Logistics is a vital component of supply chain management involving the flow of goods from manufacturing to consumption. According to the World Bank, the economic performance of a country is directly linked to logistics efficiency. As nations become competitive, logistics efficiency becomes critical. At 14 percent, India’s current logistics expenditure’s share of the gross domestic product compares unfavourably with the US and EU, which spend 8 percent, and China at 9 percent.
Ports are the most important part of the logistics infrastructure. Chinese ports stimulated the country’s manufacturing-led exports and, in turn, phenomenal economic growth. China adopted the port-based export enclave model, providing world-class infrastructure and creating an ecosystem to lure foreign multinationals for offshore manufacturing. This resulted in a massive investment flow and unprecedented industrialisation.
Shenzhen, a fishing village until 1980, played a stellar role in aiding China’s double-digit growth for around three decades. Now it is one of the largest container ports with 44 container berths and huge warehousing and transport networks. It boasts of the third highest GDP among Chinese cities, trailing only Shanghai and Beijing. This is a perfect example of port-led growth.
The Indian government initially developed public sector ports and later encouraged private ones. India now has 12 public ports and about 200 private ports. However, most of the private ones are at a preliminary stage and only about 70-80 of them are operational.
Indian exports are predominantly bulk in nature, consisting of primary and intermediate commodities. As manufacturing matures, more value-added products are traded and exports shift to containerised cargo. While containers account for about half the global cargo movement, it is quite low in India. The comparison with China is stark. India’s container traffic in 2022 was estimated at 6 million twenty-foot equivalent units (TEU) against China’s staggering 229 million TEU. Chinese ports such as Shanghai, Ningbo, Shenzhen, Qingdao, Guangzhou, and Xiamen individually exceeded the capacity of the entire Indian port sector in containerised cargo handling.
The Indian economy is characterised by low manufacturing capacity. It has a decisive impact on our containerised exports. There are also certain other issues impacting the Indian port sector. The average turnaround time for a container vessel in Indian ports was little over a day in 2021, 60 percent higher than international standards. This was chiefly due to the limited capacity of equipment like quay and specialised cranes. The inadequate evacuation capacity due to underdeveloped road and rail infrastructure further limits efficiency.
Clearances also cause delays. An Asian Development Bank study in 2021 highlighted the inefficient paper-based process of Jawaharlal Nehru Port Trust in Mumbai which required 115 distinct physical documents. In contrast, ports such as Shanghai, Barcelona and Rotterdam are almost entirely digitised. Indian ports also lack deep channels and adequate draft, a critical requirement. Today’s shipping is dominated by larger vessels to achieve cost efficiency. Handling these ships is a challenge for India.
These factors contribute to global shipping channels bypassing India. Our export containers regularly move to transshipment hubs such as Colombo, Singapore and Klang in Malaysia to connect with global shipping channels. The absence of a major transshipment facility in India adds to direct and indirect costs. Further, exporters bear the cost of feeder services, multiple port-handling charges and high turnaround time, which make them less competitive.
India now has a window of opportunity. India’s current growth is standing strong against the global economic slowdown. According to the International Monetary Fund, India is poised to become a $5-trillion economy in 2027-28. A report from McKinsey also states that the manufacturing sector will be consolidated through growth in the electronics, capital goods, chemicals, textiles and apparel sectors. Auto and auto components as well as the pharma and medical devices are also seeing some movement. These sectors have the potential to generate $260 billion in additional value-added exports by 2030, a 300 percent increase from 2018. Therefore it is quite clear that Indian ports’ weakness in handling container traffic can be a limiting factor to this growth story. It is estimated that the demand for container handling capacity will rise to 100-120 million TEU by 2030, about 17 to 20 times the present capacity.
There are many discussions about creating deep water transshipment hubs in India. Efforts are on to develop at Galathea in Great Nicobar on the east coast and Kochi or Vizhinjam on the west coast. However, these hubs are far from the established industrial zones in the west and north regions. Indian Railways, which could have been the ideal medium to connect these hubs, is steadily losing traffic to the road sector on account of the railway’s inability to carry freight efficiently. Although transporting goods via roads is costlier, the lack of dedicated freight corridors and the Railways’ operational priorities towards passenger trains make it less attractive. Hence, Indian Railways must ramp up investment in connectivity between industrial hubs and ports.
The Indian government came up with the Sagarmala scheme in 2015 to tackle some of these infra challenges. It had plans to invest around ₹3 trillion by 2024, but the actual implementation is below par. An enabling climate to attract private sector investments in warehousing and port development is urgently called for. It would be necessary to simultaneously expand inland container facilities and container freight stations.