SUBMITTED TO:

MR. SANJAY KUMAR GUPTA

BUSINESS COMMUNICATION ARTICLE

II

Globalization in Indian Industry 1991-2012: Enhancing competitiveness of Ports in India

2012

SUBMITTED BY:
VYAS (20121014) BHARGAV MAITY

SUSHOBHIT Sushobhit (20121056) Microsoft

1/1/2012

Globalization in Indian Industry 1991 2012: Enhancing competitiveness of Ports in India

The economic growth of a nation depends on multiple factors, and a robust infrastructure sector is one of the key pre-requisites for sustainable economic development. Economic liberalization in the backdrop of the larger integrated global economy has allowed a free flow of capital across the world, and Multi-National Corporations (MNCs) are looking for safe avenues for easy investment and expansion. One of their primary issues of concern is obviously the status of infrastructure in the target country. India, being a favourable destination for investments from MNCs, has a huge exports and imports base. Port infrastructure is one of the key indicators of sound infrastructural setup of a country. Ports are the gateway for foreign trade and developed port facilities provide a platform for smooth exports and imports. Around 13 major and over 190 non-major ports in India contribute to around 95% in volume and 75% in value to Indian foreign trade. The below par performance of Indian ports, vis-a-vis their global counterparts, in turn affects Indian commercial interests adversely. The present study aims to track the progress and advancements made by the Indian ports in the post-liberalization era and their future scope for development with regards to their competitiveness. It also highlights the inherent constraints in the development of Indian ports and suggests certain pertinent measures to enhance the functioning of this key sector.

Introduction
Infrastructure is a compound word that includes two words: Infra and Structure (Dash, 2008). Infra means that which lies beneath. Infrastructure means that which lies beneath the structure. Infrastructure services are not directly productive. They support the undertaking of various production activities, but are not final end products. Infrastructure contributes to the economic development both by increasing the productivity and lowering production cost and provides amenities which help to determine success in diversifying production, expanding trade, coping with population growth; reducing poverty and improving environmental conditions enhance the quality of life. Infrastructure sector covers a wide spectrum of services that directly impact the working of a business enterprise and are important from the social point of view. Infrastructure represents the wheel of economic progress (Dash, 2008)i. Infrastructure includes electricity, gas, water supply, telecom, roads, industrial parks, railways, ports, airports, urban infrastructure, and storage (Rakesh Mohan Committee, 1997). The government of India, to achieve speedy economic development, took the responsibility of developing the infrastructure sector in the post-independence eraii. However, the development in the infrastructure sector was too far from satisfaction. Underdevelopment of infrastructure in comparison to the targets can be attributed to a variety of reasonsiii. By the late 1980s, most of the public sector organizations, including the infrastructure sector, have through their performances vindicated that government investments and efforts alone

cannot create a right infrastructural environment in the country. However, change in economic policy approach of the Government of India in 1991 gave a new ray of hope for the augmentation of the infrastructure sector by creating a path for the private sector to invest through relaxation of the norms, procedures and simplified tax rules along with elimination of the license raj. FDI of up to 100% has been allowed in most of the industries in this sector in a phased manner. The private sector is allowed to compete with the public sector industries. All these developments have given a greater opportunity for the development of the infrastructure sector in India.

(Ministry of Finance, 2001)

Port Infrastructure in India

One of the key areas in the infrastructure sector is the Port and Shipping Industry. Ports play a vital role in the foreign trade of a nation being the gateways for exports and imports in a countryiv. Ports in India have been under the governmental control for a long time and this sector was until 1991 reserved for only the public sectorv. Developments in the International Port and Shipping Sector raise both threats and opportunities to the Indian Port and Shipping sector. The reforms initiated have resulted in a significant improvement in port performance, but the fact remains that the performance is still far below the standard compared to other ports in Asia. The problem may be due to ineffective utilization of the real berth capacities. The Indian ports are traditionally labour-intensive and equipment use on berths is extremely low. This results in high turnaround times for vessels as most of the other ports depend on high mechanization processes. Further, low productivity of equipment and labour

contribute to high handling costs for cargo and containers. These factors inhibit major shipping lines from bringing large post-Panamax container ships for handling liner routes servicing Indian ports, adding to the transportation costs of exports and imports. Apart from this, many Indian ports also suffer from draft limitations, resulting in slow turnover times for vessels. All this has resulted in higher transport costs, undermining Indias exports. With the infusion of new technology and capacity building, the congestion at Indian ports that was experienced during the 1990s has drastically reduced in most places and the operational efficiency also improved leading to the capacities being marginally ahead of demand. However, with the projected growth of traffic and growing containerization, there is a pressing demand for expanding the capacities and enhancing competitiveness in the sector through investment from both public and private sectors. In order to expedite achievement of these goals, 100% Foreign Direct Investment (FDI) in Greenfield port projects and port terminals is allowed through automatic route. Such a liberalised business regime has enabled Port operating MNCs to invest in Indiavi.

