Port Sector: Issues &

Challenges
Arvind Kumar*
Senior Adviser (TR)
Ministry of Road Transport &
Highways
February 2, 2012, Mount Abu
Forum of Indian Regulators
(FOIR)
*Views are personal and do not necessarily reflect

Overview: Indias Port

Sector
Indias seaborne trade
95% by volume & 67% by value
Length of the coastline 7,517 km
- 9 maritime States & 5 UTs ( including 2 island groups)

Parallel competing port management & legal Systems

- 12 under Major Ports Act, 1963
- 1 (Ennore) under Company Act
- 184 Non-major ports

Port legislation & Structure

- Indian Ports Act, 1908 allows Maritime States to set up their own
port systems
- Major Port trust Act, 1963, regulates 12 major ports.

Major Ports fall under operational & financial control of M/O

shipping & subject to tariff regulation by Law
Minor ports: under State Maritime Boards & free from
formal tariff regulation

Growth Dynamics: Indias Port

Sector
Growth dynamics of cargo traffic (2000-2011)

Overall annual growth (major & non-major) 9.2%

Major ports (7.3%) & Non major ports (13.7%)
As a consequence share of non major ports in cargo handled
rose from 24% in 2000-01 to 36% in 2010-11
Capacity utilisation around 90% at Major ports
Highest annual growth in container traffic (15%)
Containerisation at about 2/3 rd of general cargo compared to
global levels 80% plus.
Container traffic has grown, but is uneven in pace, demand
centred in North West Hinterland (60%)
Indian ports have low draft, makes access of large bulk vessels
problematic. Entails higher unit shipping cost for low value
items.
Leads to higher turnaround time & small parcel size.

Major & Minor Ports: Share in Cargo Traffic

(In Million Tonnes)

PORTS

1990-91

2000-01

2005-06

2010-11(P)

Major

151.67
(92.2)

281.13
(76.3)

423.57
(73.2)

569.92
(64.4)

Non- Major

12.78
(7.8)

87.37
(23.7)

155.42
(26.8)

314.55
(35.6)

368.50
(100.0)

578.99
(100.0)

884.47
(100.0)

All Ports

164.45
(100.0)

Figures in Brackets indicate percentage to total

World Top 10 Cargo Ports

Port

2008 (Million Tonnes)

2009 (Million Tonnes)

1.Shanghai (PRC)

582.0

590.0

2Zhoushan/Ningbo (PRC)

520.1

570.0

3.Singapore

515.4

472.3

4.Rotterdam

421.1

387.0

5.Tianjin (PRC)

355.9

380.0

6.Guangzhou (PRC)

344.3

375.0

7.Qingdao (PRC)

300.3

315.5

8.Qinhuangdao (PRC)

252.2

243.8

9..Hongkong (PRC)

259.4

243.0

10..Busan (S.Korea))

241.7

226.2

India (total)

744.0 (2008-09)

884.5 (2010-11)

Major Ports

530.8 (2008-09)

569.9 (2010-11)

72.2 (2008-09)

81.9 (2010-11)

Kandla

Source:For S.No.s 1-10, Port of Rotterdam ,Statistics,2010

Port

World Top 10 Container

Ports
2008 (Million TEUs)

2009 (Million TEUs)

1. Singapore

29.92

25.87

2.Shanghai (PRC)

27.98

25.00

3.Hong Kong (PRC)

24.49

20.90

4.Shenzen (PRC)

21.40

18.25

5.Busan (S.Korea)

13.45

11.98

6.Guangzhou (PRC)

11.00

11.19

7.Dubai Ports (UAE)

11.83

11.12

8.Zhoushan / Ningbo (PRC)

11.23

10.50

9.Qingdao (PRC)

10.32

10.26

10.Rotterdam (Netherlands)

10.78

9.74

Major Ports

6.59 (2008-09)

7.54 (2010-11)

JNPT

3.95(2008-09)

4.27 (2010-11)

India

Source:For S.No.s 1-10, Port of Rotterdam Authority, May 2010.

