Investment in Indian ports estimated to reach US$ 43 billion by 2020

Around 95 per cent of India’s trading by volume and 70 per cent by value is done via maritime transportation. According to a report of the National Transport Development Policy Committee, India’s cargo traffic handles by ports is expected to reach 1,695 million metric tonnes by 2021-22.

Definition / Scope
Market Overview
Market Risks
Top Market Opportunities
Market Drivers
Industry Challenges
Technology Trends
Pricing Trends
Regulatory Trends
Other Key Market Trends
Market Size and Forecast
Market Outlook
Competitive Landscape
Key Market Players
Strategic Conclusion
References
Appendix

Definition / Scope

Shipping industry refers to the industries that are concerned with transporting freight by ship. It is the least method of transporting bulk quantities of goods over long distances. Ports refer to an area that provides shelter for boats and vessel. It is a place for the loading and unloading of cargo. The different types of ports are as follows:

Dry port: Dry ports are inland terminals that are connected to sea port by rail or road. It is useful in trade of importing and exporting cargo and relieving of congestion and work load at sea ports.
Fishing port: The purposes for fishing ports are either recreational or commercial. The existence of this port depends upon the availability of fishes on particular ocean.
Cargo port: These ports are also known as “bulk ports” or “break bulk ports”. These ports deals with either single product or multiple products like food grains, timber, machines and so on.
Sea port: These ports are built on a sea location and used for commercial shipping activities. In order to store the shipment and maintain regular stocking, special warehouses are constructed in this port.
Inland port: These ports are built on small water bodies like rivers or lakes and are used either for passenger purpose or cargo or both.
Warm water port: Water does not freeze during winter time in warm water port. As this port operates all time of the year, these ports can be of great economic interest.

Market Overview

Around 95 per cent of international trade volume of India is handled by ports.
India has 12 major ports, 6 on the Eastern coast and 6 on the Western Coast. Major ports are under the jurisdiction of the GOI (Government of India) and are governed by the Major Port Trusts Act 1963.
India has about 200 non major ports of which one-third are operational. India’s 200 non major ports are located on the world’s shipping routes. Non-major ports come under the jurisdiction of the respective state Governments’ Maritime Boards.
The major ports had a capacity of 1,452 million tonnes by FY18 end.
India is the 16th largest maritime country in the world, managing over 7,500 kms of coastline.

Market Risks

China’s economic slowdown has resulted to a sharp decline of imports like Iron ore. Over the few years India’s domestic coal production has also increased leading to fewer coal imports. All these factors have resulted into drop in demand for commodities, thus tumbling commodity movements. China has been the main driving factor of the shipping demand, but the slowdown of China is going to affect dry bulk imports.
A sulphur cap is expected to hit the shipping industry in 2020. This could lead to increase the cost of fuel by as much as 300 per cent. This will affect the expected growth of the industry.
The earning and freight rates of the shipping companies are highly dependent on demand and supply in the markets. The trade growth and geographical balance of trade affects the demand and new ship building orders and scrapping of existing tonnage affects the supply.

Top Market Opportunities

Dry docks are essential to provide ship repair facilities. Out of all main ports, Mumbai and Visakhapatnam have 2 dry docks; Kolkata has 5 dry docks and the remaining have 1 or no dock at all. This will provide opportunities to build new dry docks and setup ancillary repair facilities in remaining places
The potential market size of ship repair in India is about US$ 388-466 million. With the increasing demand for ports, the need of port support services such as pilotage, dredging and harbouring are expected to increase. Further, the government has allowed for FDI up to 100 per cent for harbour construction and port maintenance.
An agreement is signed with JNPT in Navi Mumbai and Development Bank of Singapore and SBI, for external commercial borrowing worth US$ 400 million for expansion of road network connecting the port.
Coastal shipping is being encouraged by the GOI as it lowers down the coast of logistics. In 2017-18, Indian ports handled 234 million tonnes of coastal trade cargo, a growth of 16 per cent over the previous year.
Due to the growing imports of crude and coal the demand for port infrastructure is rising. As a result, public ports will fall short of meeting demand. This presents opportunity for private ports to serve the spill-off demand from major ports.

