Discussion on our assignments

A quick analysis of the latest half yearly data seems to indicate that the trade slowdown is finally here in India. The traffic at all the major ports has started to stagnate following the global economic slowdown that has impacted the global trade.

As per our latest analysis based on half yearly data, traffic at all the major ports which saw an impressive year on year growth of 12% in 2007-08 has grown moderately at 7% in 2008-09. The following table exhibits these facts.

As per our analysis of the latest data available, all major ports with an exception of Kandla port trust has shown a slowdown in traffic. Infact ports like Mumbai Port Trust and Cochin has shown a negative growth rate while ports like Haldia and Ennore have stagnated at FY08 levels.

Kandla is expected to emerge as the largest cargo port in India followed by Vizag and JNPT. Infact the half yearly box traffic at JNPT has grown with a moderate growth of 9.9% in FY09. It would be prudent to remember that the same terminal handled around 4.06 million TEUs in FY08 with a growth rate of 23% over previous year.

According to latest interviews conducted with an official in a port authority, the impact on the overall traffic at all the major ports could be even great in the next half year. So that’s the information part of it, how about some action now!! We have been advising various stakeholders on various models of profitability during slowdown (shall I call it a recession?) and trust me, it’s a great learning experience. Perhaps I will share it in my next blog.

Transshipment is broadly defined as the act of shipping containers to an intermediary destination prior to reaching their eventual destination. Typically (though not always) transshipment of containers is the most economic option for the shipping lines to move containers from one point to another.

There are various terminologies that have been floating around in the container domain and I intend to use this forum to educate readers on the same through analogies:

A container typically travels through various modes encompassing our definitions of Transit, Interlining, Relay and Feedering. Similarly a passenger also uses various modes for his movement.

The underlying criterion in both these cases is to achieve combination of cargo safety, optimal cost and time or it may be euphemistically called as ‘better service’.

For Mumbaikars - May be!!

India and China unarguably are the most promising economies in the coming years. They share at least two characteristics: Both have population of more than billion people and most importantly, both have vast and expanding ‘skillful’ labour base. Moreover, both the nations share same ideologies and have their respective civilization going back some 5,000 years.

China and India both have shown remarkable economic growth in the past few years. However, when it comes to seaborne trade the Chinese are far ahead than India. Infact there exist a lot of differences between the two Asian giants. For e.g. the overall seaborne trade of China was almost 10 times that of India in the year 2007. The container trade of China was staggering 16 times of India in the same year.

China has about 18,000 kms of coastline with almost 1,400 ports, which means on an average a port at almost 13 kms of coastline whereas India has 7,500 kms of coastline and nearly 200 ports implying on an average a port at 37 kms.

Six of the container ports of China are among the top 20 world class container ports and the overall container traffic handled by China stood at nearly 114 million TEUs whilst for the whole India it stood at 7 million TEUs.

The main reason that can be attributed to the Chinese story is that Chinese economy opened as early as 1978 whilst in India it was in early 90’s. Also, the growth story of China is more on the shoulders of manufacturing and trade whilst for India it depends more on services.

The other reason for this difference is the fact that the processes in India are slow with more of the policymaking regulatory functions in the port sector being centralized whereas in case of China it is more decentralized. The port reforms in china were more encouraged by private partnership and foreign investments, affecting the overall trade picture.

Another reason is port induced infrastructure. Chinese were able to connect and improve their overall connectivity not only in terms of road and rail but also the inland waterways and airports making them an international destination base. India lags in this regard.

Other differences include the overall approach of the Indian and the Chinese governments. For e.g. In China SEZ’s were seen as test reforms which were ultimately adopted nationwide while in India SEZ’s are not regarded as reforms but just another means.

The port sector development in India rests on the overall development and more of the private participation which will bring in more authority and decision-making capability. Moreover, the government should act as a supporting authority in developing the ancillary infrastructure rather than the governing body.

No doubt that India can have its own share of pie and become comparable to China but for the fast paced development, the emerging Asian monster needs to look deep inside its policy making and overall decision making process.

From the time Noah built the ark, the shipwrights have not had much chance for innovation. The archaeological findings from Egypt show 75 feet long vessel hulls being built in pits (dry-docks for modern man) as early as 3000 BC. Even the floating dry-docks (tidal docks) were built in 2500 BC by none other than Indians.

The Harrappan civilization used shipbuilding as a strategic industry by building boats for foreigners (like flotillas for Alexander the great) and exporting teak for shipbuilding to Persia as well. Since then, there have been numerous changes in the type and style of vessels but the basic shipbuilding process has remained the same. We still dig pits, build the vessels therein and flood them out to sea.

Rolls Royce has suddenly changed the entire commercial ship-building landscape with its new ship-lift and transfer system. The shiplift is designed on the basic principle that a vessel requires floating only for a few hours after the months of building that goes into it. Using the shiplift and transfer system, the vessels are built on the numerous building berths and then floated out to the wet dock using the ship lift. The shiplift literally lowers the vessel into the sea via a lift run by hoists (ref the drawing below).




Some of the obvious benefits of shiplift include reduction in dry-docking time, multiple ship buildings with same initial capex, ultra easy capacity enhancement and even distribution of load on the building berth resulting in large savings in civil construction costs.

Though the concept has been here for some time, we have just started seeing it being developed for large and ultra large commercial vessels. If Indian shipwrights start looking at it seriously, it just might give them the extra advantage vis-à-vis the old Korean and Chinese yards and tilt the balance in their favor.

In the ‘India Inc Investing: a mid-year report 2008’ released by the Assocham in mid September; ports and shipping industry sectors were found to be among the most unattractive for Indian investors. It was found that FDI and PE inflows into these sectors as well as retail and FII trade volumes in the stocks were remarkably low. The reason identified were the usual policy and taxation issues, volatility etc. However, industry leaders, including INSA, were of the opinion that having a separate shipping index on the key bourses was likely to increase investor interest in stocks. This could also lead to more visibility and therefore help in attracting investments.

Whether such an index would actually lead to increased visibility and in turn attract investments needs to be determined. And historical analysis is as good a tool as any. So, an index of shipping, shipbuilding and other maritime companies was conceived, in the same model as Sensex, to see how the index would have performed against the market.

For the readers who are unfamiliar with the market index here is a brief overview. The market indexes (Ex, SENSEX, NIFTY50 etc) give an overall picture of the markets’ performance. They reflect the performance of a select group of shares chosen from across industry verticals and capitalization(s) (to accurately reflect the market), weighted by the respective number of shares available for trade in the secondary market. So if the representative index goes up, it can be inferred that in general the share values went up. For a more detailed picture please visit this web page. I intend to follow a similar approach to determine the shipping index.

The proponents of capitalism have also upheld the efficiency of the market to incorporate developments and expectations. Though it is too soon to predict the efficiency of the proposed index to do so, over the months the index might be expected to predict the course of the maritime industry in the country.

One of the other benefits mentioned by the INSA officials in developing a shipping index was the ability to generate investments. While, the role of an index in attracting investments is not clearly defined, one can compare monthly FDI inflows in the market to that in the maritime industry for similar growths and determine if there is a significant difference in the behavior historically. This should at least let one determine correlation the maritime industry in India has with the market.

Over the next few posts, this column will be defining the shipping index, determining the benchmarks, identifying the companies that should go into the index and provide the comparative performance of the shipping index with respect to the market (Sensex). I invite you all to provide suggestions to make the index more robust.

So keep your glasses ready, we will be “breaking the bottle” next time!!