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India mulls port pricing overhaul to lure mainline calls

      10/03/2019

The Indian government is actively considering a review of port charges for mainline ship calls to narrow the competitive disadvantages that hamper trade development efforts. It is a significant move that could cause concern for foreign hub heavyweights thriving in part on Indian transshipment cargo.

The reconsideration comes after industry groups and terminal stakeholders roundly called out that high marine tariffs are eroding the primary goal behind cabotage reforms enacted in May last year — to enhance the attractiveness of Indian ports as direct ports of call, thus discouraging the costly foreign transshipment practice via short-haul relays.

At a recent meeting with the heads of major port entities held in Mumbai by the Ministry of Shipping, stakeholders agreed that pricing rationalizations are imperative if key domestic ports, particularly the busiest Jawaharlal Nehru Port Trust (JNPT), were to become competitive against foreign counterparts.

Stakeholders noted the pricing method used by foreign rivals is to keep vessel-related charges to a minimum and cover up revenue shortfalls through higher container-related fees, which directly impact cargo owners. Marine charges mainly include port dues, berth hire, and pilotage charges, whereas cargo-related tariffs essentially cover stevedoring, wharfage, and demurrage.

Given that context, officials said a robust, alternative pricing policy needs to be formulated to fix those issues, instead of doling out tariff discounts to mainline carriers on an ad-hoc, controlled basis.

After consultations with various stakeholders, the Indian Ports Association (IPA) is expected to submit suggestions to the government on how port competitiveness can be improved to attract more direct calls.

The cost of a port call is generally contingent on the number of containers, loaded and discharged, that the ship handled at the terminal.

Unlike minor or non-government port entities, terminals at major Indian ports are regulated by the Tariff Authority for Major Ports (TAMP), which fixes service rates every three years subject to government guidelines for build-operate-transfer (BOT) projects. As such, the pricing problem has been more pronounced on operators there from a general perspective, although various industry studies have found that the cost to call at privately operated minor terminals — notably those operated by the Adani Group at Mundra and APM Terminals’ Pipavav Port — remains as expensive as newer BOT operators at major port complexes.

To illustrate the port cost differences, a recent study by the Associated Chambers of Commerce and Industry of India (Assocham), showed that on a call with 2,500 container moves, DP World-operated Nhava Sheva (India) Gateway Terminal (NSIGT) and PSA International’s Bharat Mumbai Container Terminals (BMCT) at JNPT cost $108,437 for marine services and $210,700 for container handling fees, with the unit cost per container move pegged at $127.65 on average. In comparison, Sri Lanka’s Colombo Port is estimated to cost $76.27 per container move — an obvious reason why mainline carriers prefer to prioritize the island hub over Indian ports.

The cabotage liberalization — under which foreign-flag carriers became free to transport laden export-import containers for transshipment and empty containers for repositioning between Indian ports — was intended to put some of the Indian ports on the global hub map by aggregating intra-India gateway cargo through improved coastal networks.

That effort has yielded traction in domestic transshipment handling at several Indian port locations. The Visakha Container Terminal (VCT) at the eastern Visakhapatnam port saw a three-fold increase in transshipment moves during April-August, with volumes rising to 9,450 TEU from 3,280 TEU in the same period last year, according to the data analysis.

In addition to an array of short-sea or feeder offerings, VCT currently hosts three weekly long-haul mainline calls — operated mainly by Maersk, CMA CGM, Cosco Shipping, and Wan Hai Lines — and is poised to receive a new call addition later this month from the South-East India – Europe Express (IEX) Service that Hapag-Lloyd recently launched jointly with Ocean Network Express (ONE).

Thanks to the cabotage change, other major Indian ports have also been able to generate incremental volume gains in recent months, which the Container Shipping Lines Association (CSLA) put at an average combined increase of 100,000 TEU per month.