Role of Ports in Economic Development
Shri Rajiv Agarwal
MD & CEO
Essar Shipping Ports &
With ever increasing globalization around the world, world trade is bound to increase. Many countries around the world have benefitted by opening up their economies and integrating with world economies by removing trade barriers. As world trade started growing, it was imperative for all the countries to be competitive and become more cost and quality conscious. Ports are backbone of world trade, and play a key role in inward and outward movement of goods, and countries which built good ports with excellent infrastructure became competitive manufacturing centers / hubs.
World trade has increased at a CAGR of 11.7% during 2000-2007 while India's trade has increased at a CAGR of 19.8%. During last 10 years share of India in world's merchandised trade is doubled from 0.7% in 2000 to 1.4% in 2010. Good quality port infrastructure is essential for the growth of trade and competitiveness of the manufacturing sector.
Port sector is destined to play an important role in the growth of Indian economy. 90 percent of trade by volume and 70 percent of trade by value is carried out by maritime transportation which involves handling through port. Trade or manufacturing based economy cannot grow without sufficient high quality port infrastructure.
Indian Economy is services dominated which accounts for around 53% of GDP, while share of Industries and agriculture are 29% and 17% respectively. Manufacturing which is a subset of industry sector accounts for 17% of GDP of the country. Normally, economic transition follows the pattern - agriculture to industries to services, but Indian economy has transformed from agricultural dominated to services dominated without experiencing the industrial boom. For balanced growth of Indian economy, industrial boom driven by manufacturing sector is essential. For India to develop a strong and competitive manufacturing sector, it is imperative to have world class infrastructure including efficient ports. Manufacturing sector has huge forward and backward linkages and growth of manufacturing sector will create platform for sustainable high economic growth.
Port plays an important role in the growth of manufacturing and mining sector. Core manufacturing sector like steel, refinery and automobiles are dependent on trade for raw materials and sale of finished products. Logistics cost plays an important role in the cost of production and hence profitability of the business as volume of material to be transported are huge. In steel industry raw material requirement is around 2.5 times of the steel to be produced. So increase in logistics cost of raw material by Rs 100/MT will have an impact of Rs 250/MT in the price of finished products. Deep draft and fully mechanized ports reduces the sea logistics cost and ship waiting time. Trend in the shipping business is movement towards larger ships which reduces per unit cost of transportation. In bulk category trend is towards capesize vessels of 170,000 DWT, in containers size of biggest ship has increased from 2000 TEUs in 1970s to 14000 TEUs at present while in crude oil trade VLCC of size 300,000 DWT are the most preferred vessel. These large ships require high draft ports which may not be naturally available and hence huge investment is required in capital and maintenance dredging of the channel. Larger vessels reduces the per ton capital cost of the vessel by around 20% and fuel cost by around 40%.
Average discharge rate at the port has increased from 25,000 ton per day to 70,000 -100,000 ton per day in highly mechanized ports like one at Hazira port of Essar. Similarly, for the containers number of moves by a gantry crane in an hour has increased from 15 moves to 25-30 moves and it is expected to increase to 40 moves per hour. High cargo handling rate at the port reduces the cargo handling time at the berth and ship waiting time.
Port plays an important role in development of industries in its hinterland. Export and import based industries like steel plants, refinery, power plants based on imported coal and LNG benefits from development of deep draft mechanized ports. Land transportation cost through rail and road are much higher than sea transportation cost. It has been observed that development of ports has influenced the development of industries around the port and eventually led to development of cities, many port cities around the world are example of that.
There are several challenges in development of ports, the key ones being getting environmental and other approvals and acquisition of land for the port and port based industries. High investment will be involved in the capacity expansion in the port sector. Investment will be required in 3 fronts – creation of deep draft port and providing tranquility, development of highly mechanized facility and yards, and connectivity of ports to the hinterland by railway network or good quality road capable of handling high traffic flow. Most of the ports in India do not have natural draft for direct berthing of large size vessels. Huge investment in dredging of channel is required to increase the draft at the port. Port connectivity is the biggest challenge facing the port sector. Most of the ports are lacking because of the bottleneck in the evacuation. Ports need to be connected to the hinterland by high quality road and rail infrastructure. Creation of road and rail infrastructure requires involvement of several government agencies for approvals, acquisition of land, and development of the facilities.
Essar's port business is committed towards development of high quality port infrastructure for its customers. It has developed deep draft ports with highly mechanized handling facilities to reduce the logistics cost of its customers. All weather deep draft port at Hazira is an example of creation of high quality port infrastructure. Port is created by dredging the channel to the draft suitable for handling minicape vessels. It has installed highly mechanized bulk raw material handling facilities capable of discharging 100,000 tonnes in a day. Essar has also constructed and operating SPM and petroleum product jetties at Vadinar, Gujarat and its SPM can handle VLCCs up to 325,000 DWT and can discharge a VLCC in 1.5 days. It has shown exemplary track record in safety, quality and environment protection. It has received 'Sword of Honour' from British Safety Council and has become the first terminal in East of Suez channel to receive such award. It is operating with 1500 LTI free days and has received ISO 9001, ISO 28000 and ISO 29001 certifications.
Essar is also developing all weather deep draft port at Salaya, Gujarat for handling bulk cargo. This facility will be highly mechanized and will be capable of berthing minicape vessels. Essar has been awarded to develop 2 terminals at Paradip – one for handling coal and the other for handling bulk cargo. Focus of Essar in port business is to build large world class ports with contemporary technology and high discharge rates.
Port sector is crucial for the growth of the economy and it has been driving force for trade and growth of the economy since ancient times. Most of the ancient cities were port based cities and port will remain the focal point of urbanization in modern age as well. Need of the hour is to promote port development and facilitate full utilization of port assets.
Shri Rajiv Agarwal
MD & CEO,
Essar Shipping Ports & Logistics Limited