CENTRUM 2007

CONTAINERIZATION BUILDING GLOBAL TRADE COMPETITIVENESS

Prof. G Raghuram Indian Institute of Management Ahmedabad

EXIT

G Raghuram, IIMA

Outline
Potential of Container Traffic Drivers of Container Traffic Potential Hub Ports in India Hinterland Connectivity Other Issues Concluding Issues
CENTRUM 2007

G Raghuram, IIMA

Potential of Container Traffic

Where are we?
Year National GDP US $b1 2000-01 2001-02 2002-01 2003-04 2004-05 2005-06 2006-07 409 441 467 554 633 725 827 Growth2 (%) 4.4 4.8 3.8 8.5 7.5 9.0 9.3 Container Total 000 TEUs 2468 2886 3366 3900 4502* 4998* 5964* Growth (%) 13.0 16.9 16.6 15.9 15.4 11.0 19.3

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1At current market prices 2At factor cost (constant prices) *Includes traffic from Mundra and Pipavav G Raghuram, IIMA

Potential of Container Traffic

Where are we?
Top Seven Indian Container Ports Ports 2006-07 JNPT 3298 Chennai 798 Mundra 393 377 Tuticorin 240 Kolkata Cochin 227 Kandla Total of Above Top Seven World Container Ports Ports Singapore Hong Kong Shanghai Shenzhen Busan Kaoshiung 177 Rotterdam 5510 Total of Above CENTRUM 2007
(000 TEUs)

1 2 3 4 5 6 7

2006 24792 23230 21710 18468 12030 9774 9690 119694

G Raghuram, IIMA

Drivers of Container Traffic

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International trade growth Penetration of containerization Hub and feeder service structure

G Raghuram, IIMA

International Trade Growth

Year National GDP Growth2 (%) 4.4 4.8 3.8 8.5 7.5 9.0 9.3 Exports Growth (%) 20.1 -0.4 20.6 20.5 30.7 23.0 Imports Growth (%) 0.5 3.0 19.7 26.7 38.1 23.5

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US $b1 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 409 441 467 554 633 725 827

US $b 44.1 44.0 53.0 63.9 83.5 102.7

US $b 50.1 51.6 61.7 78.2 108.0 133.4

[CMIE, 2007] 1At current market prices, 2At factor cost (constant prices) G Raghuram, IIMA

Penetration of Containerization
Currently, containerized cargo represents about 30% by value of Indias external trade. This proportion is likely to grow as containerization increasingly penetrates the general cargo trades and increases its share from the current 68% to nearer international levels of around 75-80% [World Bank, 2007]. Traditional bulk cargoes like cement and foodgrains are also getting containerised. Principal containerized commodities that India trades in include engineering goods, agricultural commodities, textiles and readymade garments, pharmaceutical products (bulk formulations) and machinery (auto and electronic).
G Raghuram, IIMA

CENTRUM 2007

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International trade growth and penetration, being the basic demand drivers, will result in the 21 m TEUs by 2015-16 at 15% growth rate Given recent trends, growth rates could be higher upto 20%

G Raghuram, IIMA

Container Traffic Projections

30.0 25.0 15.0% CAGR 17.3% CAGR 19.7% CAGR

30 mTEUs 25 mTEUs 21 mTEUs

CENTRUM TEUs m 2007

20.0 15.0 10.0 5.0 0.0 00-01 01-02 02-03 03-04 04-05 05-06 06-07 07-08 08-09 09-10 10-11 11-12 12-13 13-14 14-15

Year

By 2011-12, container traffic is expected to cross 13 mTEUs and by 2015-16, 25mTEUs

G Raghuram, IIMA

15-16

Hub and Feeder

CENTRUM 2007 Overall port traffic will increase depending on the amount of increased hubbing that will take place in India. Each Indian TEU hubbed in an Indian port will add two more TEU handlings at the hub port. Neighbouring country traffic hubbed in an Indian port will also add two more handlings. However, we view this as a negligible activity over the next decade, though there would be potential to be exploited in the long term.

G Raghuram, IIMA

Direct and Hub Shipments

Per cent

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JNPT Share of Container Traffic Direct Through Hub 55 80 20

Other Ports 45 13 87

Total 100 50 50

G Raghuram, IIMA

Hub and Feeder

CENTRUM 2007 As per as is projections, 9m TEUs (43%) of the Indian traffic of 21 mTEUs will be hubbed in 2015-16. Of the hubbed traffic, 0.95 m TEUs (11%) will be hubbed in India, implying a transhipment of 1.9 mTEUs. This is conservative. Hubbing in India can and should develop. If 50% hubbing were to take place in India, then 4.5 mTEUs will be hubbed in India, implying transhipment handling of 9m TEUs. About 7 more mTEUs will need to be handled at hub ports. This requires port handling capacity of 30 mTEUs, with 9 mTEUs as transhipment at hub ports.

