2. Port Sector: Issues &
Challenges India’s 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
3. Growth dynamics of cargo traffic
(2000-2011)
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 2010-11
Capacity utilisation around 90% at Major ports
Highest annual growth in container traffic (15%)
Containerisation at about 2/3rd 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
4. 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)
All Ports
164.45
(100.0)
368.50
(100.0)
578.99
(100.0)
884.47
(100.0)
Figures in Brackets indicate percentage to total
5. Recent developments – select
projects
Dhamra: IO & Coal, 2009
Gangavaram: Coal +, 2008
Krishnapatnam: Coal, IO,
2008
Karaikal: Coal +, 2008
Select recent projects and
expected dominant
commodities
• Recent capacities added to minor ports
•Dominated by bulk capacities on the east coast
10. Major Ports: Non Working Time at Berth
12.8
17 19
21.5 23.4 23.8 25.8 27.6 28 29.4
32.3
36.7
49.5
0
10
20
30
40
50
60
Percentage
Ports
Percent of idle time to total time at
Berth
11. Port Call Charges (US$)
(24Hrs stay of 50000 GRT vessel 2009-
10 )
2387
6958
9552 9733
18946
26330
31727
50634
0
10000
20000
30000
40000
50000
60000
PortCallCostsUS$
Ports
Source: Task Force on Transaction Cost in Exports, 2011, Ministry of Commerce
and Industry
12. Efficiency of Container Terminals at
Major Ports:2009-10
Performance Indicators of select container terminals
Port/Terminal Moves/Hr TEU/Mtr.
TEU per
Employee
Dwell Time
(Days) TRT (Day)
Tuticorin
25 1187 3008 2.6 0.8
Chennai
27 1286 2797 2.0 1.1
JNPCT
15 1142 829 2.0 2.0
JNPT - NSICT
24 2553 3563 2.5 1.6
JNPT - GTICT
30 2462 3265 2.9 1.1
Cochin
16 536 579 6.4 1.4
13. TEU per meter of Berth
Global Median=945
1187 1286
1142
2553 2462
536
2122 2061
2661
2109
1418
0
500
1000
1500
2000
2500
3000
14. Productivity of Gantries
(Moves/Hr), 2009-10
15 16
20
24 25
27 28
30 30
35 35 35 36
40
0
5
10
15
20
25
30
35
40
45
Port
Global median mover per hour 30
15. Turn Round Times: Global
Comparisons
10
10
10
11
12
12
18
19
20
22
48
59
Singapore
Shanghai
Dubai
Hong Kong
Rotterdam
Los Angeles
JNPT
Chennai
Tuticorin
Mundra
Pipapav
Cochin
13
14
16
17
18
18
27
28
29
32
37
46
Los Angeles
Cochin
Hong Kong
Singapore
Rotterdam
Mundra (Adani)
Pipavav
Shanghai
Dubai
JNPT
Tuticorin
Chennai
Indian ports have much longer vessel turnaround times
than global best practices
1 Derived from several months of Maersk Line’s recorded statistics of port entry and exit times of their vessels
SOURCE: Maersk Line website
Vessel time spent in port1, hours, 2010
MAERSK LINE EXAMPLE
Actual time spent in port … … normalised for 1,000 TEU call
Indian ports
16. Quayside Productivity: Global
Comparisons
141
166
189
192
207
Terminal quayside productivity at Indian ports is far below global figures
1 Pipapav is in ramp-up phase
SOURCE: Containerisation International
2008
▪ Mumbai is the
only port that
comes close
to quayside
performance
of best
practice ports
▪ Quayside
performance
partially
affected by
scale
▪ Mumbai is the
only port that
comes close
to quayside
performance
of best
practice ports
▪ Quayside
performance
partially
affected by
scale
Pipapav1 188
Cochin 612
Mundra 666
Tuticorin 1,185
Chennai 1,356
JNPT 1,639
Colombo 1,259
Port Klang 1,307
Singapore 1,730
Hong
Kong
2,205
T. Pelepas 2,593
= /
32
86
84
146
171
164
173
141
126
123
126
100
84
87
80
112
127
TEU/quay meter/yr ’000 TEU/STS crane/yr STS crane spacing (m)
17. Dwell Time: India Vs Best
Indian ports have much higher dwell times than global best practices
SOURCE: Report of the inter-ministerial group on reduction of dwell time in Indian ports, 2009
Number of days, 2006
Import Export Import Export
+86%
Best practice 14
Indian worst 64
Indian best 13
Indian average 261
+43%
14
34
13
201
+186%
0.6-0.8
8.2
1.2
2.0
+443%
0.6-0.8
6.5
1.0
3.8
Dry bulk Container
1 Recent Indian average figures from Indian Ports Association
NOTE: Based on best practices at Rotterdam and Singapore ports. Singapore is a transshipment port and thus, may not be exactly comparable
18. 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
Examination 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
multiple rates with
exemptions makes export
promotion cumbersome
& complicated
