India sourcing boom drives US import container growth

India is finally becoming the manufacturing power and sourcing alternative to China that it has long promised to be, shifting container lines' focus and capacity even though port infrastructure there has only improved spottily.

Growing US import volumes from India and a rising share of inbound containers coming from the South Asian powerhouse, coupled with a surge of investment from major big box retailers and manufacturers, suggest a tipping point is in the works. Firm signs are coming from manufacturers, with Tesla following the likes of Apple and Samsung with a $3 billion electric vehicle plant, after waffling on its investment commitment for years because of import customs duty concerns.

In parallel, North American retailers are shifting their focus to India and sometimes to the detriment of China, as in the case of Walmart, according to a data analysis by Reuters. That trend is mirrored by other retailers, such as Five Below, which opened an office in India last year to manage its sourcing from some 50 factories.

"It's another example that will help us innovate," Five Below CEO Joel Anderson said in late November during a third-quarter earnings call. "It will help us move faster. It will help us keep costs down, and it really starts to spread out our supply to other countries."

India now?

For two decades, India has been heralded as the next global manufacturing powerhouse, only to be outshone in trade diversification initiatives by Vietnam, and more recently by Mexico, for shippers looking to source closer to North America. Bureaucratic hurdles, protectionist policies, labor costs and the vast disparity in port and inland supporting infrastructure have kept pushing back the diversification dream.

Nevertheless, there are now clear signals that India is beginning to hit its stride, as evidenced by an analysis of laden containerized imports over the past 20 years. The share of imports at US ports originating from India has been steadily rising, albeit modestly from 3.3% to 4.1% within that period, according to data from PIERS, a sister company of the Journal of Commerce within S&P Global. That is still a minuscule slice of the pie, compared with China's share of nearly 40% in 2023, and trails Vietnam's share of some 8.7%, which has more than doubled since 2013.

Still, even marginal shifts away from China translate into significant volumes for ocean carriers and ports, particularly those on the US East Coast, which are geographically better positioned than West Coast counterparts to receive the eastern shift of trade away from China. East Coast port directors expect continued growth, partly thanks to the relatively shorter transits via the Suez Canal — in the normal course of events — to their docks.

Over the last decade, US imports from India have doubled, to the 1 million TEU range, with East Coast ports reaping the largest gains. Containerized shipments from India to the US East Coast swelled 132% over the last 10 years. The Port of New York and New Jersey is by far the largest benefactor, handling nearly 300,000 TEU in 2023, followed by the Port of Savannah, with 170,000 TEU and the Port of Virgina, at 155,000 TEU, according to PIERS.

Expanding port stakes

Container lines are expanding ocean services and bolstering their presence on land to capitalize on the inbound momentum from India. Next month, Ocean Network Express (ONE) launches its first standalone container service to the US East Coast from India's west coast ports of Hazira, Nhava Sheva and Mundra, with HMM securing slots on the new loop.

In December, Mediterranean Shipping Co. (MSC) consolidated its marine terminal profile in India by acquiring a 49% stake in the Adani Ennore Container Terminal, near Chennai, for Rs. 247 crore ($30 million). This added to MSC's 50/50 terminal joint venture with Adani Ports (APSEZ) at Mundra Port, with the largest market share there, and its 49% ownership of a container terminal at Tuticorin Port (South India) that came through the Bollore Africa deal in 2022.

CMA CGM and Hapag-Lloyd are also targeting Indian port opportunities. CMA Terminals, which has had a terminal partnership with APSEZ at Mundra since 2017, recently secured concession rights for the oldest container terminal at Nhava Sheva Port (JNPA) in a partnership with Mumbai-based JM Baxi Group.

Last year, Hapag-Lloyd snagged 40% of JM Baxi Ports & Logistics — having a growing business line for logistics verticals — to pursue investment interests beyond port-to-port shipping out of India.

AP Moller-Maersk also has a significant footprint inland in India, with marine terminal operations at Nhava Sheva and Pipavav, as well as a growing network of CFSs and multi-product warehouse depots as it pursues its container integrator strategy. The Europe-based carriers join the likes of OOCL and APL which have invested in rail services and container freight stations for nearly two decades.

