India: The big fight for port cargo


The controversy over the functioning of stevedores and on-shore cargo-handling agents who load and unload bulk cargo onto and from ships at the non-mechanized berths at the 12 ports owned by the Indian government is primarily the outcome of a rivalry between these agencies and private firms that are given cargo-handling projects and terminals through the public-private partnership (PPP) route on a build, operate and transfer (BOT) basis for 30 years.

It is essentially a fight for cargo (mainly bulk cargo and not containerized cargo) between two types of service providers at the dozen ports—one who has invested thousands of crores cumulatively over the years to set up modern terminals only to find the other—who did not invest any money—being patronized by exporters and importers because the common user facilities of state-owned ports from where they operate have much lower rates compared with the PPP berths.

Since the late 1990s, the dozen state-owned ports have been mechanizing their existing berths or building new berths with the help of private funds as part of a plan to exit cargo-handling due to a cash crunch and become so-called landlord ports (those who own land and basic infrastructure, leaving cargo-handling to private specialists in the field). In parallel, these ports also run berths which are open for use as common user facilities that are not mechanized where importers and exporters are permitted to handle their cargo by engaging various service providers such as equipment providers, transporters, handling agents and stevedores.

Both warring groups attribute the issue to the vastly different terms and conditions set by the government for their operations, which they say hurt their business, prompting calls for a level playing field from both sides. The problem is acute at ports where mechanization has been much less such as Kolkata, Haldia, Paradip, Kandla and Tuticorin.

Stevedoring firms—which load and unload cargo manually to and from ships at non-mechanized berths—buy annual licences from the port authorities by paying a paltry sum. On average, there are at least 50-80 licensed stevedores operating at each of these ports, resulting in stiff competition among the service providers and lower rates for exporters and importers.

After issuing licences, port authorities have no role to play in their functioning because the stevedores are engaged directly by exporters and importers based on competitive quotations. They are paid by the exporters and importers who hire them but none of this money is shared with the port (that has invested money in constructing the berths) by way of royalty or revenue share as in PPP projects, leading to charges that the ports are losing money because of the way licences are sold.

After the cargo is unloaded from a ship by stevedores and put on the wharf, it has to be taken to the stockyards and from there to railway wagons and trucks for transporting to final customers. This work is done by on-shore cargo-handling agents. As exporters and importers prefer to deal with a single agency for stevedoring, shore handling, storage and forwarding, many firms provide the entire spectrum of services. While stevedores are licensed, on-shore cargo-handling agents are not; but the rates of both are not regulated by the port tariff regulator, which is a statutory requirement.

The PPP terminal operators that are contractually mandated to share a certain percentage of their annual revenue (20-55%, depending on the project) with the government-owned ports discovered through a competitive process, consider stevedores and on-shore cargo-handling agents as “direct competitors” with which they are finding it difficult to compete due to the lack of a level-playing field—stevedores and shore handlers don’t pay royalty and don’t share revenue with ports.

PPP terminals are bound by minimum guaranteed volumes and productivity parameters on berth and equipment written into their contracts, which are not applicable to stevedores and on-shore cargo handlers.

The debate strikes at the very base of the privatization programme pursued by the dozen state-owned ports since 1997. Private terminal operators argue that state-owned ports operate common user berths at a lower tariff than a BOT operator, not because of operational and managerial efficiencies but because of this unaddressed situation, thereby creating detrimental circumstances for BOT operators that are in fact their partners, sharing revenue.

Rates at the common user berths, terminal operators claim, are “artificially lower” because they (state-owned ports) don’t include cargo-handling charges levied by stevedores in their proposals filed with the Tariff Authority for Major Ports (TAMP) for setting tariffs, a fact that has been conceded by the state-owned ports.

Moreover, TAMP has been denying tariff increases to state-owned ports, resulting in low rates at the common user facilities and the stevedores and shore handlers taking advantage of the market situation to offer very low rates to users. Due to the artificially lower rates, state-owned ports are unable to generate adequate internal resources to help upgrade existing port infrastructure such as rail and road connectivity and development of storage plots.

This has also affected the volume of the BOT terminals operating at state-owned ports, private terminal operators say. Hence, BOT operators want the government to bring stevedores and shore handlers also under a royalty/revenue share format to create a level-playing field for all.

The state-owned ports, they say, should also give maximum cargo to PPP berths to ensure they operate to their fullest capacity and only spill-over cargo should be diverted to their own berths.

However, stevedores and shore handling agents say many PPP contracts in ports such as Kandla and Haldia have collapsed in the past two years because they could not even handle the minimum guaranteed cargo volumes stipulated in the contract as customers stayed away from such facilities due to higher rates.

To be sure, breach of contractual obligations by state-owned ports also contributed to the collapse.

If the government wants to adopt revenue-share as a matter of principle for stevedores and on-shore cargo-handlers, then a simple way out is to exempt all service providers from using and paying for port services and port infrastructure to put both groups on par, conventional cargo-handlers argue.

Time has come for the government to settle the issue once and for all.–Shipping Tribune