Wednesday, November 6, 2013

Save the sinking Indian shipping


It was bureaucracy versus business at the India Shipping Summit 2013 held in Mumbai from Oct. 21 to 23 when both the entities traded barbs against each other on who is holding the Indian shipping sector back. A $2 trillion dollar economy that is fourth largest in the world with a long coastline of 7, 517 km dotted by 13 Major Ports and 176 minor ports ranks abysmally low at 16th position in merchant ship fleet.

A renewed vigour can only be infused into the sector if the bureaucracy amends itself to reality and put its  house in order to woo business, argues industry in opposition to the contention of babudom that berates the Indian shipping sector as whining school boy with his satchel who refuses to outgrow its mewling and puking state of infancy.

Besides the blame game, shipping companies, ports and terminal investors also took the opportunity to share their ideas and experiences to revive the growth of Indian maritime sector.

Cargo handling

Mr. Rajeev Sinha, Director, Adani Port & Special Economic Zone Ltd: While cargo handling in Major Ports is set to double approximately from 546 million tonne in 2013 to 1, 051 million tonne, the cargo handling during the same period for non-major port is estimated to grow two-and-a-half times from 388 MT to 982 MT. By 2020 there is going to be a change of scene between major and non-major ports with the latter overtaking the former in terms of cargo handling strongly driven by private sector and industrial growth.

Non-major private ports are scoring good on performance indicators like vessel Turn Around Time, pre-berthing delays, larger vessels and larger parcel sizes. Major Ports suffer from the manning scales that are old and union-based practices when compared to minor ports. Major Ports are operating in losses with poor return on assets. Foreign private companies have invested $2.4 billion to create 150 million tonne total capacity. Private investment in green field project is $4.7 billion and shift of cargo from Major Ports to minor ports happen by the sheer quality of service.

Public Private Participation (PPP) is not putting all the risk on the lap of the private investments. For their part, private players are doing their due diligence on the project and without gauging the return people bid for the project. PPP could be a success if the management in public ports is professionalized. Lateral entry talent should be allowed when private sector is wished to participate in the project with huge financial investment.

PPP projects 

Mr. Rajiv Aggarwal, CEO & MD, ESSAR Ports Ltd: The ban on iron ore has led to a loss of 100 mn tonne cargo and overall growth of cargo has been tepid at less than 3%. In the past 2 years it has grown from 884 MMT to 934 MMT. On the infrastructure development the projects are stuck due to statutory and market risks and most PPP projects are generating enough return on investment.

With the total port capacity of 1, 300 MMTPA the cargo utilisation is now at 934 MMTPA revealing a decline of utilisation from 80-85% to 70%. China in comparison has a port capacity of 3, 300 MTPA with the cargo utilisation of 2, 500 MMTPA and not to forget the size of Chinese economy that is 3.5 times bigger than India.

PPP, if formulated as a win-win proposition, could be a big money churner with a return possibility of 10 to 15% apart from overall development and other multiplier benefits. The Government shouldn’t restrict its responsibility by just providing water front and expecting the private partner in the PPP projects to take the entire risk. Taking cue from world models, the Government should introduce Dispute Resolution Mechanism (DRM) to review concession agreements. The concession agreements here are considered to be watertight with no revisit, but world over 55% of projects are referred to DRM. Encouraging port-based industries would open up cargo volumes.

Losing business

Dr. Jonathan Beard, Global Lead Port & Logistics, Vice President, ICF GHK: The competition between Major Ports and non-major ports should be driven by choice. The present hub feedering model between India and nearby Singapore and Sri Lanka is bound to have a significant impact on India’s import and export costs. There should be capex spend on building capacity for receiving mega vessels like draft, inland connectivity to gateway port. Major shipping lines demand more than 35 moves per crane having 230 to 250 moves per ship hour while berthing larger vessels.

