Traffic at Indian ports grew by just 2 per cent in 2011-12 (a sharp contrast from 9.2 per cent CAGR recorded during 2005-06 to 2010-11). Had it not been for the healthy 25 per cent increase in coal traffic and a modest 8 per cent increase in container traffic, overall growth in port traffic may well have been negative during the year. The slowdown in traffic growth, combined with huge capacity additions of around 12 per cent in the sector, resulted in lower capacity utilisation in 2011-12.
Despite lower utilisation rates, congestion issues continue to beset ports as turnaround times for most of the major ones still remain significantly high.
This is because utilisation rates have been largely pulled down only by capacities handling iron ore and certain pockets of non-major ports. Major ports handling coal and container traffic continue to operate at near 100 per cent utilisation levels.
Petroleum and oil products (POL) have the highest share in port traffic, followed by coal, container and iron ore. In 2011-12, while POL traffic was more or less steady, iron ore exports slumped by around 25-30 per cent due to multiple factors such as a ban on illegal iron ore mining in Karnataka, higher freight costs (because of sustained rate increases by the railways) and an increase in export duty on iron ore fines from 20 per cent to 30 per cent in December 2011.
Ports with large iron ore handling capacity have been severely impacted due to the slump in iron ore exports. Global iron ore prices are down by nearly 24 per cent so far in 2012, due to slowdown in Chinese steel production (which is also impacting exports).
Ports in Karnataka and Andhra Pradesh are the worst-affected by the sharp fall in iron ore traffic, followed by Orissa and West Bengal. Both the iron ore terminal projects of Sical Logistics at Ennore Port and New Mangalore port are severely hit.
Krishnapatnam port, which has a 10 MTPA capacity for iron ore, is also presently not handling any iron ore traffic.
Steady growth? Coal
By contrast, traffic of coal is expected to grow at a steady pace in 2012-13. Thermal coal will continue to be imported in large quantities due to the severe shortage of domestic coal. Coal traffic would receive a boost if a new government initiative termed “pooling” is implemented. Under the proposed “pooling” arrangement, imported coal would be supplied to private sector coastal power plants at a price that would be the average cost of cheap domestic coal and costly imported coal. This would lower the cost of coal for these power plants and make their operations viable at a time when international coal prices are high. With global economic growth likely to be subdued, container traffic growth in 2012-13 is likely to be modest, as reflected in a 3 per cent growth (at major ports) in the year till date. In future, we believe that container traffic at non-major ports will grow faster than that at major ports on account of better operation efficiencies.
Container capacities at non-major ports such as Mundra, Pipavav, Hazira, and Dighi would primarily drive the higher growth in container traffic at non-major ports.
Going ahead, non-major ports are expected to account for a higher share of the total traffic pie as compared to major ports. This is due to the capacity expansion plans by non-major ports coupled with better efficiencies and sound infrastructure at these ports. In addition, plans for port-based power projects and special economic zones (SEZs) near non-major ports, and improvement in infrastructure such as road and rail connectivity will drive traffic growth at non-major ports.
In the long run, port traffic growth will be boosted by the rebound in GDP growth. Significant investments, a bulk of it from the private sector, be required to keep capacity utilisation rates at optimum levels, so that the ports have less congestion and healthy turnaround times.
Over the next 5 years, investments of around Rs. 1 trillion are expected in the ports sector of which Rs. 440 billion would be directed towards major ports and the rest towards non-major ports. Investments are expected in greenfield projects as well as expansion of existing facilities.
The author is Director,Crisil Research,a division of Crisil.