Amid a growing economy and rising trade with the world, India needs to sustain the momentum in building efficiencies in its port sector, argues Varun Gogia.India’s 7,500 km coastline boasts 12 major ports administered by the central government. Another 200 non-major ports are administered by the state governments, of which 65 are currently functional. The port infrastructure has been a key enabler of economic growth and trade in India, with nearly 90 per cent of export-import trade volumes flowing through it. With the country witnessing healthy economic activity over the last decade and growing trade, cargo volumes handled at Indian ports have expanded at a CAGR of nearly 4.7 per cent throughout FY2014-24. The cargo profiles handled at Indian ports comprise petroleum products, including crude oil, LNG, and LPG, which account for nearly       29 per cent, followed by coal (25 per cent) and containers (20 per cent), with iron ore, fertiliser, and other cargo contributing the remaining 25 per cent in FY2024.Over the past decade, the cargo profile handled at the ports has changed with the share of petroleum, oil and lubricants (POL) products moderating from around 35 per cent to around 29 per cent, and that of cargo rising from 16 to 20 per cent. The cargo growth has been supported by economic activity and improving hinterland infrastructure, which has supported healthy volume growth at the ports. While the major ports continue to handle a larger share of the cargo, the non-major ports’ market share has increased by nearly 400 bps throughout FY2015-24. The gain in market share has been enabled by the improving hinterland connectivity for these ports and the freedom to set tariffs. Similarly, the terminals at the major ports awarded post-November 2021 have also been extended this incentive. Meanwhile, the central government is also actively working to provide terminals operational before November 2021 at the major ports with the freedom to set tariffs. The resulting competitive landscape will further close the gap between major and non-major ports.India’s port sector has invested significantly in improving operational efficiency and expanding services provided to vessels. This is expected to continue under the Sagarmala Project. Under this initiative, nearly `320.66 billion has already been invested in port modernisation projects till March 2024, with another `756.50 billion worth of projects under various stages of implementation. Under the Sagarmala project and the PM Gati Shakti plan, the government is working to link major ports with the hinterland for seamless connectivity. This would result in faster evacuation of cargo to improve overall efficiency and reduce logistics costs.Improved performancePer the Logistics Performance Index (LPI) report published by the World Bank, India’s rank improved to 38 in CY2023 vis-à-vis 44 in CY2018. The country progressed across most of the parameters evaluated through 2018-23. The most notable growth areas are infrastructure and logistics competence and quality, with timeliness and the ability to offer competitively-priced international shipments improving. Over the past few years, both the central government and the private sector have invested significantly in port infrastructure. Besides, driven by notable expansions in warehousing, rail and road infrastructure, the logistics sector has also seen heightened investment.Under the Maritime India Vision (MIV) 2030, cargo handled at the ports is expected to double over FY2020 levels by FY2030, necessitating sizeable investments. Port capacity is projected to rise 1.7x to 2x by FY2030, and under MIV 2047, the cargo-handling capacity at ports is likely to reach nearly 10,000 million metric tonne per annum (MMTPA). To achieve this growth, significant investments are being made in new projects, such as the recent commissioning of deep draft seaports at Vizhinjam (Kerala) and the large container port under construction at Vadhawan (Maharashtra), to widen capabilities for handling the ever-increasing size of shipping vessels. Other major ports are also adding capacity entirely under the landlord port model through the public-private partnership (PPP) route, tendering out terminals at non-major ports, and developing new ports like Murbe (Maharashtra) and Keni (Karnataka). These efforts will further enable the Indian port sector to handle the expected increase in cargo volumes.Additionally, with the increasing digitalisation underway across the logistics value chain in the country and the mechanisation of port operations, Indian ports are becoming more efficient and catching up with their global counterparts. With continued investments in infrastructure upgrades, Indian ports should be able to close the gap with global ports in terms of operating parameters to attract more traffic. Furthermore, with the Indian economy expected to grow at a healthy pace, it will be imperative for them to improve their performance to substantially bring down the overall logistics cost, thus enhancing economic competitiveness.Challenges ahoy!Despite significant improvements, several issues continue to hamper the Indian ports’ progress on performance and cargo flows. Currently, most ports in India have inadequate draft to handle large-sized vessels. This results in cargo from Indian ports first travelling to a trans-shipment terminal like Colombo, where the cargo is loaded onto the mother ships. This adds to shipping costs and time, limiting the competitiveness of Indian exports. The Indian port sector also faces delays in dispute resolution among various stakeholders and port terminal operators. While several processes have been put in place, numerous arbitrations and issues still await resolution. Additionally, underdeveloped cargo-handling infrastructure in the hinterland and port connectivity continue to hamper overall logistics costs and cargo flows. Over the last few years, rail connectivity between ports and the hinterland has significantly improved through the Eastern and Western Dedicated Freight Corridors (DFCs). However, further development is needed through high-speed road corridors for easy evacuation. On the regulatory front, the central government has accorded market-based tariff-setting freedom to terminals set up post-November 2021 at the major ports under the Major Port Authorities Act (MPAA), 2021. The central government is also working towards providing the same freedom to terminals operational pre-November 2021 to create a level playing field. Additionally, it is also looking at certain reforms in the Model Concession Agreement 2021 for PPP in major ports to make it more amenable to the private sector, addressing issues related to royalty payment on minimum guaranteed cargo (MGC), termination norms for not meeting MGC for three years, and indexation of royalty to the wholesale price index (WPI).Growth to remain stableThe Indian port sector continued to witness stable performance with overall cargo volumes growing by nearly 7.5 per cent YoY in FY2024. The volume growth was underpinned by a robust container volume growth of around 11 per cent Y-o-Y followed by 8.7 per cent Y-o-Y growth in the coal cargo volumes handled at the ports. The other segments like iron ore witnessed a 36 per cent YoY surge followed by POL products, which saw a 3.5 per cent Y-o-Y growth. The container volumes grew owing to the rising containerisation of cargo in the country. The growth in coal volumes was driven by the government directive for blending imported coal to meet the power demand, particularly in the summer and monsoon months. The iron ore volumes handled at the ports surged owing to strong demand from China and the base effect of FY2023, wherein export duty levied on the export of iron ore had led to lower exports. In the first nine months of the current fiscal, overall cargo volumes witnessed a tepid growth of around 2.9 per cent Y-o-Y. This was because of 11 per cent Y-o-Y growth in the container cargo volumes and a 4 per cent Y-o-Y growth in the POL volumes handled at the ports. The increase in these two segments was partially offset by a moderation in the coal volumes (-3.4 per cent Y-o-Y) lower fertiliser (-7 per cent Y-o-Y) and iron ore volumes (-16 per cent Y-o-Y). ICRA expects the port volumes to grow around 3-5 per cent Y-o-Y in FY2025, driven largely by the container and the POL segments, with other key segments expected to witness moderation.About the author:Varun Gogia, Associate Vice President and Sector Head, ICRA.