G Raghuram, IIMA

Hub and Feeder

CENTRUM 2007 The reasons for a hub port not evolving in India are insufficient traffic cabotage law insufficient infrastructure including draft requirement for a mainline ship The advantages of having a hub port in India would be feedering time to other ports would reduce the revenue from the transshipment remains with India traffic from and to the hub port will move faster and cheaper

G Raghuram, IIMA

Drivers of Container Traffic

CENTRUM 2007

Given the above three drivers of container growth, it appears that 30 mTEUs, including 9 mTEUs of transhipment, is likely to happen by 2015-16 and we need to get prepared for that. Thus, out of 21 mTEUs of Indian traffic, 12 m TEUs would go direct, 4.5 mTEUs would go to foreign ports for hubbing, and 4.5 mTEUs to Indian ports for hubbing.

G Raghuram, IIMA

Potential Hub Ports in India

CENTRUM 2007

Hub ports in India should aim for at least 16 meter draft and feeder ports upto 12 meter draft.

Criteria
Strategic location Potential to reduce total transport cost Significant originating/terminating traffic Land availability and lower land values Less need for dredging Facility to receive higher capacity vessels
G Raghuram, IIMA

CENTRUM 2007

G Raghuram, IIMA

Potential Hub Ports in India

CENTRUM 2007
Readiness West Level High JNPT, Mundra, Pipavav Kandla, Mumbai South East

Cochin, Chennai

Visakhapatnam

Medium Low

Tuticorin New Mangalore, Mormugao Kolkata, Haldia, Paradip

[CRISIL, 2006]

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Maximum Draft
S No 1 2 Container Terminals JNPT Chennai Tuticorin Mundra Kolkata Cochin Mumbai Kandla Haldia Pipavav Visakhapatnam New Mangalore Mormugao Paradip Draft (meter) 12.5 13.4 10.8* 17.5* 7.5* 12.5 10.7 11.7 10.0 12.5* 15.0 10.5 12.5 11.5
G Raghuram, IIMA

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3 4 5 6 7 8 9 10 11 12 13 14

[World Bank, 2007; *Port Website, 2006]

Potential Hub Ports in India

CENTRUM 2007
Based on commercial criteria, JNPT. Infrastructurally, it does not have the draft nor the evacuation capability for future growth. Mundra is better placed as far as draft and evacuation is concerned. However, investments are on the anvil for JNPT. Visakhapatnam is the most viable port for hub operations on the eastern coast. It is in the centre of the Indias eastern coast, and can even service Bangladesh and Myanmar. It has a natural water depth of 20 metres within a nautical mile. The sea drift there is such that maintenance dredging requirements are less. Chennai ofcourse currently has the commercial advantage. Vallarpadam and Vizhinjam are possibilities from the South but may not work on commercial criteria, due to less hinterland potential.
G Raghuram, IIMA

Hinterland Connectivity
30% of the traffic expected to move hinterland by rail The remaining moves entirely by road, mostly to nearby CFSs, and some to interior ICDs Roads around ports dont explicitly plan for consequential trailer movements for empty containers and empty trailer moves (recent studies show that these could be as high as six to seven movements per TEU) Coastal and IWT are untapped for hinterland connectivity
G Raghuram, IIMA

CENTRUM 2007

Rail Evacuation
For 21 mTEU, at 30% movement by rail, and 90 TEU per train, over 190 trains would need to run per day. (Currently, about 40 trains are running per day, over 25 of which are on the JNPT Tughlakabad corridor). Double stack would ease this to about 120 trains per day. About 35-45% of these would be on the stretch near JNPT, picking up an additional 25-30% from the Gujarat ports. PPP model with ports and related stake holders should be used for rail capacity development. Kutch Railway Corporation and Pipavav Railway Corporation are examples. The DFCCIL should evolve appropriate models, based on past experience and future requirements. G Raghuram, IIMA

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Road Evacuation
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Beyond just the four laning of highways, expressway connectivity to the ports to service major flows would be essential. The currently envisaged future phases of NHDP do not provide for this. PPP model for roads around ports can be used with ports and ICD/CFS operators as the stake holders. A need for immediate attention would be the ICD at Tughlakabad.

