Needs to catch up

Container traffic in South Asia has increased fourfold since the past decade, but logistics infrastructure has not geared up to support the rise in flow of cargo. South Asian economies need to put a concerted effort to resolve logistics issues that could have interrelated angles rather than implementing isolated measures

South Asia’s trade almost doubled in the past decade, with trade as a percentage of GDP increasing by 18 percentage points between 2000 and 2014. Trade accounted for a smaller share of GDP in South Asia (47 per cent) than in East Asia (55 per cent) in 2014. Since 2000 the region has also enjoyed the second-highest economic growth in the world (after East Asia), growing at an average annual rate of 6.8 per cent.

Since 2000, container traffic in the region increased by a factor of more than four. Capacity also increased, but it grew much more slowly than cargo growth. As a consequence of the growth in trade traffic, congestion at container ports across South Asia increased between 2000 and 2012. Ports have offset longer waiting times by improving the efficiency of their operations at the berthing stage. More efficient use of port facilities, together with improvements in the scale of operations,

were the main drivers of increase in total factor productivity (TFP) in South Asia. On average, South Asian container ports experienced the largest improvement in TFP among ports in the Indian and Western Pacific Oceans (80 per cent versus 55 per cent for East Asia) between 2000 and 2010.

Drivers for container throughput

South Asia’s share in global container port traffic has increased from 2.1 per cent in 2000 to 2.9 per cent in 2013. India is by far the largest container market in the region, moving about 10 million teus in throughput in 2013. Sri Lanka, whose market is dominated by transshipment, is the next largest player in the region, with throughput of more than 4 million teus. Pakistan (2.6 million teus) and Bangladesh (1.6 million teus) handle smaller volumes of cargo. Maldives handled less than 100,000 teus in 2013. The South Asian container traffic grew steadily between 2000 and 2013, increasing by a factor of more than four. Pakistan’s container throughput grew fastest, increasing at a CAGR of 15 per cent. Annual volumes rose 12 per cent in India, 10 per cent in Bangladesh, 9 per cent in Maldives, and 7 per cent in Sri Lanka over this period.

The drivers of container throughput in South Asia vary across countries. In Bangladesh export growth led largely by US and European demand for readymade garments has resulted in throughput growth via the Port of Chittagong and to some extent the Port of Mongla. In India growing exports and increased domestic demand coupled with the increasing involvement of the private sector in port operations has led to increased throughput. Exports of textiles are major drivers of increase in throughput in Pakistan, through the Port of Karachi and Port Qasim. In Sri Lanka productivity improvements caused in part by private sector involvement at the Port of Colombo have allowed it to capture growing volumes of transshipment traffic.

Tariffs and terminal handling charges at most large South Asian container ports are lower than those at ports such as Dubai, Salalah, and Singapore. But the indirect costs associated with delays play a more significant role in shippers’ port choices.

Private investment in port sector

The South Asian port sector attracted significant interest from private investors in the late 2000s. Between 2000 and 2014, the South Asian port sector attracted $10 billion in private investment commitments (16 per cent of all port commitments in the developing world). Two-thirds of the investment commitments during this period took place between 2006 and 2010, after the largest number of new projects reached financial closure in 2005.

Lagging behind in logistics performance

Despite this progress, South Asia’s economic competitiveness continued to lag behind that of other regions. South Asia ranks far behind East Asia and middle-income countries in logistics performance as tracked by the 2014 Logistics Performance Index, while according to Doing Business report by World Bank, the cost of exporting or importing a container in South Asia is more than twice the cost in East Asia. On average in South Asian countries, it takes 33 days to export and 34 days to import, effectively eliminating the time and cost advantages South Asia would have over East Asia on seaborne shipments to Europe and the East Coast of the United States.

These figures matter for South Asia, a region where 75 per cent of the international trade takes place by sea. Weak transport and logistics services, including slow expansion of port capacity, contribute to South Asia’s lack of competitiveness. Better port logistics in South Asia could help increase trade, diversify exports, attract more foreign direct investment and spur economic growth.

