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A slowdown in India's international trade and rising competition from private ports is forcing major government-owned ports such as Mumbai Port Trust, JNPT and Kandla to change their business models. Long used to near monopoly revenues and profits, port trusts are now finding it difficult to fill berths.
India has a 7,500-km coastline, with about 200 private and intermediate ports and 12 major ones.
In 2013-14, the cargo volume share of India's 12 major ports declined to 55 per cent from 72 per cent at the end of 2007-08, according to data from the shipping ministry. Large private ports such as Adani Ports, Pipavav Port and Vadinar Port have gained.
The trend continued this financial year, too. In the first half of the year, the growth in cargo volumes at private ports was more than twice (11.1 per cent year-on-year) that recorded by the 12 major public sector ports (4.1 per cent). Adani Ports & SEZ, India's largest private port operator, reported 23 per cent year-on-year growth in cargo volumes in FY14 at about 101 million tonnes.
"Major ports are used to working in a monopoly environment, in which customers chase them, not the other way round. But now, exporters and importers have other options and they are choosing the convenience provided by these new ports," said Ramesh Singhal, chief executive, i-Maritime Consultancy.
New ports are willing to provide customised services to large clients. Also, private ports can be flexible in terms of pricing, as these don't come under Tariff Authority for Major Ports, a major reason why private ports can sign long-term contracts with clients. Adani's Mundra Port entered into a long-term agreement with Maruti Suzuki to help boost the carmaker's exports and created India’s s first dedicated car export terminal. The port has a similar agreement with Tata Power and Adani Power for coal import to feed the companies' power plants in Mundra.
"Public sector ports largely work on a give-and-take basis. These aren't so aggressive in terms of marketing. In the absence of a marketing and sales push, it is becoming increasingly difficult for these ports to retain customers or attract new ones," said Singhal of i-Maritime.
This has sounded alarm bells in the shipping ministry. "The situation seemed a little alarming after two of the 12 ports reported negative throughput in the first half. Ports need to change their functioning if they wish to survive and grow in the new environment," said an advisor to the ministry.
Ports trusts have taken the cue. Their umbrella body, the Indian Port Association (IPA), is set to meet later this week to come out with a new organisational structure for members. This is aimed at transforming trusts from administrative and planning bodies to commercial ones. Now, port trusts planned to set up departments on marketing, business development, corporate communications and legal services department, an IPA source told Business Standard.
Experts, however, say these companies should do more. "Organisation rejig will show fruits in the long term. In the near to mid term, port trusts should look at improving their operational efficiency and make them more cost competitive for users,” says Rajesh Kumar Shahi, managing director of Glory Ship Management.
“If a port has to maintain momentum, business development is very crucial. You need a team that focuses on its diversifying customer base and, at the same time, maintaining long-term relations with existing clients,” said a senior official from the business development team of Adani Ports & SEZ.
IPA is seeking more decision-making powers for port managements, besides creating new posts and redefining the roles of existing employees. Currently, engineers account for most managerial positions at these ports. “These engineers have sound technical knowledge, but lack customer-management skills,” says a consultant, on condition of anonymity.
However, not everything is amiss. All major ports are located in the vicinity of major cities and are well connected with the production and consumption centres nearby, unlike private ports, which are located far way from major centres.
Also, finances favour major ports. Port trusts are debt-free and sitting on significant free cash piles. Mumbai Port Trust, for instance, had cash and cash equivalent of about Rs 4,700 crore at the end of March 2013, according to the latest data. For JNPT, India’s largest container port, the figure was about Rs 3,700 crore at the end of FY14. By comparison, most private ports are debt-financed. Adani Ports had total debt of about Rs 13,000 crore and a leverage ratio of 1.61 at the end of March 2014, while Essar Ports reported debt of Rs 5,900 crore and a leverage ratio of 2.1.
“Major ports can use their financial prowess to upgrade facilities without worrying about financial implications or the external funding environment. Capital-hungry private ports have no such luxury,” said Singhal of i-Maritime.
