or the extent of use of containers to transport freight — has flatlined since 2015 at 22 per cent. It’s ironical that in a nation with humongous infrastructure deficit there is a sub-segment with a problem of plenty.
 
Despite the predicament, more capacity is coming up that threatens the business case of existing terminals with already idling bays. To wit, Adani Ports is setting up container terminals at Vizhinjam, Kerala, on the west coast, and at Dhamra and Ennore on the east coast, adding six million TEUs of capacity.
 
Consequently, the gap between terminals and cargo is widening materially, so competition for freight volume would intensify, too. If all that weren’t enough, the government is also planning to set up greenfield ports both on the east and west coasts as a part of its Sagarmala programme. It has also undertaken initiatives to increase the efficiency and throughput of existing berths at major ports.
 
To be sure, there is an exception to this trend: the port belonging to the Jawaharlal Nehru Port Trust adjoining Mumbai, which is working at more than 100 per cent utilisation.
 
Not for long, though — because a 330-metre-long quay is being built by DP World at a cost of $200 million in that exact vicinity. Additionally, APM Terminals, is setting up its fourth container terminal, leading to doubling of capacity in the next couple of years.
 
Rattled port operators are therefore revising strategies. While some may head for the door, others are weighing diversification such as end-to-end logistics infrastructure services.
 
What can be done to sort the glut? Four things, essentially:
 

• Bolster hinterland connectivity with ports: Till now, the government’s approach has been unimodal with each ministry promoting its own sector. The hour is apposite for Indian ports to imbibe efficient and modern inter-modal systems, not just at policy level but also on the ground. A co-ordinated and comprehensive master plan is imperative to ensure that efficient cargo aggregation happens complemented by excellent physical infrastructure in hinterland —such as inland container depots and multi-modal logistics parks — and an efficient evacuation system is developed for to and fro movement. This will also significantly lower logistics costs and turnaround times.
• Commission both the dedicated freight corridors on time: India needs a massive beef-up in last-mile rail connectivity. For perspective, India’s biggest container port, JNPT, has just nine railway sidings whereas the Hamburg port in Germany has 135. The faster this is amped up, the better would be the utilisation of port assets.
• Complementing manufacturing: All these terminals and their contiguous land can be facilitators of the government’s manufacturing thrust and states would do well to design efficient clusters that cater to global markets.
• Promote coastal shipping: By promoting coastal shipping, excess capacity can be effectively utilised. Because terminal-level infrastructure is already in place, sweating such assets will improve utilisation rates. Manufacturing hubs set up in adjacencies can also take advantage of cheaper water transport.

 
While these measures won’t close the capacity gap entirely, they are imperative. We have sailed past those halcyon days of 80 percent-plus utilisation of ports and terminals and what is unfolding instead is an intense battle for cargo.
 
Ports that weather the looming competition storm would have deep draft, excellent hinterland connectivity leading to multi-modality, efficient port operations, good cargo generating potential in hinterland, and would be an entity that controls a network of ports, has deep pockets to ride out trade cycles, and, last but not the least, strong global ties with shipping lines.
 
With too many ships floating around, too many ports, and not enough cargo, there is clear and present danger that many of them may be chasing a costly chimera.
 
That would be a ‘terminal’ affliction in more ways than one.

The author is Director and Practice Lead, Transport, CRISIL Infrastructure Advisory