The COVID-19 pandemic has been a blow to global container trade already caught up in tepid economic growth, but, the unprecedented disruption has bred a brighter side for cargo flows to and from Indian ports: increasing CFSs and ICDs network, improved hinterland connectivity, and greater rail freight conversions, overall for higher reliability, efficiency, and speed. Efficiency is the key to any business success, and reducing complexities in a complex chain of key logistics nodes, modes, and establishments so that customers can focus on their business growth, thereby extracting more value from trade, can only be considered to simplify it further by enabling seamless service and facilitating speed-to-market.
In a multimodal transport system, Container Freight Stations (CFSs) and Inland Container Depots (ICDs) act as nodal hubs in the logistics chain and form a key part of the logistics industry infrastructure. Their primary purpose is to allow the benefits of containerisation to be realised on the inland transport leg of international cargo movements. ICDs and CFS, also called dry ports, handle all customs formalities related to import and export of goods at their locations.
CFSs and ICDs offer services for containerisation of breakbulk cargo and vice versa. CFSs largely deal with breakbulk cargo originating/terminating in the immediate hinterland of a port and often, also deal with rail borne traffic to and from inland locations although do not have direct rail connectivity. Typically, CFSs are off-dock facilities adjoining or are in close proximity to the servicing ports, helping decongest the ports by shifting cargo and customs related activities outside the port area.
ICDs, on the other hand, are generally located in the interiors (outside the port towns) of the country away from the gateway ports. Most ICDs are connected by rail to the respective gateway ports, and this is a key difference between the ICD and CFS.
CFS and ICD explained
CFSs and ICDs are amongst the most rapidly growing segments of the logistics industry in India. The increasing container traffic at ports needs the support infrastructure which can accommodate the traffic volumes of the containers. CFSs and ICDs, being the supporting infrastructure for the port development and port traffic, fall under the direct trade segment of the ports. CFSs and ICDs provide a safe investment segment with lot of returns. Thereby, those are also lucrative assets for investing the reserve funds and acquiring stake in the development of support infrastructure by ports.
All these dynamics are exerting pressure on current exigency of CFSs to grow even more. And to handle the increase in the sea-borne traffic in foreign and coastal trade, the government is on plans for new ports that would help ease overstretched capacities at the current key ports.
Braving the pandemic
It has been over a year since a global pandemic hit us—and ever since then, the world is grappling with a sense of vulnerability, at an individual as well as business level. Almost every industry across the world has been affected, jobs have been impacted, and businesses have taken a hit. The logistics industry has specifically been elementary in getting medical resources and other essentials to remote parts of the world. However, they are not entirely untouched by the wrath of the virus. People now rely on logistics more than ever before—since their own ability to interact with the outside world is either restricted by the government or their own good sense.
In a situation like this when the supply chain needs to operate seamlessly, big and small players in the logistics world are working day and night to minimise the impact on economic growth and jobs. With national and international borders being shut to contain the spread, organisations have had to institute multiple operational changes to keep their operations flowing and assets/fleets moving and functional while adapting to the ever-evolving laws of different countries. The need to keep warehouses minimally staffed to ensure social distancing has not been easy either.
In India alone, the oldest and the second largest, Chennai port has seen a pile-up of thousands of trucks due to the shortage of drivers. India is not an exception to the global challenge, and so were the logistics network nodes.
“The CFSs and ICDs are primarily manpower driven. The pandemic had an apparent effect on the nature of the logistics system centering CFSs/ICDs and consequently the service delivery,” informs Professor Samir K Srivastava, Dean (Research) and Co-founder of Procurement Observatory at Indian Institute of Management (IIM) Lucknow.
According to Prof. Srivastava, out of approximately 250 CFSs/ICDs in India, most were in the worst pandemic hit states of Maharashtra, Tamil Nadu and Gujarat. “There were challenges like space constraints or shortage/piling up of containers, besides shortages of manual workforce and carrying out operations while maintaining social distancing, which was not easy. All these led to inordinate delays,” he says.
“After the initial lockdown shock till May 2020, the CFS/ICD COVID warriors kept most of the facilities up and running with all the health and safety precautions as mandated, to make sure that there was minimal impact of cargo clearance and deliveries. There was some positive fallout too—in terms of the sector players stressing more on safety and hygiene as well as increased focus on innovation and leveraging technology, besides the government coming up with broader and clearer policy guidelines.”
Ashish Chandana, Chief Commercial Officer- CFS and ICD Division, Allcargo Logistics echoes that sentiment. “During the pandemic phase, the entire EXIM trade was dependent on services from the ports, CFSs, customs, shipping lines, and government participating agencies (GPAs). The entire EXIM machinery has shifted from a physical to an e-marketplace. Though initially, the trade faced challenges in taking deliveries, it has efficaciously adapted to the new normal.”