(Ministry of Shipping, 2011) Port capacity can be enhanced sharply through better management, operations and private concessions. With minor ports working on a par with major ports, the regulatory power of Tariff Authority of Major Ports (TAMP) should be extended to cover minor ports so that distortions between major and minor ports can be effectively resolved. Reforms need to be initiated in such a manner that the regulatory mechanism is kept at distance from the political structure and pressures. Integration of economy with other countries ensures the

effective use of the existing port and transport facilities, leading to the development of new ports which are economically sound and financially attractive.

Commodity-wise Traffic handled at Major Ports in India in FY2011-12 (in Tonnes)

Other Cargo (18%), 100894 P.O.L. (32%), 179277 Container (21%), 120224 Iron Ore (11%), 60603 Coking Coal (5%), 27903 Thermal Coal (9%), 50834 Raw fertilizer (2%), 8199 Fin. Fertilizer (2%), 12219

In the present post-recession scenario of economic slowdown, rising costs, disappearance of monopolies and stiff competition, ports are looking at retaining profitability by focussing on cost reductions directly translating to reduction in user costs. Improving competitiveness leads to enhanced profitability, requires a two-fold approach: reducing costs with managing structural complexity surrounding a port. Port pricing or user cost depends on three important flows, costs, benefits and revenues (Swaminathan, 2012). Costs are borne by the ports in order to provide services or facilities (benefits) to the users. This in turn generates revenue streams and represents the income of the port. A glance at the various facilities and services offered by a port to its users ship owners/ operators, shippers, consignees, etc. will help in understanding the possible cost reductions. Specific facilities and services are identifiable and are charged separately. On the other hand general services pertain to general usage of port. Port dues are generally levied for the usage of general services and facilities. Services are classified as seaward side (marine services) or landward side and at the connecting point. Hence, port charges aggregated under these three heads are levied on the user in order to recover the costs accrued by the port entity (Swaminathan, 2012). Users tend to look at the competitive advantage of a port to reduce their costs. Competition among ports around the world has increased dramatically due to several factors such as increased competition in liner and tramp shipping trades, development of inland transport network, deregulation of inland transport operators and facilitation of transport procedures. Above all, the unitization of general cargo, which now moves in containers or on standardized pallets, has led to the predominance of intermodal transport over other individual modes, and has reduced costs for the users. There is stiff competition among

intermodal routes and the efforts of ports to establish a competitive advantage that allows them to remain in business. Gone are the days when a ports geographical location, its navigability and its harbour security were sufficient to guarantee it a competitive advantage. In the present era, in addition to the above listed factors, competitive edge is derived by providing better value added services to the users. This can be achieved through overall cost leadership and/or service differentiation.

Main Services provided by Ports

Pilotage Towage Berthing Repairs Bunkering & Supplies & Services

Technical

Commercial

Stevedoring Cargo Handling Warehousing Transhipment Cargo Reception & Delivery

Statuatory

Customs Safety & Security Vetting & Inspections Navigational Aids

Way forward for enhanced Competitiveness

A port can achieve cost leadership and service differentiation by addressing some key factors, which we will be dealing with in brief. There are many micro factors that may not independently contribute for user cost reduction and increase in profitability, but they nonetheless contribute in making the port competitive. Faster Turnaround The value provided for the port users derives from speedy, accurate and careful handling of cargo to and from vessels and vehicles within a stipulated time period. The port increases this value by reducing the turnaround time of vessels and vehicles and by increasing their security and that of the cargo. Lower turnaround time increases berth availability and reduces vessel time at berth, thus enabling the port to handle more vessels with the existing infrastructure. Thus, faster turnaround

time establishes a competitive edge for the port over its peers. The loss of berth hire is compensated by revenues earned from handling more vessels. In turn, due to port achieving economies of scale, its benefits are passed to the users in terms of lesser port charges for utilising port services and facilities. Efficiency Performance of Major Ports Year Average Berthing Average Turnaround Average output/ ship Time (in Hours) Time (in Days) berth-day (tons) 10.05 11.40 9.59 9.55 11.67 3.62 3.93 3.85 3.87 4.38 9,745 9,851 10,051 11,024 10,756

2006-07 2007-08 2008-09 2009-10 2010-11

(Ministry of Finance, 2011) (Indian Ports Association, 2011) Value Addition A port can focus on providing value added logistic activities in addition to traditional services in order to augment its competitiveness. This will benefit the users by enabling them to exploit the maritime supply chain to suit their purposes. This will also contribute in developing the ports hinterland. This has been evident from the various Port based SEZs which have been developed or are in the pipeline. A successful example of this is the automobile exports from Chennai port due to its proximity to Chennais auto industry cluster. Increasingly, these value added activities and their increasing contribution to ports overall income is indicative of the complex nature of modern day seaports. Low and flexible charges The complexities associated with service charges should be reduced, by implementing flexible billing system, which would charge the users only for the services availed and not bind them to bundled charges for a basket of services, some of which may not be availed. This competitive edge will lead to greater volume due to increase in users on account of simplified processes, in turn leading to increased revenue flows and enhanced profitability. Integration with other transport modes In competitive environments, ports cannot compete on the basis of operational efficiency and location alone. So, they need to provide seamless connectivity through other integrated transport services - like roads, railways, inland waterways- to its users. This will lead to the port widening its scope of services and the user getting to choose the most cost-effective intermodal transport in order to move the cargo to and from the ports. Access to transport routes A port needs to pro-actively decongest the approach rail and/or road routes from hinterlands to reduce the lead time for the consignment to reach the interchange points. This will reduce users