Indias Major Ports:APBT

(2010-11

Draft and Average Parcel Size

Port

PPT

KOPT

HDL

TPT

MBP
T

JNPT

COPT

PT

KPT

CHPT

NMP
T

MOPT

ENN
ORE

Draf
t
(Mtr
)

12.8

5.3-8.4

6.7

10.4

10.9

11.0

12.8

10.720.0

4.623.5

12.017.4
(OH)

15.4

14.4

16.0

Major Ports: Non Working Time at

Berth

Port Call Charges (US$)

(24Hrs stay of 50000 GRT vessel 200910 )

Source: Task Force on Transaction Cost in Exports, 2011, Ministry

of Commerce and Industry

Efficiency of Container Terminals at

Major Ports:2009-10
Performance Indicators of select
container terminals
Port/Termi
nal
Moves/Hr
25
Tuticorin

TEU/Mtr.
1187

TEU per
Employee
3008

Dwell
Time
(Days)
2.6

TRT (Day)
0.8

Chennai

27

1286

2797

2.0

1.1

JNPCT
JNPT NSICT
JNPT GTICT

15

1142

829

2.0

2.0

24

2553

3563

2.5

1.6

30

2462

3265

2.9

1.1

Cochin

16

536

579

6.4

1.4

TEU per meter of Berth

Global Median=945

Productivity of Gantries (Moves/Hr),

2009-10

Global median mover per hour 30

Turn Round Times: Global

Comparisons

Quayside Productivity: Global

Comparisons

Dwell Time: India Vs Best

Impact of External Factors-Dwell

Time

Parameter

India

Singapore

Denmark

Automation

Few processes
automated

All custom procedures

processed on line via
trade net; 90% within
10% minutes of
submission

All customs
declaration filed &
processed
electronically

Single
Window

No single window
concept in use

Single window facility via

trade net with links to 34
agencies; unique
registration no. required

Single window
service single unique
registration number
required

Examinatio
n

Risk management
system (RMS) in
operation; 50% still
physically examined

Mainly post audit controls

and use of non intrusive
technology for
examination

3 tier RMS & only 2

to 5% goods
physically examined

Help desk

No single help desk

exist

Outsourced call centre

24*7

Outsourced call
centre 24*7

Duty
structure

Reduced levels but Single low duty rate, GST

multiple rates with not paid on input for
exemptions makes exports
export
promotion
Source: Based
on
Task
cumbersomeForce on
& Transaction Cost in Exports,
Commercecomplicated
and Industry

Single low duty rate,

duty refund on inputs
used in exports
2011, M/o

Moving Containers: Distribution of

costs
The cost of moving a container fall into five major
categories and the distribution of costs (as percentage
of total costs) of moving containers is as follows:
- inland transport (25%)
- the ship/ocean freight costs (23%)
- ports and terminals (21%), including stevedoring
- the containers (18%), including maintenance
- other costs, including container repositioning (13%)
Source: Jean-Paul Rodrigue, Hofstra University; Martin Stopford, is
the drive for ever bigger container ships irresistible? Lloyds list
shipping forecasting conference, April, 2002 quoted in
Fairplay.com.uk

Costs & Procedures in Foreign

Trade
India China

Malay
sia

Kore
a

Singap
ore

Documents for Export

(Numbers)

Time to export (Days)

17

21

18

20

24

14

Cost to export *

945

500

450

742

456

Cost to import*

960

545

450

742

439

Document to import
(Numbers))
Time to import (Days)

* US $ per container. Source: Doing Business 2010, IFC

Port Management Models

Port Type

Infrastruct
ure

Super
structure

Stevedori
ng labour

Other
functions

Service port
(Major
Indian Ports

Public

Public

Public

Mainly
public

Tool port
(France,som
e African
nations)

Public

Public

Private

Mainly
public

Landlord
port
(Antwerp,Ro
tterdam,Sin
gapore etc

Public

Private

Private

Mainly
private

Private port
(UK,New
Zealand)

Private

Private

Private

Mainly
private

When to Regulate?
Market power
Imperfect & Asymmetric information:
Operator (Agent) has an informational
advantage over the
Government/Regulator (Principal)
Externalities: occur when production or
consumption of goods/services impose
costs/benefits on others which are not
reflected in the prices charged for the
goods & services being provided
Joint provision & consumption

Starting Point: Efficient

Markets
P

S = Marginal Cost

Pc

Qc

Pc = Marginal
Revenue
Optimum: MR =
D
MC
Q

Social Welfare = Consumer Surplus + Producer

Surplus

Philosophy of Regulation
Case for Economic Regulation exists
when:
Activity or industry has elements which
bestow advantages of natural monopoly, it
occurs when:
Industry/Activity has large sunk costs and
falling average costs
Significant barriers to entry
Locational advantages which bestow near
monopoly advantages on the operator