“The EXIM trade has seamlessly adjusted to this new digital ecosystem. Ports also started issuing essential services passes through the online mode.”
“There won’t be significant impact of the prevailing scenario in the operations, going forward, as CFSs are now better prepared to handle any disruption,” Ashish says.
With 34 CFSs, Jawaharlal Nehru Port Trust (JNPT) set up as a CFS port, has the largest facilities in the country, followed by Chennai with around 30, Mundra (14), and Kochi, Pipavav and Hazira having two each.
For the CFS segment as a whole and Allcargo’s CFS business in particular, the April-August period in FY21 was challenging as EXIM trade movements were affected due to the restrictions imposed on various manufacturing sectors and subsequent lockdowns in India as well as in various other countries to curb the pandemic spread. However, trade volume started going up since September 2020 once the restrictions were gradually lifted. By the Q4 FY21, Allcargo’s volumes exceeded the pre-COVID levels. The company’s CFSs have been operational while strictly adhering to the guidelines issued by the concerned authorities.
Allcargo Logistics boasts world-class CFS facilities near JNPT in Mumbai, as well as in Chennai and Mundra ports. The company caters to the hinterland of North India through its ICDs at Indore, Kheda, Pithampur in Madhya Pradesh, Dadri in Greater Noida in NCR, and in Sonarpur Road in Kolkata. Allcargo also operates two ICDs in Nepal, one in Biratnagar and other in Bhairahawa providing strategic cross-border connectivity. These facilities are key transit points on the Indo-Nepal trade route.
“The COVID-19 pandemic has reinstated the value and importance of the CFSs and ICDs as storage locations for cargo and containers for customers. The well established infrastructure of the CFSs and ICDs, and the efforts taken at these locations ensured that despite uncertainties, EXIM supply chain could depend on services from CFSs and ICDs,” says Ashutosh Dixit, AP Moller Maersk’s Head of Products for South Asia.
“Customers based in hinterland locations saw the strong value proposition of ICDs for their supply chain needs by having a clearance point closer to their warehouses and factories/plants.”
Maersk commands approximately 20 per cent of India’s export-import containerised transportation. Notwithstanding the latest economic headwinds due to the pandemic crisis—which seems to be a transient blow—the integrated logistics specialist continues to view India as a relatively brighter spot for long-term growth.
In March, last year, when the pandemic was starting to take over countries and continents, the integrator of container logistics announced the opening of a new ICD in Madurai which since then has been serving as the reference point in the company’s growth in Tamil Nadu in the southern part of India.
Equipped with a warehouse to support faster cargo clearance, the ICD has been helping to reduce the overall logistics costs by up to 30 per cent and cutting the cargo transport journey by up to 150 kms, while also providing operational transparency to customers.
Maersk India is already planning to start five more ICDs in the state of Gujarat and Rajasthan and in the National Capital Region, which will become consolidation points and market hubs with the Dedicated Freight Corridor (DFC) projects getting operational phase wise. The global shipping major is also expected to soon introduce container tracking system on a pilot basis in India.
Beating the limitations
In the period of last few years, capacity constraints at the leading ports in India have been a major impediment in port operations, mainly because cargo imports have always exceeded yard holding capacity against a backdrop of poor cargo off-take. Though the bulk of Indian trade is transported by sea routes, the existing port infrastructure is lacking to handle trade flows efficiently.
The existing capacity at major ports is overstretched. For instance, JNPT, Visakhapatnam, and Mundra handle more cargo than their designed capacities, further contributing to congestion and resulting in a longer turnaround time.
Also surprisingly, the largest container vessels on order have more than sextupled since 1975. The rapid rise in ship sizes reflects the growth of globalisation in the last four decades, rise of containerisation at the expense of breakbulk and bulk shipping, and carriers’ need for greater economies of scale to compete with each other and gain fuel efficiencies.
A recent industry report by the Baltic and International Maritime Council (BIMCO) indicates that in the global containership contracting market, there are 14 orders for ships between 24,000 and 24,100 TEU, larger than the biggest ship currently operational which has a capacity of 23,964 TEU. The most popular ship type, measured in TEU as well as number of ships, has been Ultra Large Container Ships (ULCS) which have a capacity of 15,000 TEU or higher. 89 of these have been ordered with an average capacity of 16,622 TEU.
All of these would ultimately have a domino effect, as it would mean more over-utilised CFS capacities to handle non-EXIM cargo in addition to EXIM cargo. The question is whether the CFSs/ICDs in India are ready to accommodate the huge capacity.
“The global shipping industry is competing for size expansion. Since the fourth quarter of 2020, shipbuilders have received orders for 30 super-sized 20,000+ TEU ships worldwide. These ships are equipped with GPS and many other technologies for better visibility and traceability. However, most Indian ports, CFSs/ICDs are not yet ready to accommodate the huge capacity. So, the operators need to brace-up,” says Prof. Srivastava.