Single low duty rate, GST not
paid on input for exports
Single low duty rate, duty
refund on inputs used in
exports
Source: Based on Task Force on Transaction Cost in Exports, 2011, M/o Commerce and Industry
19. 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 Stopford, is the
drive for ever bigger container ships irresistible? Lloyd’s list shipping
forecasting conference, April, 2002 quoted in Fairplay.com.uk
20. Costs & Procedures in Foreign
Trade
India China Malaysi
a
Korea Singapor
e
Documents for Export
(Numbers)
8 7 7 3 4
Time to export (Days) 17 21 18 8 5
Document to import
(Numbers))
9 5 7 3 4
Time to import (Days) 20 24 14 8 3
Cost to export * 945 500 450 742 456
Cost to import* 960 545 450 742 439
* US $ per container. Source: Doing Business 2010, IFC
21. Port Management Models
Port Type Infrastructure Super
structure
Stevedoring
labour
Other
functions
Service port
(Major Indian
Ports
Public Public Public Mainly public
Tool port
(France,some
African nations)
Public Public Private Mainly public
Landlord port
(Antwerp,Rotter
dam,Singapore
etc
Public Private Private Mainly private
Private port
(UK,New
Zealand)
Private Private Private Mainly private
22. 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
Joint provision & consumption
24. 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
25. 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
- the infrastructure provide a service: you can charge a
price
- the infrastructure is an input: you can charge a price
26. 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 user’s interests
Therefore, the need for 3rd Party
Neutral Regulator
27. 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
28. 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.
29. 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
-60% of normal tariff applicable
30. Tariff Guidelines 2005:Issues
Information intensive exercise
Too much emphasis on individual
operator’s 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.
31. 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
32. 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 projects
◦ Notified in the Gazette on 26.2.2008
33. 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
34. 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
35. 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
36. 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
Operator’s cost are reviewed & costs
deemed unnecessary eliminated.
◦ Problem in determining allowable costs
No incentive to operate efficiently
Operator may over invest
37. 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)
38. 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 regulator’s side:
- no up-to-date operating cost information
- no data on future business plans
(investments, cost-reduction, etc.),
- obscure picture on demand side.
39. 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
concessionaires.
40. 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
41. 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
42. 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.
43. 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
44. Hinterland
•Level of Economic Activity
•Road/Rail Network
•Material Access
•Feeder Services 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
•Master Plan & port capacity
•Level of congestion
•Ability to handle large ships
•Geographical location
•Management practices
•Customer satisfaction
•Personnel quality & motivation
•Crane productivity
•Yard equipment planning
& productivity
•Gate productivity
•Equipment Utilization
•No. of berths
•Port Charges
Port System Efficiency is the Key
Intangible Factors
Terminal Efficiency
Physical Features of Port
45. Key Developments during H1
2012-13 (Apr-Sep)
CONCERNING CARGO GROWTH AT MAJOR PORTS:
3% 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.
46. 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.
47. 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.
48. Ports: Union Budget 2013-
2014
2 new major ports will be established
in Sagar, West Bengal and in Andhra
Pradesh adding about 100 MT of
capacity.
A new outer harbour will be developed
at Thoothukkudi, Tamil Nadu at an
estimated cost of Rs. 75 billion.
