National Grid of Ports: Strategic approach required; 5 key issues that need to be kept in mind

Following the 17th meeting of the Maritime State Development Council—the apex advisory body for the development of the maritime sector—it was announced that the Government will set up a committee to assess the potential of over 150 ‘non-major’ ports in the country, and consider linking them with ‘major’ ports to form a national grid of ports.

‘Non-major’ ports are regulated by various state maritime boards. While major ports continue to attract the bulk of the traffic (handling ~55% throughput), several non-major ports have also started handling substantial volumes. Non-major ports witnessed freight growth at a ten-year CAGR of 10.64% by 2018, compared to a ten-year CAGR of 2.79% for major ports.

Non-major ports have grown in importance in 3-4 states mainly because of their cargo-rich hinterland and proactive maritime boards. Gujarat accounts for ~70% of non-major port cargo, while Andhra Pradesh accounts for ~16%, Maharashtra, ~7% and Odisha, ~4%. Reportedly, the government’s focus is on increasing India’s export-import (EXIM) cargo volumes by improving connectivity through enhanced coastal shipping. This would involve further development of smaller ports and their inter-linking with ‘major’ ports, among other aspects. The committee is to assess the potential of each such port in terms of downstream industries and suggest a plan to the states for their comprehensive development.

As a Deloitte report (LEADS 2018) has noted, logistics and trade flows today have evolved into networked, multi-dimensional processes – comprising fixed facilities, moving units as well as systems and processes – aimed at enhancing operational efficiency and economic value.

In this context, a strategic approach to the development of a national grid of ports would need to bear in mind certain key issues. First, the strategic objective of the grid would need to be clearly identified vis-à-vis the rest of the transportation and logistics network of the country. The rationale for the proposed grid appears to be that while for EXIM cargo, smaller ports could provide connectivity to larger ports for aggregation and efficient ocean freight, for domestic cargo, the grid could provide a cost-efficient logistics solution for movement of certain commodities across the peninsula. This would need to be tested in a market environment where any of a multitude of stakeholders in the logistics chain are likely to significantly influence final decisions on cargo flows and routes/network. For instance, shipping lines’ willingness to offer suitable commercial terms at smaller ports—in collaboration with coastal operators and freight forwarders—would critically determine the commercial success of the proposed grid as well as enhanced connectivity.

Second, a consolidated view of the transportation and logistics network of the country looking at origin/destination points for various commodities would need to guide identification/mapping of smaller ports that warrant attention from the states. A national grid of ports can help in optimising the multi-modal network for domestic/ EXIM freight movement – not only in terms of exploiting the complementarities between ports and the inland waterway network, but also in terms of development of last-mile/first-mile road/rail infrastructure to ports that can in turn alleviate congestion on the larger road/rail network.

Third, the economic value of such a network is likely to vary for users based on the nature of commodities and their volumes/directionality. Container movements are likely to work better with large-scale infrastructure and are in any case concentrated (in terms of volumes) around south Gujarat/Maharashtra and Chennai clusters. Bulk cargos, on the other hand, are likely to be more amenable to small but concentrated operations and could be the focus for development of smaller ports/operations.

Similarly, directionality/volumes of cargo movement create issues of load imbalance and are expected to influence how aggregation/hub-spoke models could develop over a period of time.

Fourth, in terms of additional infrastructure development, it would need to be borne in mind that infrastructure at many major ports as well as some non-major ports with established demand/hinterlands has already been identified/developed by port trusts and state governments through various PPP initiatives over the years. In this context, the plan for development of smaller non-major ports must consider the need to develop models with viability at a smaller scale– keeping in mind different vessel and scale dynamics.

Finally, it would be best that growth in the sector and additional connectivity materialises through market mechanisms, with trade/shipping lines assessing demand and developing networks through deployment of appropriate capacities and technologies once the basic infrastructure is developed over time. Here, the Government could play a key role in facilitating development of additional connectivity/services by addressing policy issues in terms of cabotage laws regulating inter-terminal transhipments, reforms on coastal shipping operations, etc. Policy interventions like permitting use of existing private jetties for third party cargo – as recently announced by the Gujarat Maritime Board – can also have a substantial impact by unlocking capacities for the trade to consider and employ.

(The writer is Partner, Deloitte India)