Building Blocks

Removing roadblocks and adding acceleration will help Indian shipbuilding industry scale up its potential and reach the milestone of strategic, competitive and self-sustaining industry.

Radhika Rani G.

The Maritime Agenda envisages Indian shipbuilding and ship repair industry to reach international standard, be self-sufficient in building and repairing commercial vessels and generate huge investment and employment opportunities in the coming decade. The Agenda also hopes to achieve a global market share of 5 per cent for shipbuilding by 2020, up from 1.4 per cent now. 

The vision document includes development of a strong ancillary base in the country at the turn of the decade, additional employment for 2.5 million (0.5 million direct and 2.00 million indirect) in core shipbuilding and ancillary industries and development of strong R&D facilities and design capabilities for commercial shipbuilding. The action plan also seeks to achieve self-sufficiency in ship repair requirements of the country – around 10 per cent of the global share – to emerge as a dominant ship repair centre in Asia replacing Colombo, Dubai, Singapore and Bahrain. 

Where are we?

According to Clarkson Research, the total order book in global shipbuilding at the beginning of February this year comprised 7,191 newbuildings with 137.7 million cgt (compensated gross tonnage). A major share of this was taken by Asian giants – China and South Korea. While China had an order book of 3,061 ships with 52.7 million cgt, and South Korea 1,538 units with 43.7 million cgt, Japanese shipyards had an order book of 1,096 ships with 21.6 million cgt.

When measured in cgt, China accounted for 38.3 per cent of the global shipbuilding order book at the beginning of February, South Korea 31.7 per cent and Japan 15.6 per cent. They were followed by the Philippines (2.1 per cent), Vietnam (1.4), India (1.4) and Brazil (1.3).

In terms of building capability, India, according to the Union Shipping Minister, has the potential and the capacity to deliver high-value products. “Our shipbuilding inherent strengths like low labour costs, strong domestic demand, well-established steel and manufacturing industry and availability of technically qualified manpower,” says Minister G K Vasan. Add to this, the history of 4,500 years in seafaring and shipbuilding. 

Despite the present economic slowdown, the offshore segment is robust with new orders, says Mantrana Maritime Advisory. “The offshore segment caters to nearly 40 per cent of the order book of Indian yards and most of these orders are from government companies such as ONGC, SCI, Indian Coast Guard and Navy. Those received prior to the recession are slated to be delivered by 2011-12,” it says. Of the 74 ships estimated to be delivered by 2014, many orders are nearing completion, Mantrana adds.

In fact, Cochin Shipyard is being hailed for the timely delivery of six bulk carriers to Clipper Group of Denmark and five platform supply vessels to Deep Sea Supply of Norway. Other European offshore companies that have been placing orders in India include Bourbon Offshore, Lamnalco Group, Halul Offshore, Maridive Oil, Reederei Vogemann and Opielok Reederei of Germany. But private shipyards that cater to commercial shipping segment have been having a hard time. Most of them have deferred their expansion plans thanks to the global financial crunch and lull in shipping. 

Why are we where we are?

Experts are nearly unanimous in their opinion that Indian shipbuilding industry, that caters to commercial & defence vessels, dry docks and repairs, lacks a strong push from the government. If China is a thriving shipbuilding nation with 1,519 yards, both big and small, as against just 32 in India, it is because the Red Dragon is led by its state leadership which is promoting shipbuilding as part of its larger industrialisation and urbanisation programmes.

“But the shipbuilding industry in India is stuck in the government agenda,” observes Mark Williams, Research Manager at Braemar Seascope, a leading sale and purchase shipbroking company. Lack of a focussed drive in taking the industry forward has left it uncompetitive. This has led to gaps in manufacturing, technology, resources and skill development in the shipbuilding/ship repair sector. 

The ‘so-so’ quality of our shipyards, as the world sees it, can be attributed to lack of consistent quality, cost and timeliness in Indian yards, says Robert Allan, Canada's leading naval architect. “Demand is always there for quality product at a reasonable price,” he adds. This is reason enough for Indian fleet owners too to acquire vessels from overseas yards. 