Market Drivers

Rising trade volume

India’s total external trade increased to US$ 763 billion on FY18, implying a CAGR of 5 per cent since FY09. The increasing trade is leading into higher demand for containerization due to their efficiency in time and cost. Also, ports handle 95 per cent of India’s trade volumes.

High Import of Crude Oil and Petroleum Products

The strong economic growth is increasing the demand for energy in India. India meets nearly 75 per cent of total crude oil demand by imports. Petroleum, Oil and Lubricants have been the major contributors to total traffic at major ports and accounted 36 per cent in FY18. The crude oil and petroleum products imports reached 256.33 million tonnes in FY18.

Policy Support

The GOI has allowed FDI of up to 100 per cent under the automatic route for projects related to the construction and maintenance of ports and harbours. Further, a 10 year tax holiday is given for enterprises engaged in ports.

Industry Challenges

Global Threat

The shipping industry is highly affected by the state of the global economy. If the global economic situation is not favourable, it could have an adverse effect on the state of the shipping market. The recent dispute between US and China could lead to trade war resulting into global threat.

Chinese economy

China has been one of the important market for India’s import and exports market. If Chinese economy weakens, it can have a direct impact on the freight rates and demand supply for shipping.

Multiple Regulations

The shipping industry is regulated by IMO. Other international regulations such as International Convention for the Safety of Life at Sea, International Convention on Loadlines, International Ship and Port Facility Security Code, International Safety Management Code, ILO Merchant Shipping Convention etc. are also to be followed. These regulation not only acts as barriers to entry into the industry, but also increase the cost to the compliance of such regulations.

Highly Capital Intensive

Businesses like freight and shipbuilding in shipping industry are highly capital intensive. Further, it has high gestation period thus taking longer period for break even.

Technology Trends

India has connected all its ports through a RFID technology. This has helped to improve the entry and exit of trucks, in-port movement to optimize cargo flow and enhance security by recording the information.
AIDC technology is used to provide real-time insight into a shipment location, update to shipment status, estimated delivery time, reason for delayed delivery and others.
Bluetooth technology is used to enhance logistics tracking. Bluetooth enabled device on shipments, loaders, and docks is used to relate information about a given package’s proximity to the device.

Pricing Trends

Water transport is considered as one of the cost effective mode of transportation. As per one of the RITES report, one litre of fuel moves 24 tonne km on road, 95 tonne km on rail and 215 tonne-km on Inland Water Transport.

The cost of coast to coast transportation of freight by coastal shipping is at about 42 per cent that of railways and 21 per cent that of road transport. The below table shows the cost for different mode of transportation:

Regulatory Trends

The government has initiated National Maritime Development Programme. This is an initiative to develop the maritime sector for which the planned outlay is US$ 11.8 billion.
The Ministry of Shipping allowed foreign flagged ships to carry containers for transhipment in May, 2018.
In order to make port projects more investor friendly and make investment climate more attractive in shipping industry, a revised Model Concession Agreement (MCA) was approved in March, 2018.
The GOI has started project called UNNATI in order to identify the prospective area for improvement in the operations of major ports. As of November 2018, under this project, 116 initiatives were identified out of which 91 initiatives have been implemented.
The government has planned a total of 189 projects under the Sagarmala Programme for modernization of ports involving an investment of US$ 22 billion by 2035. Sagarmala Pariyojana is the flagship programme of the Ministry of Shipping which aims to reduce cost of international and domestic trade.

Other Key Market Trends

Cochin port witnessed the highest cargo handling growth of 16.5 per cent. Other ports such as Paradip, JNPT, Vizag, Chennai, Kolkata, Kandla also registered positive growth.
In term of volume, Kandla Port handled the highest volume of 110.1 million tonnes. The top five ports namely Kandla, Paradip, JNPT, Vishakhapatnam and Mumbai accounted for 60 per cent of the total cargo volume.
In term of products, petroleum accounted for 31.5 per cent of total cargo volume, followed by containers (19.7 per cent), thermal and steam coal (14 per cent), cooking and other coal (7.45 per cent), pellets (7.15 per cent), etc.
The top destinations from India are USA, UAE, Saudi Arabia, Hong Kong, China and Germany.
Solid cargo holds the largest share to all traffic handled at major ports in India, followed by liquid cargo and containers. Cargo traffic during FY18 for solid, liquid and container cargo was 302 MT, 244MT, 134MT respectively.
The turnaround time at major ports in India has declined to 64 hours in FY18 from 107 hours in FY12.

