India’s logistics cost is high and there are several elements in the logistics chain which add to the logistics cost. Sunil K. Vaswani, Executive Director, CONTAINER SHIPPING LINES ASSOCIATION (INDIA) brings to the fore some of them
While on the one hand, India aspires to be a USD 5 trillion economy by 2024-25, on the other, it’s cost of logistics remains high at 14 pct of the GDP, as compared to 8 / 9 pct in the case of the developed economies of the world. The reasons for these are varied, some of which are commonly known while the others, although equally important if not more, are not generally talked about.
Here are some of the spots where the shoe really pinches:
1) HIGH PORT CHARGES:
India’s port charges remain amongst the highest in the world.
– TOTAL PORT CALL COST of a vessel of the same size calling at Indian ports viz-a-viz the foreign ones – The Vessel Related Charges at Indian ports are far higher than those at Foreign ports. For instance, as highlighted in the table below, these work out to USD 108,437 at the New Terminals at Nhava Sheva ie BMCT / NSIGT & USD 64,592 at the Old Terminals at Nhava Sheva ie JNPCT / GTI / NSICT, as compared to USD 12,043 at P. Klang, USD 16,158 at Jebel Ali, USD 17,235 at Singapore & USD 19,308 at Colombo. These charges at Indian ports will increase even further if the tariffs are revised.
– TOTAL CONTAINER RELATED COST – These costs too are much higher at the New Nhava Sheva Terminals (BMCT & NSIGT), Mundra & Pipavav, as compared to those at Foreign ports. Again, these costs at Indian ports could increase further, including the ones at the Nhava Sheva old terminals, should the Indian ports go ahead with a revision in their tariffs.
– UNIT COST PER MOVE – Even at the existing rates, the UNIT COST PER MOVE, works out much higher (approximately double or even almost triple the cost) for a vessel calling at Indian ports, as compared to her calling at Foreign ports.
Under the circumstances, it is not only economically challenging for the shipping lines to call at Indian ports but also difficult for Indian exports to be globally competitive. A reduction in the Indian port charges would therefore help in bringing down the cost of logistics.
2) DUAL CHARGE:
Some of the ports like JNPT for instance, charge a dual charge to the lines calling there.
This is with reference to the MBPT dues paid by all the Shipping Lines at Nhava Sheva. Presently, all the container vessels call at either of the Five Container Terminals at JNPT. During the period 1st January to 30th November 2019, a total of 1586 container vessels called at the Five Terminals at JNPT.
Since the inception of JN Port during the year 1989, all the Shipping Lines have been paying both the MBPT as well as the JNPT Dues. Earlier the MBPT dues were not so unaffordable due to the smaller size of vessels and the lesser number of calls at JNPT. Now with the sizes of vessels having increased from 2700 TEUs (26,000 GRT) to the range of 9000 TEUs (109,712 GRT) / 14,000 TEUs (128,000 GRT), the MBPT dues are indeed getting to be unaffordable for the Shipping lines.
In order to allow larger parcel size vessels to call at Nhava Sheva, JNPT carried out Capital Dredging, thereby enabling vessels with 15 Mtr arrival draft and 14000 TEU capacity (over 100,000 GRT) to call at the port. While the cost of the Capital Dredging was borne by JNPT, with no contribution from MBPT, it still recovers a significant chunk of the port dues through JNPT, from vessels calling therein. The vessels entering into JNPT, are managed by the JNPT Marine Department and no services whatsoever are provided by MBPT.
Given below are the details of JNPT and MBPT dues paid by the leading four major shipping lines, from January till December 2019. The quantum recovered by MBPT from vessels calling at JNPT, directly impacts the bottom line as far as the cost of logistics is concerned.
MBPT DUES in INR JNPT DUES in INR TOTAL in INR
2,468,90,817 6,443,94,603 8,912,85,420
Due to the prevailing market scenario, most of the vessels are in any case under-utilised and these additional costs further impact the bottom lines of the vessels calling at JNPT. The above port costs therefore prove detrimental towards the Government’s initiative of reducing the Transaction Cost and further improving India’s ranking in the Ease of Doing Business.
3) IMO REQUIREMENTS of usage of fuel with no more than 0.5 pct Sulphur from the 1st of January 2020 has put pressure on fuel costs for the shipping lines. With fuel contributing towards 65 pct of the cost of operations, no line can afford to ignore this cost.
4) HIGH INLAND HAULAGE CHARGES: With rail operators padding on margins, which can go up to about 20 pct, over and above the rail freight, the increased cost impacts India’s exports & imports adversely.
4) FRAGMENTED MARKET spread across the length & breadth of the country calls for infrastructure development, efficient and cost-effective inland transportation, first & last-mile deliveries, modern warehousing, etc.
5) CARGO MIX: The country’s import & export commodities have different transportation requirements. While India’s imports are mostly 40ft driven, it’s exports need, by & large, 20 ft boxes. This creates an equipment imbalance which poses both operational as well as financial challenges for the shipping lines.
6) INTERMEDIARIES: Thousands of so-called logistics providers have mushroomed across the country. However, barring a few, the remaining essentially tend to pad on margins without offering any real value to the end customer, thereby adding significantly to cost of logistics of the country.
7) SHORTAGE OF SKILLED MANPOWER: With limited availability of recognised courses & preference of the younger generation for other professions, shortage of trained manpower in logistics continues. This gap can be bridged, to an extent, through on-line programs, simulation models, on the job training, etc.
8) DIGITALIZATION – the way to go. Elimination or at least minimization of manual intervention would help improve efficiencies and thereby help towards reduction in the cost of logistics. Certain positive steps have already been taken in this direction but a lot still needs to be done.
India is doing economically better than many other countries of the world. However, understanding where the real problems lie and addressing those systematically, would help improve efficiencies and reduce the cost of logistics.
