Gujarat Ports - A Logical Gateway (Perspective of a Container Shipping Line)

As India's EXIM trade continues to register steady growth year after year, the supporting infrastructure such as the port and the rail struggle to keep pace with this growth. It is this infrastructure bottleneck that is now beginning to impact India's EXIM growth. It is therefore critical that we look beyond the traditional gateway ports and examine viable alternatives if we are to ensure that the country's EXIM growth is not hampered.

For starters let us examine the parameters that govern an ideal gateway port -

• State of the art container Terminal. This should include
  

  • Deep Draft to berth large size vessels
  • Capacity to accommodate future growth

• Geographical proximity to the source of the cargo and cost competitiveness
• Good Hinterland connectivity
• Good supporting Infrastructure

Today on the West Coast of India, we have three container gateway ports namely Nhava, Mundra and Pipavav that are fighting for their piece of pie of the North West India's EXIM trade.

While almost 68% of India's total EXIM trade move through the above the three gateway ports, Nhava is the clear leader with a 48% share and the balance 20% is shared between Mundra and Pipavav.

However let us examine if Nhava Sheva justifies the leadership position it commands.

• Nhava Sheva currently has three container terminals-JNPCT, NSCIT and GTI.
• All the three terminals are currently operating at well above their designed working capacity and are therefore perpetually congested hampering productivity. The resources at these terminals are fully stretched and even a slight deviation in terms of bad weather, equipment break down or strike results in congestion at the terminals spinning out of control.
• The berth occupancy especially at the private terminals like NSICT is as high as 85%. Global standards range from 60% to 70%. Recently NSICT forcibly cut move count on all carriers operating at their terminal thereby restricting the number of import discharge and export loading moves the carrier can perform at the terminal.
• The available draft is only 12.5 meters and can therefore not accommodate the next generation larger ships.

Implications to the Trade:

• Terminals have no capacity to accommodate organic trade growth. This will create a gap between supply and demand pushing freight rates up.
• The larger the vessel deployed, lower is the slot cost. Inability to deploy larger vessels due to draft restrictions impacts on the ability of shipping lines to offer competitive freight.
• Congestion leads to pre closure of terminal gates. There are consequent financial implications to the shipper in terms of buffer yard costs, and truck detention.
• Shut outs leading to increased transits in the logistic chain making the shipper globally uncompetitive.

I was speaking to the logistics managers of some of the global retail chains and they were candid in admitting that a lot their decisions on global sourcing apart from landed costs hinges on how seamless the logistic chain is and the ability to be able to deliver the goods on the store shelves within the prescribed deadline. This they say is the key to meet seasonal demands and address inventory costs. Here is where India loses out to countries like China, not on export competitiveness but due to logistics bottlenecks.

For shipping lines it implies that they are unable to optimize available capacity. Container shut outs force ships to sail out light impacting capacity utilization and loss of revenue. Consequently costs increase in terms of terminal shut out costs and port ground rents.

Now, how do the Gujarat port container terminals compare against the Nhava Sheva port container terminals?

Gujarat currently boasts of three state of the art container terminals. Two in Mundra namely MICT and Adani and one in Pipavav-APM terminals.

All the three terminals put together are currently working at only 62% of their designed working capacity. Therefore there is no congestion at these terminals and the trade does not have to face the challenges they encounter at Nhava Sheva in terms of pre gate closures and shut outs. Further the terminals have the flexibility to accommodate last minute arrivals.

Adani is adding another new container terminal –South port slated to be operational in May 2012. This will add another 1.5 million TEUs capacity at Mundra. So there is sufficient capacity available to cater to future trade growth.

All the three terminals in Gujarat boast of a draft of 14.5 mtrs and can therefore have the ability to berth the next generation larger vessels.

So in terms of operational efficiency, Gujarat ports clearly score over Nhava Sheva.

Let us now study the other major criteria governing the choice of a preferred gateway.

i.e. Geographical proximity to the cargo source and cost competitiveness.

The above tables clearly demonstrates that for cargo originating from North India , Mundra and Pipavav are the logical gateway ports both in terms of distance and costs. Based on above findings one can with fair degree of certainty conclude that the majority of the North India cargo should be moving through Mundra and Pipavav. But in reality it is just the converse. You will be surprised with the findings.

If one goes by the number of rail trips that Concor and the private rail operators have operated between the NCR and Ludhiana to Nhava and Mundra/Pipavav as this is a fair indicator on the flow of traffic, you will observe that 84% of the cargo from and to the NCR moves via Nhava and 68% of the cargo from and to Ludhiana moves via Nhava. This surely defies logic.

Let us compare the ports of Mundra and Pipavav as against Nhava Sheva in terms of distance from major cargo centers of the State.