The overheads of domestic shipyards are no doubt high owing to import duty on raw materials like steel and alloys, agrees Capt Deepak Tewari, Chairman of Container Shipping Lines Association. This cost, he says, is obviously passed on to the buyers. However, capable technology, design, construction and delivery too place a role in determining the choice for shipowners, he adds.

To ensure competitiveness in cost and quality, the government has been giving subsidies for five years. However, in the face of global recession, the subsidy scheme was stopped in August 2007 and since then the Indian shipyards, admits the Ministry, have been languishing for want of new orders.

“While during 2002 and 2007, the order book increased fourfold from 0.3 million dwt to nearly 1.3 million dwt accompanied by an impressive increase in global market share, after 2007 the share in the new orders has progressively declined from 0.67 per cent in 2007 to 0.02 per cent in 2009 and 0.13 per cent in 2010,” the vision document quotes a Clarksons report. This takes us to the crux of the issue.

Where can we be?

It is time for Indian yards to be flexible, adaptable, keep labour force employed and have more people come into shipbuilding, notes Robert Allan. To fill the existing gaps, a mission-based approach is the need of the hour, advises the NMCC. “A continuing mechanism needs to be evolved to synergise the efforts of the naval authorities under the Ministry of Defence and the Ministry of Shipping for meeting long-term requirements of the country,” it says.

Also, there is a need for incorporating modern ship design and operational changes besides identifying initiatives for continued growth, opines Raghavan Ashok, Country Manager, India of American Bureau of Shipping. ABS has been developing standards for design, construction and periodic survey for global shipping. “Smart production technologies, increased collaboration with suppliers and services, commitment to quality & service, safe & efficient infrastructure and more importantly emphasis on education and training can go a long way in taking Indian shipbuilding to new heights,” he exhorts. 

Skill development and specialised training is indeed essential, says Dr Vijayan, Vice Chancellor of Indian Maritime University. “Keeping in view the demand for professionals in ship construction and design, IMU is introducing a four-year Bachelor of Engineering in Shipbuilding from the next academic year. The response to our three-year BSc in shipbuilding and repair courses in our Cochin campus is good. We wish to add quality to our programmes by offering hands-on training to our students in shipyards in Malta. A tie-up is being worked out,” he adds.

Given the present economic situation and demand for alternative modes of transport in India, “Developing inland waterways and coastal shipping can help Indian shipyards cater to the small vessel segment, says Gurmit Singh Bhalla, Chairperson of ICC Shipping Association. The government can consider extending subsidies to coastal ships of 35 metre size, he says.

As shipbuilding industry is labour-intensive, skill-specific and dependent on ancillary industries, agencies like the National Skill Development Corporation could promote vocational courses for unemployed youth thereby leading to significant employment generation, say experts. 

“Government support is (also) critical till the Indian shipbuilding industry gains critical volumes to remove its scale-related disadvantages and remove its dependence on imports for procuring raw materials,” observes KPMG.

In the final account, a national leadership focussed on steering the industry to the next level of competency and competitiveness through steadied measures can take India to the league of thriving shipbuilding nations.

Making Things Happen

The Indian maritime sector needs to sustain steady headway towards capacity creation for meeting the needs of a growing economy.

by Radhika Rani G. 

Capacity of Indian ports will reach 3,130 million tonnes by 2020, says Union Minister of Shipping G K Vasan. The minister hints at the activity being steered around creating, building and sustaining infrastructural needs of the country through the vision document for the decade. 

The Maritime Agenda attempts a policy framework to facilitate enhanced private investment, service quality and competitiveness, apart from expansion of capacities in the country. The action plan, if driven towards the goal, will catapult India to the premier league of maritime nations in the world. From the present traffic of 870 million tonnes, a four-fold increase to 2,495 million tonnes by the end of this decade only means mission accomplished.

As part of the government plan, 23 projects have already been identified for the fiscal year 2011-12 under the Public Private Partnership (PPP) mode calling for an investment of Rs 16743.92 crore. These projects are likely to increase the capacity of major ports by 236.63 mpta (million tonne per annum). 

