ICRA: Favorable long-term growth outlook for port logistics sector

ICRA believes that the Port Logistics sector in India has significant scope for growth despite subdued near term outlook on account of muted container volumes. Container movement at Indian ports has witnessed a modest CAGR of 4% over FY 2011-16 on the back of global economic slowdown. Further, containerization levels in India have also remained low in the global context. Excluding bulk commodities (711 MT, forming 66% of total cargo in FY 2016), containerization in Indian port sector accounts for  around 48%  of the cargo handled (i.e., 173 MT of the 362 MT balance cargo which also includes break bulk cargo), which is significantly lower than that in developed countries, which have achieved levels of 70-80%. Thus, over the long term, as exim trade improves and levels of containerization in India increase, the prospects for port logistics services should remain favorable.tradeexportst

According to K. Ravichandran, Senior Vice-President and Co-Head, Corporate RatingsICRA, Port-related logistics required for facilitating cargo movement primarily includes Container Freight Stations (CFS), Inland Container Depots (ICD) and Container Train Operations (CTOs). Apart from investments in the development of ports and terminals, these segments have witnessed extensive participation from the private players. The growth opportunities in CFS/ICD segments are derived from the container traffic which in turn dependent on global economic conditions and container penetration levels. The success for players in the industry is highly dependent upon the location of the facility, infrastructure at the port and the ICD/ CFS, operational efficiency, relationships with shipping lines & CHAs and ability to offer integrated and customized services to clients.”

The Union Cabinet has proposed changes in the Multi Modal Transportation Goods Act, 1993, which includes nine areas where vital reforms would take place. One of key areas is the implementation of Direct Port Delivery (DPD) Scheme. The ministry has instructed all major ports to implement DPD facility though initially to Accredited Client Programmers (ACP) clients, and provide additional space for storage and clearance of DPD containers, which earlier used to be moved through CFSs. Though initial volumes have been very small at JNPT where the DPD facility was availed by 15 ACP clients, the cost and time benefits could attract more ACP clients to opt for DPD clearance. In terms of the impact of the proposal, K Ravichandran mentioned“While the increase in DPD model’s acceptance is a long term threat for the CFS business, ICRA research believes that CFSs can still be valuable if they tweak their business model to keep the interest of importers at the fore front, and allow traders to choose a CFS based on their convenience. Further, there will be services like consolidation of LCL cargo, where CFS would continue to be useful.”

 

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