Despite improvements over the past several years, South Asia continues to lag other regions in terms of competitiveness. Countries in the region still lack the institutional, business, and investment environments as well as the infrastructure needed to compete in the global economy. The most recent Global Competitiveness Report indicates that of all South Asian countries, only India and Sri Lanka score above the global average on competitiveness. Inadequate supply of infrastructure ranks among the top 4 most problematic factors for doing business in all South Asian countries other than Sri Lanka, where it ranks 10th.

Transport and logistics are part of the reason for South Asia’s low level of competitiveness. For transport infrastructure, South Asia performs below both the global average and the average for developing countries in Asia.

Performance within South Asia

Average vessel turnaround time in South Asian container ports declined between 2000 and 2012, falling from about 2.3 days to about 2.1 days. Marked improvement occurred in the early 2000s, but it was partially offset later in the decade. Vessel turnaround in Chittagong (Bangladesh) and Kolkata (India) takes much longer than average in most years (more than four days). In contrast, ships spend only slightly more than a day at Colombo or Cochin.

Average pre-berth waiting times increased between 2000 and 2012, implying that capacity did not expand as much as needed to avoid increasing congestion. Many factors, including ship sizes, berth capacity, and operational efficiency, affect pre-berthing waiting time, which increased from 0.46 days in 2000 to 0.57 in 2012, having spiked as high as 0.76 in 2010. Although waiting times declined at some ports (for example, Chennai), they increased at most ports, with times at Kandla, JNPT, and Cochin rising most. Ports have offset the increasing pre-berth waiting time by improving the efficiency of their operations at the berthing stage. The average time ships spent at berth fell from 1.83 days in 2000 to 1.51 days in 2012. The average proportion of time ships were not being serviced while at berth (idle time at berth) fell from 23 per cent to 19 per cent. The decline in the share of idle time was most marked at Chittagong and Visakhapatnam; at only a few ports, such as Kandla, did the share of idle time increase. Karachi and Colombo have always had relatively low idle time ratios. The increasing prevalence of larger vessel visits could explain the pattern observed at Colombo and JNPT, where the time spent at berth increased even as the share of idle time decreased significantly.

The evolution of average turnaround time by country shows that South Asia comprises two very different realities, with Pakistan and Sri Lanka performing better than India and Bangladesh in terms of time efficiency. India is gradually losing competitiveness in terms of time, after improving at the beginning of the decade.

Performance across regions

An international comparison of average turnaround times, based on data from Lloyd’s List Intelligence for the months of May 1996, 2006, and 2011 reveals that despite improvements, South Asian container ports fell farther behind best international performance between 2006 and 2011. Most regions experienced remarkable improvement in operational performance between 1996 and 2011. Asia as a whole improved to levels similar to levels in Europe and North America. In contrast, performance in South Asia worsened, with its average turnaround time increasing from 2.06 days in 2006 to 2.39 days in 2011. This relative deterioration was driven by results at certain ports in India and Bangladesh. There was some convergence in the time ports take to service a ship, but no port in South Asia came close to the most competitive container ports worldwide, such as Singapore (0.5 days), Hong Kong (0.72 days), and Shanghai (0.79 days).

The role of hinterland and terminal operators

Inland connectivity between South Asian ports and their hinterlands is generally poor. All countries face congestion on roads and rail for inland cargo movements. All countries are trying to improve inland connectivity, but progress is slow. As a result, although inland markets are contestable in theory, competition in South Asia is more restricted than in more developed regions.

The need for comprehensive reform

The whole is more than the sum of the parts: Experience from across the globe, including South Asia, indicates that although isolated measures to improve port performance have positive impacts, a comprehensive approach that tackles several interrelated angles yields greater benefits. South Asian governments should thus adopt a wide-ranging approach that tackles several interrelated angles rather than effect isolated measures. The approach should strengthen governance of the port sector, allow the private sector to take responsibilities and risks it is better suited to deal with than the public sector, and foster competition where feasible.