For the current year however, “top priority is being given to modernising ports through expansion / upgradation projects for berths, construction of new berths/terminals, installation of new and modern equipment, upgradation / replacement through higher capacity of cargo handling equipments, mechanisation of cargo handling operations, deepening of channels/berths,” the minister explains. And under the National Maritime Development Programme (NMDP), 276 projects have been identified for mechanisation and 69 have been completed.

Along with this, schemes for quicker evacuation of cargo through road and rail connectivity are also been implemented. In the wake of growing domestic demand from end-user industries, the outlook for cargo growth remains favourable, notes ICRA. “The main cargoes, the volumes of which are expected to drive growth include coal, crude oil and containers. Accordingly, port ventures with an exposure to these cargo categories stand to gain,” it says in its latest rating feature. 

But speed is an issue. “Yes, it is,” agrees K Mohandas, Secretary, Ministry of Shipping. “But when you work in a government system, and that too in a transparent setup, we have to go through the well-defined process. There are some delays but these are inevitable as part of the transparent process that we are following. Improvement of course will be possible,” the secretary says.

As for industry outlook towards capacity creation initiatives, it has been swaying between certainty and scepticism depending on the nature and time taken for implementing the projects. The industry seeks continual support from the government and a two-way interface to make things happen.

The prime concern is port infrastructure on the west ports, says Capt Deepak Tewari, President of Container Shipping Lines Association.” The major port that handles practically more than half of India’s import and export trade like Nava Sheva does not have the necessary infrastructure. Its draft is low at 12.5 metres and does not have the capacity to handle larger ships.

"If one port is constrained by draft, then obviously the vessels are not full and are not optimised. So service optimisation is not there, leaving the shipping lines in despair,” he adds.

There is also the requirement for more terminal capacity, says Capt Dinesh Gautama, Advisor of CSLA. “As about 45 per cent of the containerised throughput of India goes via Nhava Sheva, it is important to all shipping lines,” he says.

Chairman of Jawaharlal Nehru Port, L Radhakrishnan, agrees. “Creation of capacity should be in proportion with demand,” he concurs. Capacity of major ports, he says, is hindered as the ports have limited authority. Delegation of powers is required at major ports,” he opines.

“The powers vested with port trusts like us are too less and one needs to go through the approval process every time. Even, the delegation for buying port equipment is very low.” This is one of the main reasons for the delay in carrying a project forward, Radhakrishnan notes.

Also, there is the need to consistently relook PPP agreements. “The time period is usually 30 years and the technology and the business environment change with time. So it would be reasonable to have at least two such reviews in this period.”

Calling on the need for collective approach to make the optimal use of capacities created, Ennarasu Karunesan, CEO, DP World, Chennai says, “All that the world class terminals require is the support of the local system. Then only the terminals can deliver result. Chennai has an age-old system in place. Projects are launched here in Chennai, but there they are not time-bound.”

Elaborating further, Suresh Amirapu, Managing Director, Portman India Pvt Ltd, says better connectivity, capital dredging, tax concessions and quicker implementation of projects are required to make maritime sector the most viable sector in the country. As compared to all the major Ports of India, Chennai has issues like low land availability and a congested urban city in the vicinity.

All the major ports are no doubt in expansion and modernisation mode. However, the problem is on inland logistics front, says Ajeya Kallam, Chairman of Visakhapatnam Port Trust. Kallam, who is also the chairman of Indian Ports Association, feels that “we are not planning connectivity between the port and hinterland.” 

He says, “A situation might arise where port capacities are ready but connectivity is still not addressed. Pollution is going to be another serious issue and has to be factored while planning and executing port expansion projects.”

In this regard, the growing cargo demand in general can be met if connectivity (road, rail and approach channel dredging) can be improved to all the existing ports in a steady manner, smooth passage of traffic flow is ensured inside the port, gate complexes with multiple lanes are built to increase efficiency and shallow water berths are deepened and strengthened from time to time.

