Container Ports – Key Sector Trends

Saurabh Suneja

Tel: +91 11 42505163 (D), +91 11 26930117, +91 9910400494(M), +91 11 26842213 (fax)

Email: ssuneja@crisil.com

21st June 2010

2.

This presentation

• Trends: Indian ports, container traffic growth and

drivers

• Capacity outlook: things are looking up

• Constraints: old; more pressing; and some emerging

caution points

3.

Traffic Snapshot (2009-10)

518 530 561

203 202266

0

200

400

600

800

1000

2007-08 2008-09 2009-10Major P orts Minor P orts

• Port Traffic grew at 10%

between 2004-05 and 2009-10

– Traffic at non-major ports grew at by

~7.9% for major ports ~ 14.2%

– Commodities: dominant share of POL,

followed by IO, containers and Coal

– Growth in major and non-major port

traffic since 2004-05 driven by

Containers (@ 15.8%), PO

– Traffic growth for major and non-

major @ 13% between FY 09 and

FY 10

• Capacity utilization levels

peaking for major ports: ~95%

– Minor ports utilization at 68%

Traffic growth

POL

Iron Ore

4.

Container traffic: Recent volatility, but strong growth fundamentals

21.00

22.00

23.00

24.00

25.00

26.00

27.00

28.00

Apr-Jun 09 Jul-Sep 09 Oct-Dec 09 Jan-Mar 10 Apr-June 10

• Recent volatility: Low / flat container traffic in 2009, Q1 2010

• Growth fundamentals continue to remain robust

– Growth in merchandise trade (WB expects merchandise exports to grow @

20% and 17% for FY 11 & FY 12 respectively)

– Growth in containerisation

Quarter wise container traffic (MT)

5.

Container traffic: strong outlook

0.00

50.00

100.00

150.00

200.00

250.00

2008-09 2009-10 (E) 2014-15 (P)

• Expected growth @ 11.2% CAGR to 195 MT by 2014-15

– Although growth not as high as in the past 5 years

• Commodity drivers:

– Imports: capital goods (driven my infrastructure growth)

– Exports: Textiles and food grains

11.2%

Expected container traffic growth (MT)

6.

Recent developments – select projects

Gangavaram: Coal +, 2008

Krishnapatnam: Coal, IO, 2008

Karaikal: Coal +, 2008

Select recent projects

and expected

dominant

commodities

• Recent capacities added to minor ports

•Dominated by bulk capacities on the east

coast

Jaigarh: Bulk (coal +), Gen, Container

7.

Huge capacities planned for non-major, major ports

8.

Select upcoming projects - large capacity expansions

Paradip: Award of IO and coal terminals

• Large capacity expansions underway: projected addition ~ 700 MT (*as of July 09)

– Expected both for major and minor ports

– Key drivers: Container demand, coal imports for power gen

– LNG capacities expected in western ports on the back of improved gas grid

• Confidence wrt. projects coming up

– Projects at major ports are at advanced stages of development

– Many minor ports projects at existing ports and capable developers

Valarpadam: Cont. - dev. by DP World

M’goa: Coal & IO

Mum: Offshore cont. (Gammon +)JNPT: 4th cont. term.

Mundra: Coal; SPM

Dahej: LNG jetty

Ennore: Coal terminal

Krishnapatnam: Phase 2 expDighi: Coal & cont.

Chennai: 2nd cont. terminal (PSA Sical)

CONTAINERSBULK

Dhamra: Coal +

9.

Select upcoming projects – PPPAC approval

Paradip: Multipurpose to handle cargo & containers

Container projects in major ports – recent PPPAC approval obtained

JNPT: Standalone Cont. Handling

New Mangalore: Container terminal

Chennai: Mega Container Terminal

Tuticorin: North cargo berth II

10.

Outlook: Project flow expected to look up

• Investments have been already happening on minor ports

– Strong minor ports capacities in Gujarat; AP and Orissa are catching up

• Projects flow for major ports has been subdued for various

administrative reasons

– Delay in finalization of new MCA

– Time taken for clearing tariffs for new projects as per 2008 TAMP guidelines

• But projects flow is looking up

– Projects under process: JNPT 4 under bidding, Chennai mega container

terminal, Tuticorin berth No. 8

– The PPPAC approved 8 projects during Oct 08 – Nov 09 with expected

project costs of INR ~ 11 thousand crores

– 4 projects for INR 4,179 crores under consideration

11.

Non-major ports: growth in share to continue

• Consistent growth in market share: Traffic share grew from around 27%

in 2005-06 to ~ 32% for 2009-10; 11.5% share of non-major ports in container traffic

• Majority of recent capacities in non-major ports

• Rise in expected share beats past forecasts

64%

36%

Expected share in Capacity at 36% as per 11th Plan

0

200

400

600

800

1000

1200

2008-09 2013-14Major Ports Non-Major Ports

Share in traffic expected to grow to 42.2% for 2013-14

12.

Capacity utilizations to ease

• Overall utilization levels would come down from the present

~85% to ~73%

2008-09 2013-14 (P)

Major ports ~95% ~74%

Non-Major

ports

~68% ~72%

Current and expected capacity utilizations

13.

Minor ports to gain share in container traffic

• Container traffic at non-major ports projected to grow @ 27% against

10.5% at major ports

• Growth in traffic at non-major ports in line with available free capacity –

container capacities coming up at the non-major ports of Pipavav, Hazira,

and Dighi will drive higher growth / share

Container traffic – expected growth (MT)

0.00

50.00

100.00

150.00

200.00

250.00

2008-09 2009-10 (E) 2014-15 (P)

Non-Major

Major

Non-major: 27%

Major: 10.5%

167

43

195 MT

14.

Issues

• Container ports efficiency: Many old constraints remain

– Issues related to mechanisation have been largely resolved in cases of large privately operated terminals

– Congestion issues remain due to very high capacity utilisation (e.g. JNPT)

– Lingering constraints of: Shallow draft at major ports, poor hinterland connectivity

• Delay in development of many announced projects

– delays in environmental clearance, problems with financial closure

• Bringing bankable projects to market still the biggest hurdle

– Reliance on private investment for capacity ports dev. is huge: ~USD 14 Bn

– Poor project preparation, unattractive packaging lead to delays at procurement and post award stages

– Some minor port projects have highlighted systematic gaps in site selection: environmental issues, unfavorable soil conditions etc.

– Administrative, policy change issues

15.

Concerns / Caution points (Observations from recent projects)

• Concerns over traffic

– Merchandise trade growth dependent on health of global economy – not out of

the woods yet

– Key concern for new projects, difficult financial closures for borderline projects

• Differential royalty structure in minor ports adversely impacts the

economics of new port developments

– Operational ports already have a first mover advantage

– May delay investments / reduce competitive position of newer developments

– Are recent bids too aggressive?

16.

Summary

• Traffic flow has started to look up after a brief depression

– Growth fundamentals remain strong

• Trends from traffic and capacity addition expectations

– Trend towards minor ports gaining market share will continue

– Capacity utilisations shall ease, balance in favour of minor ports

• Sector is poised for growth and investments

– Healthy pipeline of under development, awarded, and approved projects

– Many minor ports are sitting on potential for capacity ramp up and have

robust development plans, major ports projects flow will go up

– But hinterland connectivity constraints and some other issues will need

to be managed

17.

CRISIL Risk and Infrastructure Solutions Limited

A Subsidiary of CRISIL Limited, a Standard & Poor’s company

www.crisil.com