G Raghuram, IIMA

Coastal Shipping and Inland Waterways

Feedering is synonymous with coastal shipping. The possibility of a dedicated sea corridor with inter-port connectivity needs to be explored. Integration inland water transport, especially in back water and tidal regions for evacuation, and consequent location of facilities, needs proactive consideration.
G Raghuram, IIMA

CENTRUM 2007

ICD/CFS Infrastructure
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Location and access, giving consideration to distance to manufacturing units, and local connectivity with minimum traffic interference. CIDCO land around JNPT is inappropriately priced. Customs and bonded warehouse. Idea of FTWZ is good. Rail connection to gateway ports Parking spaces and maintenance facility
G Raghuram, IIMA

Other Issues
Information Technology (IT)
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Domestic Traffic Location Policy of Industries Including SEZs Regulation

G Raghuram, IIMA

 Information Technology
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RFID, GPS, EDI, Knowledge Products, Standards

Domestic Traffic
18% of CONCOR Traffic is domestic Customized (out of the BOX thinking!) Eg: Autos

G Raghuram, IIMA

Location of SEZs
(as on November 30, 2007) CENTRUM 2007

Coastal Manufacturing Services Total 48 31 79

Non-Coastal 37 75 112

Total 85 106 191

G Raghuram, IIMA

Regulation
Licensing
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Competition

Security
Operator, and operations

Port Tariffs
Is TAMP required for Container activity?

Shipping Line Conferences

Competition Commission

Customs
G Raghuram, IIMA

Regulation
Cabotage
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Feedering?

Environment and Conservation

Role of Conservator?

Safety Quality of Service Dispute Resolution

G Raghuram, IIMA

Concluding Issues
For 30m TEU, as per normal international standards, we need 30 km of berth length. By JNPT standards, this could be as low as 15 km. At around 70% of JNPT standards of occupancy, we need 21 km. At 300 mts per berth, this translates to 70 berths.
G Raghuram, IIMA

CENTRUM 2007

Port-wise Container Traffic

2006-07
S No Port Operating Company 1. Port 2. DP World 3. AP Moller/Concor 1. DP World 2. PSA International/SICAL DP World PSA International/SICAL Port DP World/Concor ABG AP Moller Port Port DP World Port Port Port Total (000 TEUs) 3298 %

2005-06
Total (000 TEUs) 2667 %

JNPT

55.3

53.4

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2 3 4 5 6 7 8 9 10 11 12 13 14

Chennai Mundra* (MPSEZ) Tuticorin Kolkata Cochin Kandla Pipavav* Mumbai Haldia Visakhapatnam New Mangalore Mormugao Paradip Total

798 393 377 240 227 177 135 128 110 50 17 12 2 5964

13.4 6.6 6.3 4.0 3.8 3.0 2.3 2.1 1.8 0.8 0.3 0.2 0.0 100.0

735 299 321 203 203 148 86 156 110 47 10 9 4 4998

14.7 6.0 6.4 4.1 4.1 3.0 1.7 3.1 2.2 0.9 0.2 0.2 0.1 100.0

[CI Magazine, 2007; Indian Infrastructure, 2007; IPA, 2006] *Non-major and private ports, both under GMB

G Raghuram, IIMA

Port-wise Container Traffic

CENTRUM 2007

A second container terminal at MPSEZ is nearing completion for operations. Hazira port in Gujarat, owned by Shell Gas BV is being developed and will be operated by PSA for 1 mTEU per annum, Dholera Port, owned by JK Group and Adani Group will develop a container terminal, Maroli port in Gujarat has tendered for bidding for a container terminal, An off-shore container terminal (700 meters) at MPT for 0.8 m TEUs, to be developed by Gammon and Dragoddar

G Raghuram, IIMA

Port-wise Container Traffic

Rewas container terminal in Maharashtra is being developed by Reliance Logistics Investment Dighi container terminal in Maharashtra is being developed by Balaji Infrastructure Project Ltd Vizhinjam in Kerala is being tendered for an international container transshipment terminal (in competition to Vallarpadam in Cochin), and A 0.5 mTEU per annum container terminal at Kulpi in West Bengal is being developed by DP World.
CENTRUM 2007

G Raghuram, IIMA

Concluding Issues
Currently we have 30 (?) berths. While 70 is a target, market forces will drive the actual berth development. Finance does not seem to be an issue. There is not enough focus on scale of container terminals. This is necessary to drive down costs. Tendering and bidding should be done in a time definite manner.

CENTRUM 2007

G Raghuram, IIMA

Concluding Issues
Indian infrastructure for logistics is poor compared to world class and at best reactive to demand. There is need for continued focus on quality infrastructure development with speed. Commercialization and private involvement through PPP contracts is the key for building global trade competitiveness through containerization.
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G Raghuram, IIMA

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THANK YOU

EXIT

G Raghuram, IIMA