As for private ports, connectivity has been a major issue. MLN Acharyulu, Executive Director of Marg group that operates Karaikal Port stresses the need for better roads and rail network. He too lays the onus on collective participation for developing connectivity infrastructure. And that by itself is a challenge.

“From our experience we have seen that excellent berths can be created, good cranes can be purchased, complete dredging and receive a vessel at the port. But one can realise the problems only when the traffic at the port increases. We are fortunate and unfortunate to have more traffic. Fortunate, because the traffic is growing. In the first year of our operations, we did 4.8 million tonnes. Unfortunate, because other systems such as road, rail to handle this cargo are lacking. There is no owner for constructing roads, as National Highways, State governments and other agencies are involved. This requires much more effort more than constructing a port. Unless we work in tandem these things do not move,” he adds.

According to Amit Bhatnagar President, Ahmedabad Steamer Agents Association, two important points that can improve capacity at ports are cost-effectiveness and efficiency. “Healthy completion promotes cost-effectiveness. This would not only help existing exporters to bag more orders, but also encourage entrepreneurs to start new ventures,” he explains. As for efficiency, it is the key to enhance capacities at ports, he says.

“There were times when vessels used to anchor for days to discharge and load cargo before they could sail. Today technology has improved to an extent that ports are able to provide fixed window to carriers and they guarantee moves per hour such that no vessel is at berth for more than 24 hours.” Efficiency, he notes, can further be improved by having more and more skilled laborers. “There is a need of more institutions that specialise in maritime education. MBA courses being offered across the country can add port management and allied courses in their content,” he adds.

On a macro level, the hurdles, as detailed by shipping lines, are:

a) Capacity at Terminals: Although the government has been emphasising on having PPP in terminal creation and has also permitted 100 per cent foreign direct investment for construction and maintenance of ports and harbours, the projects need to be speeded up.

b) Dredging: Indian ports are not deep enough to take mega container ships (capacity of 10,000 teu plus) and thus there is a need to increase the draughts to 16 m or 17 m. For instance, Nhava Sheva is a tidal port with a draft of 12.5 m. Kolkata and Haldia have perennial draught problems.

c) Rail/road connectivity: Ports are bogged down either due to bottlenecks in the roads or lack of enough roads for evacuation of cargo.

d) Antiquated regulation: It is time to revise and amend dated policies. For instance, while the Tariff Authority of Major Ports is the economic regulator for major ports, with the main function as tariff setting for major ports and private terminals commissioned therein, the non-major ports, operating in the same environment do not have any economic regulator and non-major ports including private ports have liberty to fix their own tariffs. As a result, there is no level playing field, the government admits. 

To hasten development, there is a need for a regulator for all the ports for setting, monitoring and regulating service levels, technical & performance standards, the ministry notes.

The Maritime Agenda justly seeks simultaneous multiple interventions to achieve goals. Its decade plan, in a nutshell, aims to

• Create port capacity of 3,200 MT for handling about 2,500 MT of cargo (necessitates an investment of Rs 3 lakh crore)
• Improve port performance on par with the best in the world
• Increase tonnage under the Indian flag as well as under Indian control (needs an investment of 1.20 lakh crore)
• Increase coastal shipping and facilitate hassle-free multimodal transport
• Increase India’s share in global ship building to 5 per cent
• Promote use of the inland waterways for cargo movement
• Increase the strength of Indian seafarers to 9 per cent of the global strength by 2015 and sustain above this level

While creating capacities is a continual and time taking process, the action plan needs focused efforts, especially at this juncture when India’s global trade is growing. The stakeholders need to walk the talk to build a robust maritime India – the bedrock to the economy. While the potential is there, propulsion is what is needed now.

The Fitness Plan

 
In an age when being healthy is wealthy, the Indian government comes up with a plan to turn robust. The Shipping Ministry announces an agenda to get in shape within a decade. With a plan in place, it’s time to get set, go – to remove the flab, be fit and win the global race. 

 

by Radhika Rani G.

