Adani-owned ports may use their pricing power

In the last few days, some exporters and importers have asked me whether the recent travails of the Adani group will have any impact on the efficiency of Adani-owned ports and airports. My answer is that the service standards in many facilities of the logistics sector operated by the Adani group may not suffer but their service charges may go up. Let me explain.

The Adani group of companies is under pressure since Hindenburg Research, a small firm in the United States, levelled certain allegations.

The management of the group denies any wrongdoing. However, the stock prices of companies have taken a beating and there are doubts regarding the ability of the companies to raise finances. To win back the confidence of investors and lenders, the companies will have to rely on strong performance.

In the last few years, the Adani group has acquired a number of companies but given the recent developments, the group may not be able to continue doing so at least in the near future. So, chances of the Adani group companies posting strong top line growth are somewhat bleak, especially at a time when the global trade and economy are not growing fast. So, the companies have to show higher profits to convince the markets, investors and lenders that they can get through the recent setbacks. With interest costs on the rise, the chances of improving the bottom line through cost savings appear limited. So, the option available for the companies is to charge more for their services.

The exporters and importers are mostly concerned with Adani Ports and Special Economic Zones (APSEZ). It is the largest commercial port operator and integrated logistics player in India and operates 13 ports and terminals as well as nine logistics parks. The crown jewel of APSEZ is the deep-draft, all-weather Mundra port in Gujarat. Mundra is the largest commercial port in the country with state-of-the-art infrastructure and multimodal connectivity. Most exporters and importers in the northern hinterland of India deal with Mundra port because it is a lot more expensive and time consuming to deal with the port at Nhava Sheva in Maharashtra, where enough large direct sailing vessels come in. Only smaller feeder vessels call at the other ports in Gujarat, like Dahej and Hazira. So, for all practical purposes, port users from north India have little option but to deal with Mundra port, even if the charges for the services go up. The laws allow port operators to fix their tariffs based on their appreciation of the market conditions.

Most exporters and importers in Central Gujarat have a choice of dealing with the ports at Mundra or Nhava Sheva, as both the ports are almost at the same distance from their factories/warehouses. 

However, many of them find the staff at Mundra port more flexible, co-operative and customer friendly. 

And so, they do not mind the higher charges at Mundra. I have similar feedback from users of some other Adani-owned ports.

Thus, the Adani ports do have the pricing power. Even the vessel operators may not mind higher charges because they routinely pass on the costs to the shippers or consignees anyway. 

The position may not be very different at Adani-owned airports, inland container depots or warehouses. 
 

Email: tncrajagopalan@gmail.com