Bright future for Indian container shipping

A healthy demand growth backed by attractive shipping policies will nudge Indian ports to race ahead in the coming years. What’s needed is an augmentation of handling capacity and infrastructure development.

 

By Padmini M.

 

In India, the outlook for the container shipping market for 2018 and 2019 is a combination of healthy demand growth that will outpace the fleet, resulting in a better supply-demand balance and slightly higher freight rates and profits for carriers.
However, the market is unlikely to see very strong demand growth rates, which was witnessed in early 2017. The good news is that while port handling growth may have peaked, they can still expect more than adequate volumes for at least the next two years. The containership fleet, how those will combine to affect freight rates and carrier profitability through 2019, and how well the Indian ports amplify handling capacity and infrastructure, will dictate the course of boxship industry in India.

Indian ports: Current scenario
Mega containerships of 18,000 TEU (20 Foot Equivalent) need a draught of about 16-metre plus, which Indian ports lack. While there is a scope for Mundra Port in the Kutch district of Gujarat to upgrade to required draught, things are yet to be reflected on ground. Same is the case with India’s flagship container handling terminal at Jawaharlal Nehru Port (JNPT or Nhava Sheva) in Mumbai.
Vizhinjam Port in Kerela, which is being developed by Adani Ports and Special Economic Zone Limited (APSEZ), is well framed to evolve as India’s first Mega Transhipment Container Terminal. It will not only be the anchor point in South India, but also India’s gateway to International transshipment, as projected by former Director and CEO of Vizhinjam Port, Santosh Mohapatra.
“The Vizhinjam Port will have 18-metre depth, and will be India’s first port to receive largest mother ships upto 24,000 TEU containerships. Ports such as Dhamra in Odisha has a depth of 18-metre, but they are yet to develop a container park. No other container port has that kind of depth so far,” Mohapatra, a port industry veteran said in an exclusive interview to TrasnREporter.

Infrastructure crunch
Containerships are known to be busy vehicles circumventing the globe throughout the year. Their waiting period (for loading and unloading) is significantly low, as compared to other large commercial ships. 
Major Indian ports such as Paradip, Krishnapatnam and Gangavaram have significant draught, but they do not have adequate facilities for container handling.
These vessels usually travel on the trade route, so they would prefer berthing in a port that falls on the international trade route. The major movement of mother containerships in South Asia is in and around Colombo and Singapore. Feeder vessels (small containerships) ferry containers to either Colombo or Singapore from where the cargo is transshipped to the rest of the world. Same proposition applies for incoming cargo. Stakeholders of the industry are pinning their hopes on Vizhinjam Port, which is hardly 20 nautical miles from the international trade route. 
Once Vizhinjam Port comes up, a majority of transloading activities between mother ships and feeder vessels will shift to Vizhinjam.

Hub and Spoke Model: Best bet
In practical terms, handling large containerships is only relevant to transloading ports. For a peninsular country like India, coastal shipping, functioning in the hub-spoke-model fits best for the movement of container cargo. In India, only the southern tip is close to the world trade route. Therefore, the most feasible and profitable proposition for shippers is to carry containers on smaller ships to a hub (major port) located on the southern tip, from 
where the cargo is loaded and transshipped on larger vessels to international destinations.
Apart from enhancing depth of the terminals and dredging, the port operators in India have to combat another issue that of silting. This phenomenon hinders in the functioning of mega ships on a majority of Indian ports. The Vallapatnam Port, for example, within 50 nautical miles of the international trade route battles this problem of silting that prevents it from attracting 
big vessels.
A decade ago, many Indian ports such as Nhava Sheva and Chennai were perpetually congested with structural lack of capacity. The picture is very different today.
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. Assuming that the current levels of productivity remain stable or 
improve, India is well-positioned from the port perspective.

Cabotage waiver: Propeling container shipping
Indian ports are currently unable to compete with the likes of Colombo, Salalah, Tanjung Pelepas and Jebel Ali. With the new cabotage law in place, India has the opportunity to compete on equal terms with neighbouring countries, said Steve Felder, Managing Director-India, Sri Lanka, Bangladesh, Nepal, Bhutan and Maldives, Maersk Line. More than 30 per cent of Indian container traffic is transhipped at ports outside India. In fact, 78 per cent of cargo originating from or destined to the East Coast of India is transhipped at ports outside India. “The cabotage reform will help enhancing India’s global competitiveness by bringing greater competition in the coastal feeder market, and enable Indian ports to equitably compete for transhipment traffic,” Felder added. He feels that the government will have to fasttrack the development of a viable transhipment port and deepen the draft at major ports in order to handle larger vessels.

What's the future?
There are several factors that dominate container shipping and subsequently percolate to the performance of the industry in the sub-continent. The problem of excess capacity in container shipping is likely to continue.
Supply-demand imbalance has been a perennial challenge in the shipping industry around the world for some years now. The orderbook, which currently stood at 12 per cent of existing fleet capacity at the end of 2017, is quite reasonable, given that containerised demand is increasing 3-5 per cent annually. India’s containerised demand growth is far higher than the global demand. In fact, it grew 11 per cent in Q1 2018. Capacity added in recent years has largely been demand-led.
To make matters tough, the marginal recovery in the container shipping freight will get almost wiped out by a steady stream of arrival of new container ships, which will compound the problems of recovery in the near future.
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 complementing the government’s Make in India and job creation vision. The future looks better from here.

Managing Editor

Nidhi Raj Singh is the Managing Editor of L'Officiel India. You can find her hidden behind a book when she is not writing or taking photos.