The epicentre of maritime trade has touched India and the country’s economic growth is set to inch up the curve the coming three decades. It is reason enough for both the government and the industry to be proactive with policies, plans and projects to make the best of the opportunities calling on our ports and shipping. As the clock ticks with athletic precision, it is time to be fit lest we miss the bus.

Given this thought, the Maritime Agenda 2010-2020 unveiled recently in New Delhi comes as the big plan ever to make Indian ports and shipping sectors competitive as trade enablers. The ambitious agenda focuses on all the key sectors, from port capacities to international cooperation, that need to evolve with growing exim and environment demands. 

The government believes the economic upsurge will be one of the important drivers for the growth of Indian ports. Also, technological changes in shipping and information technology will trigger growth and provide stimulus for cargo handling.

The Agenda therefore, says the Union Shipping Minister, will bring Indian ports on par with the best international ports in terms of performance and capacity. It will also increase coastal shipping and facilitate hassle-free multimodal transport besides promoting inland water ways for cargo movement. The ministry sounds keen to walk the talk. “We will bring out an annual report card on the maritime agenda every May up to 2020,” G K Vasan announces. 

The action plan mainly calls for an investment of Rs 5 lakh crore to create port capacity of 3200 million tonnes by the end of the decade and increase Indian tonnage besides size up coastal shipping, inland waterways, shipbuilding and strengthen human resources. “We do not need high amount of government support but there is a need for private investment,” the minister reiterates.

Of the projected outlay, a major chunk will come from the private sector, says Shipping Secretary K Mohandas. While Rs 3 lakh crore will be spent on improving cargo handling capacities in ports, the remaining Rs 2 lakh crore will be used for increasing tonnage under the Indian flag and control. This in a nutshell is the plan to meet India’s export potential and import dependence through maritime muscle and to thrive healthy and happening.

The need for one

Policies and norms concerning port and shipping operations have been discussed for quite some time in various forums to let wider participation of players in Indian ports and shipping. Experts and advisers have felt the need for the government to revisit the dated practices, reform the existing ones and restructure those for the future. And the last two years saw the reforms process gather momentum and come out with a few statements on industry- and investment-friendly policies.

To make the process of private investment hassle-free, the ministry has reformed and standardised several norms. The process however needs continuous review and improvement, the ministry admits. 

In the wake of ports growing in number, size and spread, the policy on the monopoly in the ports sector too has come in for review and so did the land policy and the issue of port management or corporatisation. 

As national security, quality of service and quantity of tariff are being discussed, the ministry is reviewing the proposal for renewed norms and standards to bring in a uniform regulatory regime. “All the ports should be left free to fix their tariff, depending upon inter-play of market forces. The regulator can be entrusted with the responsibility of dispute resolution as appropriate,” Vasan says. Also, a near future development could be the merging of the Indian Ports Act 1908 and the Major Ports Trust Act 1963 into India Ports Bill to simplify port regulation.

There are again several other areas where reforms are being sought, such as coastal shipping, Cabotage law, Shipping Trade Practices Bill, shipbuilding, shipbreaking, environment and so on. “We are working on them in a steady manner,” informs Mohandas.

The ministry will be drafting a coastal shipping policy and a transshipment policy to relax Cabotage laws for promoting transshipment ports. Currently, work on the International Container Transshipment Terminal in Vallarpadam, Kochi is going on. “The port will be inaugurated by the Prime Minister in the second week of February 2011,” the minister notes.

In the wake of investor-interest, the government hopes to persist with a transparent and well-defined process. While the National Maritime Development Policy encouraged private investments in port projects to meet medium and long-term objectives besides meeting service quality and competitiveness, its timeline expires in 2012. The agenda is therefore the new avatar designed to meet the ‘one-size fits-all’ bill.

What’s in it

Well, like any comprehensive document with a vision and strategy, the agenda underlines the fillip that key segments need. At the outset, the minister spells out the goal targeted for the end of 2020:

• Create port capacity of 3200 MT for handling 2500 MT of cargo (Rs 3 lakh crore investment)
• Increase tonnage under Indian flag and Indian control (Rs 1.2 lakh crore)
• Increase India’s share in global ship building to 5 per cent
• Increase the strength of Indian seafarers to 9 per cent of the global strength by 2015 and sustain above this level.

