Through the recently detailed mechanism of sharing incentives with shippers, the Ministry of Shipping aims to insulate the growth of coastal shipping from the challenge of reducing cost overheads. For the challenge of invigorating demand, the ministry has set well-defined goals and timelines. Its holistic approach, learning from past mistakes and prompt policy action bode well for a potential $3-5 bn coastal shipping business in the making.
Big thrust to coastal shipment of select bulk commodities, automobiles and container cargo: A recent release of the Ministry suggests giving large incentives for coastal shipment of select cargo classes. The aim is to incentivise a shift to coastal mode of transport by compensating for first and last mile transportation. The incentive is large for automobiles and select bulk commodities in food-grains and fertilisers. The scheme does not apply to established coastal cargo classes of coal and POL, which account for the majority of present coastal cargo. The success of the scheme will depend on incremental funds put aside for it as the current quantum of R2.9 bn is just about adequate for the current 5-6 m tonne of coastal cargo throughput of applicable cargo classes.
Cost overheads of port infrastructure and evacuation to be addressed separately: In an earlier release, the Ministry extended the Central Sector Scheme to include capex for setting up exclusive coastal berths at ports. The incentive appears reasonable given the limited length and draft requirements for a coastal berth. The issue of evacuation is also being addressed by setting up the Indian Port Rail Corporation Ltd (IPRCL).
Deadlines set for invigorating demand: To address the issue of invigorating demand, the Ministry has shared a set of initiatives with deadlines. Key initiatives include allowing Indian flag vessels carrying domestic cargo to take cargo from neighbouring countries (Dec-2016 deadline) and setting up an e-platform for aggregating demand for cargo (Jun-2017 deadline). Both these will work well for incentivising the shifting of containerisable cargo to coastal route.
Listed beneficiaries: The key beneficiaries of an uptick in coastal shipping include (i) Shreyas Shipping (Mcap $90m, NR), a play on domestic coastal shipping, where it is the market leader. (ii) Gujarat Pipavav (Mcap $1.3 bn, add) and (iii) Adani Ports (Mcap $8.5 bn, add). They are indirect plays on the uptick of coastal shipping for automobiles and coal respectively; each has sub-5% business exposure to such businesses, which can scale up meaningfully.
