IN­FRA­STRUC­TURE needs to catch up

Con­tainer traf­fic in South Asia has in­creased four­fold since the past decade, but lo­gis­tics in­fra­struc­ture has not geared up to sup­port the rise in flow of cargo. South Asian economies need to put a con­certed ef­fort to re­solve lo­gis­tics is­sues that could

Maritime Gateway - - Contents - Matías Her­rera Dappe Se­nior Econ­o­mist, Trans­port and ICT Global Prac­tice, World Bank An­cor Suárez-alemán Econ­o­mist (Ex­cerpts taken from the World Bank’s study “Com­pet­i­tive­ness of South Asia’s Con­tainer Ports.”)

Con­tainer traf­fic in South Asia has in­creased four­fold since the past decade, but lo­gis­tics in­fra­struc­ture has not geared up to sup­port the rise in flow of cargo. South Asian economies need to put a con­certed ef­fort to re­solve lo­gis­tics is­sues that could have in­ter­re­lated an­gles rather than im­ple­ment­ing iso­lated mea­sures.

South Asia’s trade al­most dou­bled in the past decade, with trade as a per­cent­age of GDP in­creas­ing by 18 per­cent­age points be­tween 2000 and 2014. Trade ac­counted for a smaller share of GDP in South Asia (47 per cent) than in East Asia (55 per cent) in 2014. Since 2000 the re­gion has also en­joyed the sec­ond-high­est eco­nomic growth in the world (af­ter East Asia), grow­ing at an av­er­age an­nual rate of 6.8 per cent.

Since 2000, con­tainer traf­fic in the re­gion in­creased by a fac­tor of more than four. Ca­pac­ity also in­creased, but it grew much more slowly than cargo growth. As a con­se­quence of the growth in trade traf­fic, con­ges­tion at con­tainer ports across South Asia in­creased be­tween 2000 and 2012. Ports have off­set longer wait­ing times by im­prov­ing the ef­fi­ciency of their op­er­a­tions at the berthing stage. More ef­fi­cient use of port fa­cil­i­ties, to­gether with im­prove­ments in the scale of op­er­a­tions,

were the main driv­ers of in­crease in to­tal fac­tor pro­duc­tiv­ity (TFP) in South Asia. On av­er­age, South Asian con­tainer ports ex­pe­ri­enced the largest im­prove­ment in TFP among ports in the In­dian and West­ern Pa­cific Oceans

(80 per cent ver­sus 55 per cent for East Asia) be­tween 2000 and 2010.

Driv­ers for con­tainer through­put

South Asia’s share in global con­tainer port traf­fic has in­creased from 2.1 per cent in 2000 to 2.9 per cent in 2013. In­dia is by far the largest con­tainer mar­ket in the re­gion, mov­ing about 10 mil­lion teus in through­put in 2013. Sri Lanka, whose mar­ket is dom­i­nated by trans­ship­ment, is the next largest player in the re­gion, with through­put of more than 4 mil­lion teus. Pak­istan (2.6 mil­lion teus) and Bangladesh (1.6 mil­lion teus) han­dle smaller vol­umes of cargo. Mal­dives han­dled less than 100,000 teus in 2013. The South Asian con­tainer traf­fic grew steadily be­tween 2000 and 2013, in­creas­ing by a fac­tor of more than four. Pak­istan’s con­tainer through­put grew fastest, in­creas­ing at a CAGR of 15 per cent. An­nual vol­umes rose 12 per cent in In­dia, 10 per cent in Bangladesh, 9 per cent in Mal­dives, and 7 per cent in Sri Lanka over this pe­riod.

The driv­ers of con­tainer through­put in South Asia vary across coun­tries. In Bangladesh ex­port growth led largely by US and Euro­pean de­mand for ready­made gar­ments has re­sulted in through­put growth via the Port of Chit­tagong and to some ex­tent the Port of Mongla. In In­dia grow­ing ex­ports and in­creased do­mes­tic de­mand cou­pled with the in­creas­ing in­volve­ment of the pri­vate sec­tor in port op­er­a­tions has led to in­creased through­put. Ex­ports of tex­tiles are ma­jor driv­ers of in­crease in through­put in Pak­istan, through the Port of Karachi and Port Qasim. In Sri Lanka pro­duc­tiv­ity im­prove­ments caused in part by pri­vate sec­tor in­volve­ment at the Port of Colombo have al­lowed it to cap­ture grow­ing vol­umes of trans­ship­ment traf­fic.