These well-intended aspirations could make the sector a name to reckon with in the global scenario. However, speed is a challenge at this juncture when several NMDP projects are yet to materialise. The Shipping Secretary, in his recent interview to Maritime Gateway, admits quick action is indeed a matter of concern. “We have been working to do things fast. But all said and done, what is important is that the delivery of service has to keep pace with the requirement,” he stresses. 

Experts too, while supporting the government initiatives, are apprehensive of projects overshooting timelines. Indian maritime sector, says iMaritime report, has all the ingredients to become competitive in the global market place. “However, it requires vision, determination, innovation, and above all considerable planned diligence – to achieve this competitiveness in its entirety.”

While the present policies are dynamic and investor-friendly, more path-breaking initiatives are required to boost the ports sector to the anticipated levels of growth in terms of traffic as well as capacity, the ministry notes in the vision document. “It is necessary to review the policies periodically, say once in three years, to keep them relevant in changing times.”

Although the minister is practical enough in announcing a score card on the agenda every year, one hopes the review process does not remain mere wishful thinking given the inertia of projects. According to Union Minister of Commerce & Industry Anand Sharma, the country's foreign direct investment inflows were in excess of US$ 100 billion during the last three years and hopes they will touch US$ 250 billion in the next five years.

“In the next decade, India is set to absorb an investment of over US$ 1.7 trillion in infrastructure alone,” he announces. 

Despite fund flows into various projects, including ports and captive industries around them, apprehensions stem from the past profile of project development in India and the dissatisfaction voiced by investors on the pace of projects. There have been instances of investors backing out of projects that remained a non-starter. As experts rightly point out, periods of rising interest rates have made it difficult for infrastructure developers to raise funding capital.

Let’s do it

While the concern is about the value for money and effort lost in dilemmas and delays, it is time for some real action – for people involved in planning and execution to get their act right.

For instance, though the Korean Steel major POSCO’s proposed project in Orissa hangs in the air for want of environmental clearance, the commerce minister backs such project and other highest-quality missions on the belief that bilateral trade and thereby investments form the corner stone of India's development policy. 

The POSCO Project, he informs, will not only produce 12 million tonnes of steel, bringing in an FDI of over US$ 12 billion, but will also create nearly 50,000 direct and indirect jobs in the long term. Such a project will also have considerable spinoff for large-scale mineral development, infrastructure development through captive port, road hubs, downstream activities in automobile and construction, the minister adds. 

With the power, roads and telecommunications sectors showing a promising growth over the next seven years, the government could open itself for discussion and debate with stakeholders for scripting a successful India Inc story.

According to analyst Susanta Mazumdar, macro concerns remain, particularly as to the Indian fiscal situation and inflation. “But infrastructure assets tend to offer relatively high pricing power, and assets with pricing power and stable regulatory regimes also typically exhibit high inflation protection.” The Indian focus on infrastructure is very much a long-term-growth theme, which is only at the beginning of a long and sustainable cycle, Susanta adds.

The zest is evident from the government’s eagerness to welcome multinationals to invest in fast-paced infrastructure projects like dedicated freight corridors, subway lines and SEZs under a public-private partnership model. For instance, the Consulate General of India in Shanghai has invited Chinese investors to ‘go-global’ with India. 

“With a combination of factors such as macro-economic stability, consistent growth, abundant skilled manpower, well-developed banking and judicial system, vibrant capital market and its large-scale investment absorption capacity, India offers attractive returns to prospective investors," Consul General Riva Ganguly Das promised a keen audience. 

The maritime agenda therefore comes at an opportune time and the ministry hopes to allay any fear and come clear on taking the cause of maritime development forward. A sense of partisanship and openness can unite the stakeholders on to a common cause and result in fruitful action and accountability. So, it’s time for all the players concerned to pull up socks and sprint together towards the finish line.