LNG cargo

Mr. A. K. Balyan, MD & CEO, Petronet LNG: There is declining LNG demand in Europe due to increased pipeline flows of LNG from Atlanta base to Pacific basin, while there is increasing availability of volumes from US, Auz, Russia and Africa. New buyers are also from Singapore, Thailand and Mexico and we do see re-gasification in India and China. But there is global certainty and no clarity on Japan nuclear start up. Kochi offers unique opportunity in bunker coast in East-West trade route with regulation more and more on emission controlled areas. We need to focus pipeline infrastructure as currently we have 40, 000 km of pipeline network. LNG projects should be brought under the infrastructure ambit.

Role of coal

Capt. Sunil Thapar, Director, Carrier & Tanker Division, SCI: Once   staggered at the 11, 000 plus mark before the onslaught of recession, the Dry Bulk index is rising from the crash at 1, 800 points and industry watchers predict this rebound as ‘dead cat bounce’ revival. When world economy has grown less than 3% in 2010-11, dry bulk growth was up 7% (2012), but supply had outstripped demand by 5 to 6% pushing rates down and leaving the shippers only to meet opex and not capex.

For Dry Bulk the cheer is India’s massive need of coal to fire its power plants and Indian coal imports are expected to surpass the China’s during the XIIth Plan. Currently the coal import is projected to be around 137 million tonnes. There is going to be huge import consignments from US and Auz as Indonesia is facing some domestic issues.

Mr. Ravi Chopra, Director, Interocean Group: Power and steel consume major portion of the traded coal in the market with minor 3% consumption by the cement industry. Coal shipments are expected to jump from 140 million tonnes to 200 million tonnes in 2016 and reach 300 million tonnes by 2020. Shipments are going to increase from Handymax to capesize for economies of scale and from C & F to FoB for freight optimisation. Ship owners are likely to enter into long term charter to hedge against market uncertainties and for guaranteed supply of cargo at certain price point.

Mr. Jagmeet Makkar, Co-Head of Noble Chartering & Global Head of Shipping Assets, Noble Group: 
Slow steaming along with freight rate and charter rate coming down can create virtual shortage as vessels take extra time to complete the voyage. Of course it’s going to be savings in bunker if the charter remains low. The global commodity trade comprises iron ore, coking coal, fertilizer and food grains. In global iron ore trade Australia is set to increase its exports to 69 million tonne up 4% at 69 million tonnes, Brazil at 3 million tonnes, India down by 45%, China at 65%, Korea and Japan at 3% or 7 million tonne.

The overall Australian supply is quite large even the tonne mile. Only India and China cannot maintain the momentum and US could jump the bandwagon with energy price remaining low by kick-starting its infrastructure renewal process.

FDI policy

Capt. Anoop Sharma, CEO, Shipping Business, Essar Shipping: With US entertaining the thought on infrastructure renewal, there is going to be iron ore demand from China and India. Next, the bottlenecks in coal have to be eased out. The Government should extend the clearances and facilitate the Fuel Supply Agreement for the power plants. With power producers acquiring aggressively mines in Indonesia and US there is going to coal landings in all parcel sizes. With 100% FDI in the sector investors should take advantage of the policy.

Poor infra

Mr. Umesh Grover, CEO, INSA: Indian shipyards are disadvantaged by old methodology, no-block building making productivity extremely low, Capesize steel cost disadvantage, high finance cost, work culture and no township model of manufacturing with social infrastructure. India also doesn’t have the critical mass advantage over cost like China. Power plants, steel plants and heavy industries set up many years ago were based on integrated social infrastructure model where workers were provided with social amenities like hospitals, schools and colleges and recreation proximate to the plant site. Shipping yards should also be modelled on these lines for success.

Job generation

Mr. Ravi Mehrotra, CBE, Executive Chairman, Foresight Group: There is no other miracle other than stepping up manufacturing to generate jobs for the millions. We can follow the Chinese model for creating jobs. There is massive underemployment in Indian agricultural sector that contributes 25% of the country’s GDP having 57% of labour. China was similar to India in this scenario. But China grew its manufacturing sector to 29% of its GDP weaning away the unskilled and semi-skilled agricultural labourers to work in factories.

It just takes 4 months to train a welder that is how China became the low cost manufacturing hub of the world. Manufacturing sector share of India is woefully 8.3% of its GDP. India spends around 6% of its GDP on infrastructure in opposition to China that allocates 22% of the GDP.

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