The economic Characteristics

of Port Infrastructure
The basic port infrastructure is:
- indivisible & requires large sunk costs
-long lived
-constructed in a specific space for a specific use
=> Perfect conditions for the existence of scale
economies
The most obvious difference with other public services:
- Multiple services associated with the port
infrastructure
This multitasking dimension matters a lot when
thinking about economic regulation, including pricing
- the infrastructure provide a service: you can charge a
price
- the infrastructure is an input: you can charge a price

Why Tariff Regulation in

Ports
Port Trusts (PTs) can not regulate
their own tariffs or of Terminal
Operators due to
Conflict of Interest
Being Competitors
Need to safeguard users interests

Therefore, the need for 3rd Party

Neutral Regulator

Charter of TAMP
To fix scale of rates :
For services rendered by the ports
Rentals for use of port trust properties
Fix charges for services rendered by port
operators (BOT, concessionaries etc. under MPT
Prescribe conditions for services rendered by
Port Trusts/operators.
Guiding Principles
Safeguard the interest of port users;
Just and fair return to operators
Promote economy in use of resources &
efficiency

Tariff Guidelines 2005:

Approach

Anchored on cost plus basis

Cost as per estimate for future & ROCE determine
tariff
Revenue share/royalty not treated as cost
- Except in cases prior to July 29, 2003 subject
to a maximum of second lowest bidder
ROCE is on sum of net fixed assets plus working
capital
Return on capital allowed 16% as of now
full ROCE allowed for capacity utilization of
60% &
above.

Tariff Guidelines 2005

Approach
Tariff approved by TAMP valid for 3 years
Rates fixed by TAMP are ceiling rates
-Ports/operators enjoy flexibility to offer rebates
Tariffs fixed are
-Vessel related (port dues, berth hire on GRT basis)
-Pilotage sliding rates (higher for higher GRT)
-Cargo related (wharfage rates) based on cargo
handling
Concessional tariff for coastal cargo/containers/vessels
-60% of normal tariff applicable
-coal, POL & iron ore are not eligible.

Tariff Guidelines 2005:Issues

Information intensive exercise
Too much emphasis on individual
operators profitability
Weak incentives for efficiency
Disallowance for revenue share in tariff
and its long term effects
Partial pass through of royalty/revenue
share for private terminals which came
prior to July 2003.

Tariff Guidelines 2008

Simple & Norm based
No provision for midterm review
Unchanged Tariff for 30 years
May not encourage regular investment by
operators or
May bestow windfall gains on operators if
any change in planning/parameters

Norms do not cover all areas of

operations

Upfront Tariff Guidelines

2008

Committee on infrastructure found that

combining cost plus model of tariff and
revenue share model of bidding was untenable
Recommendations
Upfront tariff
Uniform tariff cap at the same port
Normative cost based with fair return on
capital
Capacity utilisation of 75%
Tariff caps to be reviewed once every five
years to adjust for any unforeseen events
Tariff indexed to 60% of WPI variation
Guidelines for upfront tariff setting for PPP projects
Notified in the Gazette on 26.2.2008

Salient Features of 2008

Guidelines

TAMP to fix upfront tariff cap before bidding

based on proposals from major ports

Bid document to incorporate the upfront tariff

Tariff cap set for a port would be applicable to all
projects bid out subsequently for identical cargo
during the next five years

Approach Normative cost based approach

Estimated capital and operating cost based on norms
prescribed
Fair rate of return on capital employed (presently @
16%)
Annual indexation of upfront tariff
60% of the variation in the WPI of the relevant year

TAMP to review tariff caps

Once in five years for extra-ordinary events
Revised tariff caps applicable to subsequent
PPP projects

Fixation of Upfront Tariff

Capacity
Tariff to be fixed with reference to the
optimal capacity irrespective of traffic
forecast
Indicative norms for capacity are
prescribed in the guidelines for handling
containers, iron ore, coal, liquid bulk and
multipurpose cargo
Optimal capacity is 70% of the maximum
capacity
Lower of the quay capacity and stack yard
capacity is to be adopted

