1. 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 the views of
the organization to which the author belongs

2. Overview: India’s Port Sector
• India’s 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

3. Growth Dynamics: India’s 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 2/3rd 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.

4. Major & Minor Ports: Share in Cargo Traffic
(In Million Tonnes)
PORTS 1990-91 2000-01 2005-06 2010-11(P)
Major 151.67 281.13 423.57 569.92
(92.2) (76.3) (73.2) (64.4)
Non- Major 12.78 87.37 155.42 314.55
(7.8) (23.7) (26.8) (35.6)
164.45 368.50 578.99 884.47
All Ports (100.0) (100.0) (100.0) (100.0)
Figures in Brackets indicate percentage to total

5. 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)
Kandla 72.2 (2008-09) 81.9 (2010-11)
Source:For S.No.s 1-10, Port of Rotterdam ,Statistics,2010

6. World Top 10 Container Ports
Port 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
India
Major Ports 6.59 (2008-09) 7.54 (2010-11)
JNPT 3.95(2008-09) 4.27 (2010-11)
Source:For S.No.s 1-10, Port of Rotterdam Authority, May 2010.

7. India’s Major Ports:APBT (2010-11

8. Draft and Average Parcel Size
PPT KOPT HDL TPT
Port MBPT JNPT COPT PT KPT CHPT NMPT MOPT ENNOR
E
12.8 5.3-8.4 6.7 10.4 10.9 11.0 12.8 10.7- 4.6-23.5 12.0- 15.4 14.4 16.0
Draft 20.0 17.4
(Mtr) (OH)

9. Major Ports: Non Working Time at Berth

10. Port Call Charges (US$)
(24Hrs stay of 50000 GRT vessel 2009-10 )
Source: Task Force on Transaction Cost in Exports, 2011, Ministry of Commerce
and Industry

11. Efficiency of Container Terminals at Major
Ports:2009-10
Performance Indicators of select container terminals
TEU per Dwell Time
Port/Terminal Moves/Hr TEU/Mtr. Employee (Days) TRT (Day)
25 1187 3008 2.6 0.8
Tuticorin
27 1286 2797 2.0 1.1
Chennai
15 1142 829 2.0 2.0
JNPCT
24 2553 3563 2.5 1.6
JNPT - NSICT
30 2462 3265 2.9 1.1
JNPT - GTICT
16 536 579 6.4 1.4
Cochin

12. TEU per meter of Berth
Global Median=945

13. Productivity of Gantries (Moves/Hr), 2009-10
Global median mover per hour 30

14. Turn Round Times: Global Comparisons
Indian ports have much longer vessel turnaround times MAERSK LINE EXAMPLE
than global best practices
Indian ports
Vessel time spent in port1, hours, 2010
Actual time spent in port … … normalised for 1,000 TEU call
Cochin Cochin
Los Angeles Pipapav
Chennai Mundra
Tuticorin Tuticorin
JNPT Chennai
Dubai JNPT
Shanghai Los Angeles
Pipavav Rotterdam
Mundra (Adani) Hong Kong
Rotterdam Dubai
Singapore Shanghai
Hong Kong Singapore
1 Derived from several months of Maersk Line’s recorded statistics of port entry and exit times of their vessels
SOURCE: Maersk Line website

15. Quayside Productivity: Global
Comparisons
Terminal quayside productivity at Indian ports is far below global figures
2008
TEU/quay meter/yr ’000 TEU/STS crane/yr STS crane spacing (m)
JNPT 1,639 164 100
Chennai 1,356 171 126
Tuticorin 1,185 146 123
▪
▪ Mumbai is the
Mumbai is the
Mundra 666 126 only port that
only port that
comes close
comes close
Cochin 612 141 to quayside
to quayside
performance
performance
Pipapav1 188 173 of best
of best
= / practice ports
practice ports
T. Pelepas 2,593 207
▪
▪ Quayside
Quayside
performance
performance
Hong partially
partially
2,205 192 affected by
Kong affected by
scale
scale
Singapore 1,730 189
Port Klang 1,307 166 127
Colombo 1,259 141 112
1 Pipapav is in ramp-up phase
SOURCE: Containerisation International

