What India Needs Now is Fewer Ports, But with Higher Capacity
Maersk Line, the world’s biggest container shipper, controls 18.9% market share in India. The company shipped 1.7 million TEU (twenty foot equivalent) containers to and from India last year. It has a total of 29,943 customers across sectors, a staff strength of 305 and 46 inland container depots across India, and is acutely aware of the problems facing the country’s shipping industry. In an interview with ET’s Anirban Chowdhury, its managing director India and Sri Lanka Franck Dedenis talks about how the government needs to do much more for India to be on par with global shipping industries. Edited excerpts.
The government has been making a lot of statements about the shipping industry, apart from many announcements. How much of it is actually doable? A key objective for any government is to speed up growth. But how can you speed up growth? That’s the key question. The development of trade can assist in that. In India, exports as a chunk of GDP isn’t as big as we see in other mature markets. So there's a gap you are closing, which will speed up growth. 7.5% is great, but can you do better? Of course. So the recent statements by the government on shipping are good, as it means there’s more recognition of the fact that it is a huge enabler for the growth of the economy.
There have been some steps taken for relaxation of cabotage rules. Are they enough? Some ports can now qualify for the relaxation, provided 50% transhipment is done there. They can either do it now or call for permission that will be given on a yearly basis. But if you look into the details and how the world works, it might be difficult today for terminals (in India) to qualify for that 50%. I don’t know any terminal that does 50% of transhipments already. They are very far from that target. If you look at the major ports, a very limited share of what they do constitutes transhipment. Even the transhipment port of Vallarpadam in Kochi is very far (from reaching the minimum target of 50%). Two years ago we did some transhipment in Vizag but because of lack of capacity and reliability, we had to go back and tranship in Tanjung Pelepas. So while this is a good step, we still feel it’s a bit stringent for terminals to qualify for that and you need a longer period of time. We are not sure that it will happen the way the Recent statements by govt on shipping are good, as it means there’s more recognition of the fact that it is a huge enabler for economic growth relaxation is done today. I think we need to go much further in that direction.
What explains the government’s reluctance or slow pace in doing away with cabotage? Often there is a misunderstanding that global shipping lines want a relaxation of cabotage rules in India so that they can tap into the domestic or coastal cargo. That is not the case. Coastal cargo is not something we are looking at. We, at Maersk Line, are assisting the India growth story by linking it to the rest of the world. We want transhipments that are being taken elsewhere today should come to India. We can, then, have efficiencies of scale by having a hub and spoke model wherein bigger vessels can come and tranship in India and go to other ports. If you do that, you can bring goods which are cheaper for consumers and for exporters to transport goods which are more competitive in the global market. The more capacity you have, the more flexibility and better rates.
There are some who say even with complete relaxation of cabotage rules, a lot needs to be done before India becomes a transhipment hub. Where do its ports stand? Today we are not even discussing big scale transhipment to India. For India to be globally competitive, there are three factors: the capacity or the infrastructure of the terminal. Also, you need small shipping lines and feeders to be able to take cargo from the transhipment port to other smaller ports. Then, there are procedures and facilities in terms of customs, etc. You have to tackle all of that. If you can tackle these, I don’t know why India can’t compete with global ports.
FRANCKDEDENIS MD, India and Sri Lanka, Maersk Line
A whole lot of port projects are coming up. Surely, that would mean more capacity... In India, there is a lot of demand for terminals: containers, liquid and bulk. And there are a lot of projects. The question we have to ask ourselves is which model is most effective? Also, not all ports can receive big vessels, so you have to limit the size of the vessels so that’s another extra cost. What is efficient in terms of economies of scale is fewer ports with higher capacity.
So increasing capacity in a few ports rather than dotting the coastline with ports is the answer? It's not like you have to reduce the number of ports but you don’t have to go to all the ports.