Container shipping in India has witnessed a paradigm shift over the past five years. From Indian ports steeling themselves to combat logistic impediments, to the Government flexing ‘Cabotage’ rules, the container shipping market here seems all set to reign in terms of handling-capacity and profits.
Sea News (SN) interviewed Maersk Line’s Steve Felder (SF) on the opportunities and challenges facing container shipping industry in India in the foreseeable future.
Steve, a veteran in liner shipping industry joined Maersk in 2004. In July 2017, he was appointed as Managing Director – India, Sri Lanka, Bangladesh, Nepal, Bhutan and Maldives at Maersk Line. The following are excerpts from the interview:
SN: How do you rate container shipping sector’s improvement over the past decade in India?
SF: As in any other country, India’s trade with the world is a key contributor to propelling businesses and creating jobs and economic prosperity. With greater accessibility to global markets supported by services provided by the shipping and logistics industry, businesses across India’s diverse topography can take their products to new shores, in turn supporting the Government’s Make in India and job creation vision.
The Indian market has both scale and growth, which have resulted in double digit annual containerized market growth over the past decade. With crores of new consumers entering the market every year, the impact of major policy reforms having subsided, and a strong focus on manufacturing and digitization, this growth is set to continue.
SN: Container shipping sector in India constantly combats capacity crisis. What would be your take and opinion to improve the situation?
SF: Supply-demand imbalance has been a perennial challenge in the shipping industry around the world for quite some years. The orderbook, which currently stood at 12% of existing fleet capacity at the end of 2017, is quite reasonable, given that containerized demand is increasing 3-5% annually. India’s containerized demand growth is far higher than the global picture, and in fact grew 11% in Q1 2018. Capacity added in recent years has largely been demand-led.
Today, we see other challenges but capacity. Challenges linked to a big opportunity in the inland to lower the cost of trade and unlock it. Our own research shows that a 10% reduction has the potential to generate additional exports of up to 5–8% in the four most important sector for the country: agriculture, textile, pharmaceuticals and automotive.
SN: Has the Indian Government played a significant role so far in facilitating smooth ground for the stakeholders in this sector?
SF: The Government of India clearly recognizes the importance of alleviating trade bottlenecks; as evidenced by large infrastructure initiatives such as Sagarmala, expansion of inland waterways, dedicated freight corridors, logistics hubs, and the development of smart cities. In addition, the Direct Port Delivery (DPD) service introduced by the Government is helping shippers achieve some of these benefits by reducing dwell time and transaction costs after vessel discharge.
In a more recent development, the relaxation of cabotage legislation is a welcome move and we acknowledges the effort made by Minister Nitin Gadkari and Secretary Mr. Gopal Krishna in this regard. We believe, that the change is a clear evidence of India’s resolve to bring reform to its logistics sector and thereby enhance its ease of doing business and cost competitiveness ratings
More however can be done, such as:
Inspired by “Digital India”, speed up the pace of implementation of Single Window Systems, to enable efficient Customs clearance. There are currently insufficient capabilities for Electronic Data Interchange (EDI), which means that certain actors in the supply chain are unable to interact with the Port Community System (PCS) efficiently.
Speed up the improvement of infrastructure around the ports, including upgrade of rail connectivity and road development; to reduce congestion and improve ease of operations.
Scale up education and training in the logistics sector, which is currently under-represented in the formal education system.
Then there is also the issue of the Tariff Authority for Major Ports (TAMP) regulation, which due to its multiple guidelines encourages a non-market driven tariff regime at terminals. While the Government has recently put forward a proposal for existing concessionaries to re-tender their terminals to move to a “TAMP free” regime, the same if executed, there is concern that this could promote unhealthy bidding practices, in turn making it challenging for the current operators to remain competitive.
SN: How well-disposed are Indian sea ports to handle mega scale container shipping.
SF: If we consider that a decade ago, many Indian ports such as Nhava Sheva and Chennai were perpetually congested with structural lack of capacity, today the picture is very different. The expansion of some major ports such as Nhava Sheva and Mundra, coupled with various productivity improvements, a gradual improvement in infrastructure, and the introduction of new non-major ports such as Kattupali, Krishnapatnam and Paradip have all created a situation of balanced capacity – and in fact over-capacity in some areas. So in principle, assuming current levels of productivity remain stable or improve, India is well positioned from a port perspective.
That being said, it is worth to mention that according to the World Bank, India must invest in connectivity to the ports, especially road and rail infrastructure. 69% of the Indian population resides in the hinterland, and inland markets are growing at higher pace than coastal markets.
SN: List a few major ports which you foresee as game-changers in the container shipping market (Indian sub-continent and South East Asia) over the next five years.
SF: Instead of listing specific ports, I would rather highlight the fact that with the new cabotage law in place, India has the opportunity to compete on equal terms with neighbouring countries. Indian ports are currently unable to compete with the likes of Colombo, Salalah, Tanjung Pelepas and Jebel Ali. More than 30% of Indian container traffic is transhipped at ports outside India – in fact 78% of cargo originating from or destined to the East Coast of India is transhipped at ports outside India. We therefore believe this reform will be an enabler to enhancing India’s global competitiveness by bringing greater competition in the coastal feeder market, and enable Indian ports to equitably compete for transhipment traffic. Government will however have to fast-track the development of a viable transhipment port, and deepen the draft at major ports to handle larger vessels.
Sea News Feature, June 8