16. Dwell Time: India Vs Best
Indian ports have much higher dwell times than global best practices
Number of days, 2006
Dry bulk Container
Import Export Import Export
Indian average 261 201 2.0 3.8
Indian best 13 13 1.2 1.0
Indian worst 64 34 8.2 6.5
+86% +43% +186% +443%
Best practice 14 14 0.6-0.8 0.6-0.8
1 Recent Indian average figures from Indian Ports Association
NOTE: Based on best practices at Rotterdam and Singapore ports. Singapore is a transshipment port and thus, may not be exactly comparable
SOURCE: Report of the inter-ministerial group on reduction of dwell time in Indian ports, 2009

17. Impact of External Factors-Dwell Time
Parameter India Singapore Denmark
Automation Few processes All custom procedures All customs declaration
automated processed on line via trade net; filed & processed
90% within 10% minutes of electronically
submission
Single Window No single window Single window facility via trade Single window service
concept in use net with links to 34 agencies; single unique registration
unique registration no. required number required
Examination Risk management system Mainly post audit controls and 3 tier RMS & only 2 to 5%
(RMS) in operation; 50% use of non intrusive technology goods physically examined
still physically examined for examination
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 not Single low duty rate, duty
multiple rates with paid on input for exports refund on inputs used in
exemptions makes exports
export promotion
cumbersome &
complicated
Source: Based on Task Force on Transaction Cost in Exports, 2011, M/o Commerce and Industry

18. 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? Lloyd’s list shipping forecasting
conference, April, 2002 quoted in Fairplay.com.uk

19. Costs & Procedures in Foreign Trade
India China Malaysia Korea Singapore
Documents for Export (Numbers) 8 7 7 3 4
Time to export (Days) 17 21 18 8 5
Document to import (Numbers)) 9 5 7 3 4
Time to import (Days) 20 24 14 8 3
Cost to export * 945 500 450 742 456
Cost to import* 960 545 450 742 439
* US $ per container. Source: Doing Business 2010, IFC

20. Port Management Models
Port Type Infrastructure Super Stevedoring Other
structure labour functions
Service port Public Public Public Mainly public
(Major Indian
Ports
Tool port Public Public Private Mainly public
(France,some
African nations)
Landlord port Public Private Private Mainly private
(Antwerp,Rotter
dam,Singapore
etc
Private port Private Private Private Mainly private
(UK,New
Zealand)

21. 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

22. Starting Point: Efficient Markets
P S = Marginal Cost
Pc Pc = Marginal Revenue
Optimum: MR = MC
D
Qc Q
Social Welfare = Consumer Surplus + Producer Surplus

23. 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

24. 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

25. 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 user’s interests
• Therefore, the need for 3rd Party Neutral
Regulator

26. 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

27. 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.

28. 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.

29. Tariff Guidelines 2005:Issues
• Information intensive exercise
• Too much emphasis on individual operator’s
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.

30. 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

31. 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

32. 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

33. 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

34. 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

35. 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
• Operator’s cost are reviewed & costs deemed
unnecessary eliminated.
– Problem in determining allowable costs
• No incentive to operate efficiently
• Operator may over invest

36. 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)

37. 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 regulator’s side:
- no up-to-date operating cost information
- no data on future business plans (investments, cost-
reduction, etc.),
- obscure picture on demand side.

38. 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.

39. 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

40. 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

41. 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.

42. 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

43. Port System Efficiency is the Key
Intangible Factors
•Management practices
•Customer satisfaction
Hinterland •Personnel quality & motivation
•Level of Economic Activity
•Road/Rail Network
•Material Access Terminal Efficiency
•Feeder Services Port Performance - •Crane productivity
Sum of parts! •Yard equipment planning
Efficiency improvements & productivity
should target the entire •Gate productivity
sphere of activities and •Equipment Utilization
result in increased •No. of berths
competitiveness •Port Charges
Technology
•Port Equipments
•Software applications Physical Features of Port
•IT based custom & security •Master Plan & port capacity
•Communication system •Level of congestion
•Ability to handle large ships
•Geographical location