Idle capacity at Indian ports may lead to consolidation

Investment momentum to slow down in coming years

Investment towards building India’s port capacity has more than doubled in the last five years, but the traffic growth during the period has grown by a meagre 25 per cent, indicating a substantial idle capacity in the sector.

In the pre-crisis period, when capacity utilisation was nearly 90 per cent at Indian ports, the industry realised the need for more capacity to cater to the anticipated growing cargo.

During FY09-FY13, the total investment at country’s 189 ports, which includes 13 major ports, stood at Rs 52,600 crore with most of it coming from the non-major ports. The peak investment was in FY13 of about Rs 16,000 crore with 86 percent share coming from the non-major segment. (see graph: Source Crisil Research)

However, the total traffic handled at the ports peaked to just about 933 million tonne in FY13, up 25 percent from the lowest 744 million tonne in FY09.



Karaikal port at Puducherry and Gangavaram in Andhra Pradesh are among non-major ports that witnessed large investments in the last five years but are drawing very low cargo, while Krishnapatnam in Andhra Pradesh is an example of a non-major port with relatively strong capacity utilisation.

“The idle capacity in the market will lead to a consolidation phase in the sector going ahead,”said a maritime consultant. “The smaller players will cater mainly to the immediate hinterland, while the larger players will capture the primary, secondary and tertiary hinterland,”he said. “Due to this, there will be no pricing war despite the spare capacity.”

The overall growth in Indian seaborne trade was also another indicator of lower capacity utilization in the period under review. The trade which had peaked to a double digit of 14.3 percent in FY10 slowed in subsequent years and fell to a single digit by FY13.

Even if the capacity, a function of investment, at only the 13 major ports is placed under study, the traffic growth in the last five years shows about 8-9 percent increase whereas investment in this segment has been close to 30 percent, again, indicating that investment has exceeded traffic flow.

“The downturn has hit capacity utilisation which is now somewhere at about 70 percent on all India basis,” said Rahul Prithiani, director—industry research, Crisil Research. “But the problem has been more acute at specific projects especially where iron ore was handled in large quantities or where anchor customer project like a power plant was to come up. The capacity utilization at such ports is about 29-30 percent now,” he said.



Mormugao, which is major port of Goa is an example that has been hit post ban on iron ore exports from Goa and Karnataka.

In Goa, the largest iron ore exporting state in the country which continues to face the ban on iron ore exports, has seen its cargo traffic slide more than half to 21 million tonne (provisional) in FY13 from the peak of 65 million in FY11.

Ports at Karnataka, another main exporting state for iron ore where the mining ban has been lifted, saw just 33 million tonne ore sail out in FY12 from the usual 45 million tonne it used to clock in the pre-ban period.

Gujarat, the state highest number of ports, saw the capacity utilisation at non-major ports fall to 78.64 percent in FY13 from 84.38 percent in FY10. Meanwhile, capacity rose over 40 percent  in the period under review.

Even in the last two years, the trend in traffic handled by India’s major ports is very much in line with the world’s top 20 ports where cargo movement has been largely flat-to-down.

Compared to the global market, India’s traffic slowdown is very much in line with the trend overseas.

In India, the traffic handled over the last couple of years fell by about 2.4 percent,  and globally, the cargo handled at ports such as that of Hong Kong fell nearly 3 percent and 4.5 percent at Los Angles.

With traffic flow slowing all across and uncertainty regarding the pick up in trade, industry officials see investment momentum in India slowing down in coming years.

Though the Planning Commission has announced an addition of 250 million tonne new capacity per annum at major ports in the 12th Five Year Plan, industry officials do not see all of it coming onstream by FY17.

“The government thinks differently and is usually quite ambitious about its investment plans be it whatever sector,” said another maritime consultant. “But I do not really see all capacity come up, may be a select few. The market is not supporting addition of this much capacity.”