June 2017

EDITOR Devangshu Datta

The maritime sector has been under pressure for years, due to weak global demand, low shipping
rates and contraction in imports and exports. However, there has been progress on the
policy front and that should translate into a more conducive environment.

Growth in port traffic has been slow due to these constraints. Shipping companies are also
contending with weak and falling freight rates, which have caused large accumulated losses.
Nevertheless, port capacity additions are significant and the addition continues, notably via private
sector investment. In underdeveloped segments like coastal shipping and inland water traffic,
there has been a positive change in focus.

Policy measures include changes in legislative frameworks. For example, the Major Port Trust
Authorities Bill, 2016, gives more autonomy to boards of major port trusts. Apart from this, there
was the introduction of the revamped Merchant Shipping Bill, 2016, coupled with the repealing of
the outmoded Merchant Shipping Act, 1958, and the Coasting Vessels Act, 1838.

The new rules include the relaxation of cabotage restrictions for container transshipment
ports, an 80 per cent discount scheme for two years on vessel-related and cargo-related charges
for coastal transportation through roll-on, roll-off ships at major ports, etc.
Steps have been taken to promote the ease of doing business at ports, new locales have been
identified to set up greenfield ports, many inland waterways have been declared national waterways,
and there has been progress on the Sagarmala programme.

The private sector is becoming increasingly important. Private operators generate over 25 per
cent of overall traffic at major ports. Private investment has accounted for over 80 per cent share
in total investment in the port sector in the past three five-year plans. Ports are also exploring new
business areas such as roll-on, roll-off and LNG terminals, smart port cities, renewable power projects
and SEZs.

Sagarmala is a potential game changer. It could cut logistics costs, create new infrastructure,
aid in employment generation, etc. It includes 415 projects worth approximately Rs 8 trillion and
has identified six new port locations. But it remains to be seen how realistic this level of projected
investments will be. Similarly, although some 106 new waterways have been given national waterway
status, it is unclear how significant inland traffic volumes will be generated.

Long-standing issues such as land acquisition difficulties, poorly drafted contracts, and the
requirement for multiple approvals and long delays in granting such approvals all continue to
retard growth. There is also need for strengthening evacuation links via road and rail connectivity.
This is especially important for coastal traffic and inland water traffic, which must use multimodal
connectivity in cost-effective ways. The recent allocation of funds from the Central Road Fund for
national waterway development may help.

Market forces hold sway across the sector since freight rates are driven by global factors and
the trade cycle depends on global economic activity. Overall, the policy environment seems to be
improving, but by definition, the sector remains extremely dependent on global trade cycles. Better
policy will prepare the sector better to exploit the next uptick in global growth. But don’t expect too
much in the way of tangible returns until the global cycle does turnaround.


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