Tar­iffs and ter­mi­nal han­dling charges at most large South Asian con­tainer ports are lower than those at ports such as Dubai, Salalah, and Sin­ga­pore. But the in­di­rect costs associated with de­lays play a more sig­nif­i­cant role in ship­pers’ port choices.

Pri­vate in­vest­ment in port sec­tor

The South Asian port sec­tor at­tracted sig­nif­i­cant interest from pri­vate in­vestors in the late 2000s.

Be­tween 2000 and 2014, the South Asian port sec­tor at­tracted $10 bil­lion in pri­vate in­vest­ment com­mit­ments (16 per cent of all port com­mit­ments in the de­vel­op­ing world). Two-thirds of the in­vest­ment com­mit­ments dur­ing this pe­riod took place be­tween 2006 and 2010, af­ter the largest num­ber of new projects reached fi­nan­cial clo­sure in 2005.

Lag­ging be­hind in lo­gis­tics per­for­mance

De­spite this progress, South Asia’s eco­nomic com­pet­i­tive­ness con­tin­ued to lag be­hind that of other re­gions. South Asia ranks far be­hind East Asia and mid­dle-in­come coun­tries in lo­gis­tics per­for­mance as tracked by the 2014 Lo­gis­tics Per­for­mance In­dex, while ac­cord­ing to Do­ing Busi­ness re­port by World Bank, the cost of ex­port­ing or im­port­ing a con­tainer in South Asia is more than twice the cost in East Asia. On av­er­age in South Asian coun­tries, it takes 33 days to ex­port and 34 days to im­port, ef­fec­tively elim­i­nat­ing the time and cost ad­van­tages South

Asia would have over East Asia on seaborne ship­ments to Europe and the East Coast of the United States.

These fig­ures mat­ter for South Asia, a re­gion where 75 per cent of the in­ter­na­tional trade takes place by sea. Weak trans­port and lo­gis­tics ser­vices, in­clud­ing slow expansion of port ca­pac­ity, con­trib­ute to South Asia’s lack of com­pet­i­tive­ness. Bet­ter port lo­gis­tics in South Asia could help in­crease trade, di­ver­sify ex­ports, at­tract more for­eign di­rect in­vest­ment and spur eco­nomic growth.

De­spite im­prove­ments over the past sev­eral years, South Asia con­tin­ues to lag other re­gions in terms of com­pet­i­tive­ness. Coun­tries in the re­gion still lack the in­sti­tu­tional, busi­ness, and in­vest­ment en­vi­ron­ments as well as the in­fra­struc­ture needed to com­pete in the global econ­omy. The most re­cent Global Com­pet­i­tive­ness Re­port in­di­cates that of all South Asian coun­tries, only In­dia and Sri Lanka score above the global av­er­age on com­pet­i­tive­ness. In­ad­e­quate sup­ply of in­fra­struc­ture ranks among the top 4 most prob­lem­atic fac­tors for do­ing busi­ness in all South Asian coun­tries other than Sri Lanka, where it ranks 10th.

Trans­port and lo­gis­tics are part of the rea­son for

South Asia’s low level of com­pet­i­tive­ness. For trans­port in­fra­struc­ture, South Asia per­forms be­low both the global av­er­age and the av­er­age for de­vel­op­ing coun­tries in Asia. Per­for­mance within South Asia

Av­er­age ves­sel turn­around time in South Asian con­tainer ports de­clined be­tween 2000 and 2012, fall­ing from about 2.3 days to about 2.1 days. Marked im­prove­ment oc­curred in the early 2000s, but it was par­tially off­set later in the decade. Ves­sel turn­around in Chit­tagong (Bangladesh) and Kolkata (In­dia) takes much longer than av­er­age in most years (more than four days). In con­trast, ships spend only slightly more than a day at Colombo or Cochin.