transportation costs, adding to the competitive edge of the port. Such a hub and spoke logistics model will generate a large number of port users, further reducing users costs. Business Process Re-Engineering A port may examine its business processes deployed and optimize the same to improve the productivity of the business procedures and have standardized operating procedures in order to eliminate redundancy in operations and documentation, thus leading to cost savings and reduced processing time, indirectly reducing user costs. Migration to System driven process flow Migration of manual processes to system driven process flow in order to take advantage of information technology systems like EDI, EDIFACT can reduce processing time, remove redundant paper work and human interventions in business processes to eliminate subjectivity. Further, implementing port community system for information sharing amongst business entities will reduce processing time and data processing errors, leading to increased efficiency and profitability. Optimization of resources Optimizing the resources at the disposal of the port such as yard, equipment, berth etc. will improve the productivity parameters such as vessel productivity, crane productivity, vessel/truck/cargo turnaround time; reduce demurrage applicable to vessel/cargo, etc. Improvements in productivity and efficiency levels will increase the competitive edge of the port and reduce cost of operations for the port and its users. The factors discussed above independently and cumulatively will enable a port to reduce user costs, increase competitiveness and at the same time retain or increase its profitability. These are the universal features and the port specific factors must be identified, depending on the specific port and its infrastructural complexities.

Works Cited
Dash, L. (2008). Infrastructure and Indian Economy. Regal Publishers. Indian Ports Association. (2011). Major Ports in India : A profile (2010-2011). Indian Ports Association. K.Jetli, N., & Sethi, V. (2007). Infrastructure Development in India: Post Liberalization Initiatives and Challenges. Star Books, UK. Ministry of Finance. (2001). Economic Survey 2000-2001. Ministry of Finance, Government of India. Ministry of Finance. (2011). Economic Survey 2010-2011. Ministry of Finance, Government of India. Ministry of Shipping. (2011). Maritime Agenda : 2010-2020. Ministry of Shipping, Government of India. Rakesh Mohan Committee. (1997). India Infrastructure Report: Policy Imperative for growth and welfare. Ministry of Finance, Government of India.

Swaminathan, D. B. (2012, July). How to cut user costs without affecting profitability? Times Shipping Journal, pp. 12-17.

Infrastructure has been differentiated it as economic infrastructure and social infrastructure (K.Jetli & Sethi, 2007). Accordingly, the economic infrastructure includes: energy (electricity, coal, and oil and gas), transport (railways, roads, ports, and civil aviation), telecommunications (including posts), special economic zones, urban infrastructure (water supply, sewerage, drainage, city roads) and rural infrastructure. Social infrastructure includes: human development and social security, poverty and poverty alleviation programs, health and family welfare, education and training, labour employment and welfare, empowerment of women and empowerment of socially disadvantaged groups. ii This was obligatory as the gestation period for these investment projects was long, and the private sector during that period had little financial resources, the returns expected were in lower order spread over a long time. The risk involved in these projects was very high and private sector was not in a position to bear the risk. The government through the five-year plans and industrial policies has set targets for itself for the development of infrastructure in India which included but was not limited to power sector, roads, ports, transportation network, heavy industries, communication, education, banking and insurance sectors, water supply. These were very well supported by the budgetary allocations for these sectors. iii Wavering political setup, bureaucratic bottlenecks, long period of inaction by the government, lack of service orientation, inadequate investments, long gestation period, lack of support from private enterprises, low support from the public to safeguard the infrastructure, lack of mechanization, etc. were the constraints which made it difficult for infrastructure entities to recoup investment costs and operational expenses through the levy of user charges. iv The significance of maritime infrastructure in facilitating international trade has been recognized all over the world. Developed port infrastructure is reflected in quicker exports and imports for the country. Supportive facilities like custom clearances, loading and unloading, hinterland connectivity, port facilities, etc., would make the foreign trade process smoother and easier. At the same time, issues like ability to handle turnkey equipment, customized products, different types of items, would give an edge to the ports. v India has 13 major ports across the coast line of 7,517 kms with a global merchandise trade of 0.75%. Major Ports in India were directly under the Central Government and were run as per the directions of the Ministry of Shipping. The major ports are all set up under trusts exercising both statutory and commercial functions. Major Ports in India are Kandla, Mumbai, Jawaharlal Nehru Port (Nhava Sheva), Mormugao, New Mangalore, Cochin, Tuticorin, Chennai, Ennore, Vishakhapatnam, Paradip, Kolkata (including Haldia and Kolkata Dock System) and Port Blair. vi APM Terminals (Mumbai and Pipavav), PSA (Chennai, Tuticorin, Kolkata, Kandla), DP World ( Nhava Sheva, Mundra, Chennai, Cochin, Vishakhapatnam)