The above distance chart shows that all the cargo producing regions of hinterland Gujarat are geographically close to the gateway ports of Mundra & Pipavav as compared to Nhava.

The belt of Mehsana, Ahmedabad, Baroda, Dahej, Bharuch, Hazira, Surat and Vapi has the highest density of industrial cluster with commodities ranging from Apparel &Textiles, Pharmaceutical & Biotech, and Chemicals and Petrochemicals. The ICD's of Ahmedabad, Baroda and Ankleshwar cater to the growing EXIM trade from this region.

However here again, while ICD Ahmedabad is closer to Pipavav and Mundra as compared to Nhava by 208 kms and 117 kms respectively and lower in costs by Rs 3000 to Rs 3500 per TEU, almost 45% of the cargo from ICD Ahmedabad still moves via Nhava.

Same story is for ICD in Vadodara. Vadodara is closer to Pipavav as compared to Nhava by over 100 kms and costs are equally competitive. Yet almost 80% of the cargo moves via Nhava.

ICD Ankleshwar is closer to Nhava as compared to Pipavav by only 35 kms. Though majority of the cargo moves via Nhava, we have a case to push cargo via Pipavav due to operational advantages Pipavav has over Nhava.

There are no clear cut answers as to why majority of cargo originating from North India and Gujarat markets do not move via Mundra/Pipavav (despite being geographically closer and more cost competitive as compared to Nhava). It is purely a mindset and resistance to change.

If you ask the shippers, a good majority of them are ignorant about the cost advantage and are guided by the fact that Nhava offers more rail departures and shipping line options. Shippers are always running behind schedules and want cargo to be shipped out /railed out at the earliest available option.

If you ask the rail operators what prevents them from offering more rail departures to Mundra and Pipavav and they will quick to add that we get more cargo to nhava and hence deploy more resources to Nhava.

The shipping lines have pretty much the same to say. Lines, who want to limit their port of call on the west coast of India to one port, choose Nhava over Mundra and Pipavav because Nhava has more cargo to offer. However increasing number of lines have now started seeing the wisdom of adding either Mundra or Pipavav as a port of call in addition to Nhava.

So it is pretty much a chicken and egg situation and the jury is out on what should come first-the cargo or the ship and the train.

It may not be out of context to mention here that MSC was the first shipping line to start calling Mundra way back in July 2003 and can in its own small way take credit of kick starting Mundra's growth. Needless to mention that whilst there is a first mover advantage there are start - up costs associated to it.

To push more cargo through the logical gateways of Mundra and Pipavav, the service providers namely the shipping lines, rail operators and the port will have to come forward. Shipping lines need to offer more services, rail operators need to offer more departures and the port needs to offer incentives if we are to induce the shippers. This needs to be a joint and collaborative effort.

A step in this direction was taken recently when Mr Mukesh Oza-President of the Samsara group announced the formation of Association of Shipping Interests in Gujarat – "ASIG"

However there are some infrastructure bottlenecks at Mundra and Pipavav that need to be addressed. Rail lines to these ports are not fully electrified adding to the transit time. Further there is only a single rail line between Mundra and Gandhidham and between Pipavav and Surendranagar. This limits the ability of the port on the number of rakes it can handle per day.

The recent move of NSICT, implementing move count restriction on all lines operating at the terminal is the proverbial last straw in the camel's back. As space at Nhava becomes a premium, this is going to force lines to hike rates ex Nhava. This in my opinion is going to force the hand of the shippers and will hasten the diversion of cargo to Mundra and Pipavav.

In conclusion if I was asked to put my money, I would put them on the ports of Gujarat. The fourth terminal at Nhava is not likely to come up before 2015 and the draft at Nhava is unlikely to increase beyond the existing 12.5 mtrs in the near future. The operational and logistical advantage that Gujarat ports of Mundra and Pipavav offers in terms of efficiency and costs and their capacity to accommodate future trade growth makes them a clear winner.

If Nhava Sheva is the present, the ports of Mundra, Pipavav and the new container terminal coming up at Hazira in Gujarat are the future.

MSC have taken several initiatives in the recent past to educate the trade on the same. MSC recently held a trade meets in Ahmedabad. Capt Deepak Tewari-CEO MSC India set the tone of the trade meet "Gujarat Cargo for Gujarat Ports" and underlined MSC's commitment to serve the growing Gujarat trade. MSC offers the largest network of ten offices in Gujarat and is the only shipping line calling on both the ports of Mundra and Pipavav in Gujarat. Between the ports of Mundra and Pipavav, MSC offers three departures a week to Europe with direct ports of call to over eleven ports in NWC and Med.

Shri Indrajit Sengupta
Vice President
MSC India