Av­er­age pre-berth wait­ing times in­creased be­tween 2000 and 2012, im­ply­ing that ca­pac­ity did not ex­pand as much as needed to avoid in­creas­ing con­ges­tion. Many fac­tors, in­clud­ing ship sizes, berth ca­pac­ity, and op­er­a­tional ef­fi­ciency, af­fect pre-berthing wait­ing time, which in­creased from 0.46 days in 2000 to 0.57 in 2012, hav­ing spiked as high as 0.76 in 2010. Although wait­ing times de­clined at some ports (for ex­am­ple, Chennai), they in­creased at most ports, with times at Kandla, JNPT, and Cochin ris­ing most. Ports have off­set the in­creas­ing pre-berth wait­ing time by im­prov­ing the ef­fi­ciency of their op­er­a­tions at the berthing stage. The av­er­age time ships spent at berth fell from 1.83 days in 2000 to 1.51 days in 2012. The av­er­age pro­por­tion of time ships were not be­ing ser­viced while at berth (idle time at berth) fell from 23 per cent to 19 per cent. The de­cline in the share of idle time was most marked at Chit­tagong and Visakhapatnam; at only a few ports, such as Kandla, did the share of idle time in­crease. Karachi and Colombo have al­ways had rel­a­tively low idle time ra­tios. The in­creas­ing preva­lence of larger ves­sel vis­its could ex­plain the pat­tern ob­served at Colombo and JNPT, where the time spent at berth in­creased even as the share of idle time de­creased sig­nif­i­cantly.

The evo­lu­tion of av­er­age turn­around time by coun­try shows that South Asia com­prises two very dif­fer­ent re­al­i­ties, with Pak­istan and Sri Lanka per­form­ing bet­ter than In­dia and Bangladesh in terms of time ef­fi­ciency. In­dia is grad­u­ally los­ing com­pet­i­tive­ness in terms of time, af­ter im­prov­ing at the be­gin­ning of the decade.

Per­for­mance across re­gions

An in­ter­na­tional com­par­i­son of av­er­age turn­around times, based on data from Lloyd’s List In­tel­li­gence for the months of May 1996, 2006, and 2011 re­veals that de­spite im­prove­ments, South Asian con­tainer ports fell far­ther be­hind best in­ter­na­tional per­for­mance be­tween 2006 and 2011. Most re­gions ex­pe­ri­enced re­mark­able im­prove­ment in op­er­a­tional per­for­mance be­tween 1996 and 2011. Asia as a whole im­proved to lev­els sim­i­lar to lev­els in Europe and North Amer­ica. In con­trast, per­for­mance in South Asia wors­ened, with its av­er­age turn­around time in­creas­ing from 2.06 days in 2006 to 2.39 days in 2011. This rel­a­tive de­te­ri­o­ra­tion was driven by re­sults at cer­tain ports in

In­dia and Bangladesh. There was some con­ver­gence in the time ports take to ser­vice a ship, but no port in South Asia came close to the most com­pet­i­tive con­tainer ports world­wide, such as Sin­ga­pore (0.5 days), Hong Kong (0.72 days), and Shang­hai (0.79 days).

The role of hin­ter­land and ter­mi­nal op­er­a­tors

In­land con­nec­tiv­ity be­tween South Asian ports and their hin­ter­lands is gen­er­ally poor. All coun­tries face con­ges­tion on roads and rail for in­land cargo move­ments. All coun­tries are try­ing to im­prove in­land con­nec­tiv­ity, but progress is slow. As a re­sult, although in­land mar­kets are con­testable in the­ory, com­pe­ti­tion in South Asia is more re­stricted than in more de­vel­oped re­gions.

The need for com­pre­hen­sive re­form

The whole is more than the sum of the parts: Ex­pe­ri­ence from across the globe, in­clud­ing South Asia, in­di­cates that although iso­lated mea­sures to im­prove port per­for­mance have pos­i­tive im­pacts, a com­pre­hen­sive ap­proach that tack­les sev­eral in­ter­re­lated an­gles yields greater benefits. South Asian gov­ern­ments should thus adopt a wide-rang­ing ap­proach that tack­les sev­eral in­ter­re­lated an­gles rather than ef­fect iso­lated mea­sures. The ap­proach should strengthen gov­er­nance of the port sec­tor, al­low the pri­vate sec­tor to take re­spon­si­bil­i­ties and risks it is bet­ter suited to deal with than the pub­lic sec­tor, and fos­ter com­pe­ti­tion where fea­si­ble.

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