Market Size and Forecast

In FY18, major ports in India handled 679.36 million tonnes of cargo traffic, entailing a CAGR of 2.73 per cent during FY08-18. In FY19 (up to November 2018) traffic increased by 4.83 per y-o-y to touch 461.22 million tonnes.
The container traffic in India for major ports expanded by 8.08 per cent y-o-y to 9,135 TEUs in FY18. It reached 6,488 TEUs in FY19 (up to October 2018), implying a growth of 8.35 per cent y-o-y.
The iron ore traffic at major ports reached 48.59 million tonnes in FY18. It reached 26.08 million tonnes in FY19 (up to November 2018).
The contribution of non-major port’s traffic to total traffic rose to 42 per cent in FY18.
The cargo traffic at non-major ports is estimated to be 491.95 million tonnes in FY18. It expanded at 9.2 per cent CAGR during FY07-18.
The net profit at major ports has rose from US$ 178.4 million in FY13 to US$ 529.6 million in FY18. The operating margin doubled from 23 per cent to 44 per cent.
The capacity at major ports increased from 505 million tonnes in FY07 to 1,451 million tonnes in FY18.

Market Outlook

The total investment in Indian ports is estimated to reach US$ 43.03 billion by 2020. The investment in major ports are expected to total US$ 18.6 billion, while in non-major ports it would be US$ 28.5 billion.
The Maritime Agenda 2010-20 has a target if 3,130 MT of port capacity by 2020.Non-major ports are expected to generate over 50 per cent of this capacity.
According to a report of the National Transport Development Policy Committee, India’s cargo traffic handles by ports is expected to reach 1,695 million metric tonnes by 2021-22.
The capacity increment at ports is estimated to rise at a CAGR of 5-6 per cent till 2022, thus adding 275-325 MT of capacity.

Competitive Landscape

The list of major ports in India is as below:

Kolkata Port Trust
Paradip Port Trust
Visakhapatnam Port Trust
Chennai Port Trust
Tuticorin Port Trust
Cochin Port Trust
New Mangalore Port Trust
Mormugao Port Trust
Mumbai Port Trust
Jawaharlal Nehru Port Trust
Kandla Port Trust
Port Blair Port Trust

Key Market Players

Adani Ports

Adani Ports and Special Economic Zone Ltd is one of the largest private sector port developer and operator in India. It operates 10 strategically located ports on the Indian coastline. As of FY18, it had a capacity of 378 million metric tonnes and handled 15.2 per cent of country’s cargo. It operated Gujarat’s Mundra Port, the largest commercial port in India.

APM Terminals

APM Terminals operates the Port Pipavav, which is located in the state of Gujarat with access to important shipping lines and markets in northwest India. It is one of the fastest growing ports in India and has the container capacity of 1.35 million TEUs, 5 million tonnes of dry cargo capacity and 2 million tonnes of liquid cargo capacity.

Kamarajar Port Ltd.

Kamarajar Port Ltd is the 12th major port of India and the only corporatized major port. It is situated on the east coast of India. It has current capacity of 38 million metric tonnes per annum. In FY18, the port handled. 30.45 MMT of cargo.

Strategic Conclusion

India has 12 major and 200 non-major ports. The Indian shipping and ports industry plays an important role in leading growth in the country’s commerce and trade. The GOI is playing vital role in supporting the ports industry.

There has been five times more growth in major ports’ traffic during 2014-18 as compared to 2010-14. The increased efficient at ports has led to three times increment of net profits of major ports during FY14-18.

A healthy outlook for Indian ports sector is expected in account of increasing investments, government support and cargo traffic.

Appendix

AIDC – Automatic Identification and Data Capture
CAGR – Compound Annual Growth Rate
FDI – Foreign Direct Investment
FY – Indian Financial Year (April-March)
GOI – Government of India
JNPT – Jawaharlal Nehru Port Trust
LNG – Liquefied Natural Gas
MMT – Million Metric Tonnes
POL – Petroleum, Oil and Lubricants
RFID – Radio Frequency Identification
TEU – Twenty Foot Equivalent Unit
US$ – United States
Y-o-Y – Year on Year