Executive Summary
Development of Coastal Shipping and Minor Ports
• Coastal shipping has several inherent advantages over other modes of transport such as road
and rail. It is fuel efficient, environment friendly, can ease traffic congestion and arrest the
loss of human lives due to accidents.
• Several coastal countries are making optimal use of this mode of transport. In the European
Union, for example, coastal shipping has an enviable 43 percent modal share in tonne km,
which is set to increase further.
• Inspite of India’s long coastline of 7517 km dotted by 12 major ports and 185 minor ports,
coastal shipping in the year 2001-2002 moved only 63 btkm of cargo, which represents 7
percent of the total domestic cargo moved. India’s coastal fleet excluding offshore supply
vessels (OSV) increased marginally from 0.47 to 0.60 million gross tonnes (GT) during the
last ten years.
• This study attempts to analyse the factors that have stymied the growth of coastal shipping in
the country and outlines the long and short-term strategic and policy measures required to
develop coastal shipping. The emphasis is on utilization of minor ports and diversion of cargo
to the extent feasible from other modes of transport.
• Coastal shipping has since 1950’s been plagued by several constraints notably the following: -
(a) Absence of any institutional mechanism to encourage and promote inter-sectoral coordination
and periodically disseminate information about the industry’s attributes including its cost
saving potential in terms of energy conservation and environment friendliness, etc.
(b) High tariffs particularly cargo handling in ports.
(c) Poor rail/road connectivity between ports, rail/road terminal and cargo generating centers in
the hinterland.
(d) Poor state of infrastructure and large inventories of dysfunctional equipments in minor ports.
(e) Peripheral involvement of Maritime States in the development of coastal shipping industry.
(f) Disproportionately high bunkering costs for coastal vessels.
• Economic reforms introduced since July 1991 have pushed up the GDP growth to an annual
average of 6-6.25 percent in the last 10 years. This in turn has influenced the growth of
overall transport demand at an average annual rate of 8.5 percent. Inspite of several adverse
economic and other developments worldwide the export sector notched up an impressive rate
of growth in the last fiscal (2002-03) of 21 percent. The economy is now chasing a target of
one percent of total global trade by 2006.
• The two crucial sub systems of transport viz. rail and road are highly congested and give rise
to myriad problems including escalating social costs. Economic losses due to congestion and
accidents on roads are estimated to result in the loss of around Rs.400 billion annually.
Currently, the national transport system handles 870 billion-tonne kilometer (btkm) of freight
and 2,450 billion passengers-kilometer a year. The freight demand is expected to grow to
1,800 btkm by 2012. The two sub systems can respond this formidable challenge adequately
and effectively, provided the infrastructure capacity in both the modes is expanded without
delay to the projected levels. Given the present state of the economy, however, this would be
a tall order.
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• Coastal trade is an integral part of the national trade. Undoubtedly it is expanding. It is also
true that in patronizing these two modes of transport the trade often has to contend with cost
and time overruns largely because of the capacity shortages in the two systems. Coastal
Shipping could have shouldered added responsibility with ease and efficiency if only it had
developed at a relatively faster pace in the preceding years. The total coastal traffic
throughput of all ports for 2002-03 was 116 Million Tonnes which is about 28 percent of the
total traffic - 84 Million Tonnes was handled at major ports, 22 Million Tonnes by Gujarat
Maritime Board (GMB) ports, and 10 Million Tonnes by others. Traffic carried over long
distances was mainly bulk and captive cargo with general cargo accounting for less than one
percent share.
- Major Ports handled 73 percent of the coastal cargo, which was largely made up of crude,
POL and coal with Vizag, Paradip, Mumbai, Ennore and Haldia handling more than 64
percent of the coastal cargo serviced at all major ports.
- Minor ports between them handled 27 percent of coastal trade of which POL, cement,
building material and iron ore accounted for 90 percent. The GMB ports of Sikka, Magdalla,
Jafrabad, MulDwarka and GPPL handled more than 90 percent of coastal traffic of Gujarat
State, which represents 72 percent of the overall coastal traffic serviced by minor Ports. Other
maritime State Ports of Rawa, Dharamtar, Ulwa- Belapur, Revdanda, and Panjim handled
more than 75 percent of the coastal cargo of non-GMB ports. Non – GMB ports notched a up
28 percent share of the total cargo of all minor ports.
- The time series data for the last decade shows that coastal traffic has been growing annually at
around 4.5 percent at major ports and 20 percent in minor ports. Traffic in GMB ports
increased from 6.3 Million Tonnes in 1997-98 to 22 Million Tonnes in 2002-03. The trend
analysis shows that coastal traffic would increase from 116 Million Tonnes to 220 Million
Tonnes by end of the 11th plan period (2012).