Current Issues: Port Tariffs

Tariff Models
Tariff Guidelines 2005
Tariff Guidelines 2008

Non Major Ports outside tariff regulation

Inadequate Statutory Powers
No power to compel submission of
information & documents
No power to enforce its Orders

Rate of Return Regulation

Tariffs are set to generate Annual
Revenue Requirement enough to recover
operating costs and fair/predetermined
return on capital;
In essence limits the level of profit to be
earned

Operators cost are reviewed & costs

deemed unnecessary eliminated.
Problem in determining allowable costs

No incentive to operate efficiently

Operator may over invest

Guiding Principle
Regulator sets regulated rates or tariffs for the
regulated entities so that the regulated rates
allow the entity to earn a revenue that
covers the justified costs of their
operation, that is the costs that are
necessary, unavoidable and reasonable and
offer a predetermined return on assets to
render regulated service at a predefined
level of quality
Revenue
Requirement=Total
Cost=Variable Cost+(Rate level*Rate
Base)

Pitfalls of Cost Plus Regulation

Motivation for over-investment (increased rate
base) gold plating
No motivation to increase productive
efficiency
Continuous pressure for price increase
No incentive for selection of right equipment
Information asymmetry at the regulators side:
- no up-to-date operating cost information
- no data on future business plans
(investments, cost-reduction, etc.),
- obscure picture on demand side.

Port pricing Models:

Theoretical Perspective
Presence of economies of scale =>
problem to implement a first best pricing
policy (price equal to marginal cost) =>
not possible to recover investment costs.
Second-best alternatives, common to
other transport sectors, are:
- Average-cost pricing,
- Two- part tariffs,
- Long-run marginal cost pricing, and the
use of rental fees from concessionaires.

Port pricing Models:

Theoretical Perspective
This possible alternative: long-run
marginal cost (LRMC)
It is defined as: short-run marginal cost
(SRMC)+ the marginal cost of capacity (MCC)
LRMC = SRMC + MCC
which keeps the idea of social optimality, and at the
same time, achieves full cost recovery

The idea could be:

SRMC: paid by the ships
MCC: paid by port services operator

Regulation Versus Market

Failure
Are there regulatory errors in setting
prices?
Is regulation intrusive and costly?
Does it discourage long term
investment?
Too much focus on short term
cost/prices
Is regulatory innovation desirable

Issues in Port Sector

Why are vessel related charges higher at Indian Ports.
What makes high turnaround time and pre berthing detention at
Indian Ports
- lower levels of technology & lack of coordination amongst
stakeholders

How to make Indian Port sector vibrant?

Change in institutional structure(Trusts versus Corporatized
entity)
Does ownership matter ?
All Ports in Europe (except in the UK),Dubai, Singapore etc
owned by the State

Synergy with trade and industrial policy (SEZs and FTZs).

Are port related charges villain of the piece?
No, port related charges account for around 10-15% of total
logistics cost.
High inland transit costs, connectivity constraints influence
cargo
flows/costs.

Issues: Port Sector

Captive versus common carrier terminals

Inter port and intra port competition

Inter port competition constrained by hinterland economic activity, connectivity &

inland transit costs
Intra port competition can serve to mitigate the pricing power
Intra port competition may be ineffective in situations where ownership is
concentrated

Financing of port infrastructure

Land acquisition and environmental clearance
long gestation period for green field port projects (15 years)
Scale of operations at Indian Ports
Fragmented and small compared to China
Combined throughput at Major Indian Ports barely matches that of
Shanghai alone.
Draft limitation restricts access of large vessels to Indian Ports resulting
in:
More number of ship calls leading to congestion
Higher demand for berthing

Port System Efficiency is the Key

Intangible Factors
Hinterland
Level of Economic Activity
Road/Rail Network
Material Access
Feeder Services

Management practices
Customer satisfaction
Personnel quality & motivation

Port Performance Sum of parts!

Efficiency improvements
should target the entire
sphere of activities and
result in increased
competitiveness

Technology
Port Equipments
Software applications
IT based custom & security
Communication system

Physical Features of Port

Master Plan & port capacity
Level of congestion
Ability to handle large ships
Geographical location

Terminal Efficiency
Crane productivity
Yard equipment planning

& productivity
Gate productivity
Equipment Utilization
No. of berths
Port Charges