Moreover, niche regional carriers are enhancing intra-Asia networks to support rising Indian manufacturing as local importers mostly lean on the Chinese market for inputs and also spot an opportunity to turn out finished products in the longer term. The latest capacity push comes from a three-member consortium led by Wan Hai Lines, which will begin a Southeast Asia-West India connection — branded as the SI8 — from the end of April.

That market potential has also prompted mainliners to invest in standalone services connecting Indian ports to major Asian destinations. CMA CGM in late 2023 opened a direct West India-China string, known as the Asia Subcontinent Express 2, while ONE also recently added a link to Singapore out of Cochin (South India) for transshipment trade, to cite a few examples.

Still catching up

India's ability to deliver reliably and consistently to containerized supply chains remains a "work in progress" for it to catch up with the speed and efficiency offered by its Southeast Asian counterparts, much less China.

Port performance at major Indian ports, for example, show some modest improvements over the last year, but also the gulf between other Asian ports. Port moves per hour (PMH) one indicator of port performance, has steadily improved at Jawaharlal Nehur Port, bringing it in line with Mundra, according to the S&P Port Performance Program. The duo, however, still lag that of Cai Mep, Ningbo, Singapore and Yanghsan when measured by PMH.

There can be a wide divide in the performance of private and publicly run ports, with the former meeting higher safety, environmental and efficiency standards, and the latter lagging, according to a veteran marine terminal operator familiar with port operations in India. Public ports can also enjoy stronger rail support than their private counterparts, while those private ports with Indian origins are able to navigate the market better, said the terminal operator who asked not to identified.

India's port connectivity networks also still need a lot of shoring up to support the expanding manufacturing landscape, while New Delhi has prioritized harbor improvements over the past years through private participation, with the Adani Group leading the pack.

On the landside, long-delayed dedicated rail corridors — designed to connect northern hinterlands to ports on the east and west coasts — are building some excitement among container train operators fighting to draw more freight away from road haulers. Being an all-broad-gauge network, freight-only connectors, which are nearing full-scale operations in stretches, boast train speeds up to 100 kilometers per hour. That would enable trains to potentially make the Mundra-North India trip in about four days, versus five days or longer under conventional routes. The dedicated trains would also enable larger loads.

Capitalizing on growth

Notwithstanding the efficiency gaps on a broader comparative basis, cargo flows in and out of major Indian ports are generally brisk, thanks in large part to digital solutions and growing intra-port competition for market share gains amid muted demand conditions.

That effort has yielded positive results for Indian docks — shortening container dwell times to three days and trimming the time spent by a ship to turn around to less than a day, on average, according to the World Bank's 2023 global logistics performance report.

Adani's flagship Mundra is an outlier among Indian ports in its ability to handle mega-ships, driving volumes at a strong pace, up 12% year over year to 7.4 million TEUs in fiscal year 2023-24 that ended in March. Nhava Sheva, once the market leader, increased volumes 6% to 6.4 million TEUs. For the near term, India has some surplus container capacity in hand — pegged at between 32 million to 33 million TEUs, against 20 million TEUs handled nationwide.

Those port numbers are in no way comparable to the mammoth volumes passing through Shanghai or Ningbo, but the emerging economy is creating multiple tailwinds to transform the market from an underrated attraction to one on which carriers can bet firmly. The United Nations on April 4 reported that India's economy expanded at a 6.8% clip in fiscal year 2023 and unemployment was at a 12-year low. Indian manufacturing activity hit a 16-year high in March, expanding to 59.1 as measured by the S&P Global PMI, and capped 33 months of increased production.

But as India advances its manufacturing scale and prowess, it must "reduce its reliance on transshipment services via hubs such as Singapore and Hong Kong to help manufacturers avoid lengthy transit times," according to S&P's August report, 'Look Forward: India's Moment.' For India to reach its economic potential, making more of the goods and moving them more efficiently must be in lockstep.

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This article was published by S&P Global Market Intelligence and not by S&P Global Ratings, which is a separately managed division of S&P Global.