• The major ports would, the Consultants fear, not be able to sustain higher rates of traffic
growth if the contemplated programs for capacity augmentation including 15 Million Tonnes
on account of increase in productivity do not materialise. What compounds it is the upward
climb of international trade in the wake of international development including demolition of
non-tariff barriers and rationalisation of Customs duty under the WTO auspices. Given this
the major ports’ preoccupation with international trade will influence increase in coastal
vessel operations. The coastal trade will have to increasingly lean on minor ports for servicing
their incremental needs. In our view, if the tariff in minor ports for coastal trade is
rationalized, patronage of coastal vessels will also increase over time.
• The Consultants have extensively examined the scope for diversion of traffic from rail and
road modes. Even if things stand as at present 4 Million Tonnes of traffic annually can be
diverted to coastal shipping from these modes without any increase in transport costs.
Furthermore, if concessions on proposed lines are extended to this industry and other
recommendations also outlined in the report implemented this coastal traffic (diverted) may
grow upto 10 Million Tonnes by 2012.
• The total cargo moved by IWT in 2002-03 was about 2 Million Tonnes, which is 1.5 billion
tonnes km or 0.15 percent of the total inland cargo.
• The IWT also has considerable untapped potential. It holds promise of its emergence in future
as a credible mode of transport. The two institutions are presently involved in its
development, with all that IWT has not shown any appreciable progress because of several
operational and other constraints haunting it.
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• Connectivity is important for development of coastal trade. With the ongoing schemes for
development of roads like the Golden Quadrilateral and East-West-North-South corridors the
situation will ease. This will give the desired momentum to the program for development of
rail / road links with the traffic originating centres in the hinterland.
• Coastal vessel operators may be encouraged to introduce liner services between select ports in
the interest of speedy movement of general cargo and development of coastal industry as a
whole. Voyages with multiple ports of call and availability of liner services would enhance
coastal shipping development and also ensure its uninterrupted growth in future years.
• The hub and spoke Concept may be promoted quickly to attract transshipment traffic back
into the country and thus save the national economy from a recurring loss of around Rs. 600
crores annually on cargo handling alone.
• Some key recommendations are:
(a) To guide the growth and development of coastal shipping in future an institutional
mechanism with a special cell under Directorate General of Shipping and an Empowered
Committee under the Ministry of Shipping may be setup.
(b) The Central Government may consider financing the development of basic infrastructure (for
rehabilitation) for nine minor ports. This includes capital dredging, breakwater, berths, back
up areas and wharves. The Consultants believe that this approach would help generate
interest in the private sector for it to come forward and participate in the task of development
of the remaining facilities making these ports fully operational. As a logical corollary to it,
the private sector may come forward to operate these facilities on lease basis or as joint
venture.
• The ports are:
1. Gopalpur
2. Cuddalore
3. Vizhinjam
4. Azzhikal
5. Malpe
6. Karwar
7. Ratnagiri
8. Dharamtar
9. Magdalla
Their eligibility may further subject to corporatisation and commercial operations by the
investor operator on his own or in collaboration with the concerned maritime state
government.
(c) This set of ports will be the forerunner of another program for developing likewise second set
of ports that may be identified for meeting the future traffic needs as and when the demand
for port facilities in these ports crosses the 50 to 60 percent capacity utilisation level.
Pursuant however to the suggestions voiced at the Stakeholders’ Workshop on 17th
September 2003 and final meeting of the Steering Committee on 25th November 2003, the
Consultants have identified second set of fifteen ports from the mathematical model as
explained in the report.
(d) An autonomous body should be created at the state level to ensure that the funds are used for
the development of minor ports only. An MOU between MoS and respective State Ministries
concerned with the development of minor ports may be signed for transferring the funds to
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an Escrow Account created in any public sector bank or institution based bank nominated by
an autonomous body.
(e) The monitoring of the project implementation and quality control may be done by
Independent Technical Consultants appointed by State Maritime Boards/Director of Ports
and approved by DGS. The progress of the projects to be monitored by DGS on quarterly
basis.
(f) The import duty on bunkers and on capital equipment and spares required for vessel may be
waived to encourage the growth of coastal vessels.
(g) Demand side incentives to registered multi-modal operators and shippers may be allowed a
deduction from taxable income based on traffic volumes they moved through coastal
shipping, calculated by multiplying the tonne km moved by coastal shipping on a given rate
fixed on per tonne basis. Alternatively a surcharge may be imposed on modes of transport
having negative social and environmental impacts.
(h) The Empowered Committee may forward the recommendations to the respective Ministries
for diverting its own cargo to coastal shipping to the extent feasible wherever it is
economically viable.
(i) Integration of coastal shipping and inland waterway transport may be promoted at Haldia and
Kochi where basic infrastructure is available. Infrastructure to be created at Neendakara and
TT Sheds at Kolkata for such integration. Sufficient draft to be provided in NW3 at
Neendakara for berthing of coastal vessels of upto 3.5 m.