Dixit explains with a different approach. “Larger ships do not necessarily equate to higher overall business volumes in the market and therefore should not have a direct impact on the ICDs and CFSs. However, on an execution level, higher parcel sizes for vessels calling ports mean higher requirement for transport capacity to ensure that the dwell time of cargo at ports doesn’t increase, however, it may lead to under utilisation of transport capacity at other times.”
“Also, this is not preferred from environmental friendliness point of view.”
“Therefore, in the future, with volumes increasing, there will be need to develop a flexible model, which can balance dwell time at ports vis-à-vis higher transport capacity requirements. In any case, the current capacity of CFSs and ICDs in India is adequate to manage the current and future growth needs,” Dixit adds.
Allcargo possess future-ready capabilities for handling growing volumes. The company’s current capacity utilisation is 65-70 per cent.
Ashish says they have the ability to further expand their cargo handling capacities in less than 18 months.
“Recently, the Dedicated Freight Corridor Corporation of India Ltd (DFCCIL) floated a tender to build 115 ICDs in the next 3-4 years. They would be located along the Eastern Dedicated Freight Corridor (EDFC) that runs from Sahnewal in Punjab to Somnagar in West Bengal and the Western Dedicated Freight Corridor (WDFC) that runs from Dadri near Delhi NCR to JNPT in Maharashtra.”
“For this, Allcargo has a blueprint for expansion that leverages the company’s understanding of the cargo handling businesses and its strengths in warehousing,” he informs.
Maersk has been pioneering in its efforts to offer customers integrated container logistics solutions. The company has been extending solutions beyond CFSs and ICDs and offering customers end-to-end logistics to simplify their supply chains. At the same time, Maersk is bringing in more value addition in terms of technology integration.
“We are investing in technologies which will make it easier for customers to do business with us—like digitised counter operations, online access to all our services and self-service opportunities to our customers. At the same time, we are also taking advantage of new technologies to optimise yard, warehouse and transport operations and offer customers same experience across all our services,” Dixit says.
“It is not only technology for us either. All our sites are Health, Safety, Security and Environment (HSSE) compliant and offering highest standards of operations to ensure we operate in the fairest manner towards our employees, society and environment.”
Since the pre-pandemic phase, Allcargo has eased the process of making payments and generating proforma invoices for clients through a robust digital infrastructure. The country’s top CFS operator has a dedicated portal for customers wherein they can fill consignment details and send the scanned document across to the service desk.
“We have provided a seamless online experience for our customers as far as documentation is concerned. Expedited completion of formalities through the online route has enabled clients to take quick delivery of their consignments. Additionally, being one of the pioneers in the implementation of RFID technology, we have enabled our clients to track their shipments in real-time,” says Ashish.
“Additionally, use of web and mobile technologies beyond SMS and RFID would make real-time, tracking and tracing of containers much more accurate and reliable,” says Prof. Srivastava.
“There is a basic need of real-time overview for cargo visibility to eliminate gaps in the cargo movement flow. So, a Digital Control Tower to track all the activities going on in the facilities would be a sine qua non. Similarly, facilities like e-tariff, e-proforma, e-payment and e-rebates would make it easier, smoother and quicker for customers.”
According to Prof. Srivastava, “In the coming years, innovation, automation and digitisation would be the key. So, facilities need to be innovation driven and technology enabled. They need to be nimble-footed and agile to meet increasing customer expectations with innovation and ingenuity.”
He further adds, there is a pressing need for reliable rail transportation service connecting ocean service to the hinterland dry ports.
Containerised rail freight get supercharged
At the start of 2021, with two back to back inaugurations of the 351 km Khurja-Bhaupur section of EDFC and 306 km Rewari-Madar section of WDFC within a gap of 10 days, the Indian Railways is now eyeing to complete most of the sections of the DFC this year.
The DFC is one of the largest rail infrastructure projects undertaken by the government, entailing a cost of around Rs 81,459 crore. The DFCCIL has been set up as a Special Purpose Vehicle to plan, develop, mobilise financial resources, construct, maintain and operate the DFCs. In the first phase, the organisation will construct the Western DFC (1,504 km) and Eastern DFC (1,856 km), a total of 3,360 km.
The EDFC and WDFC will pass through nine states and 60 districts; it will have 48 stations and junctions along the Western DFC and 58 in the Eastern DFC.
“DFC offers immense opportunities! It may be a game changer in the sector as it will not only significantly reduce the transit time, enhance intermodal options but also increase the volumes of business due to industrial corridors, logistics parks and other facilities coming up in a big way,” says Prof. Srivastava.
“There will be innovations and new facilities and capabilities will come up.”
As a service provider, Maersk sees great advantages with the DFC and allied infrastructure development possibilities such as logistics parks, consolidation/de-consolidation centres and even e-commerce logistics, says Dixit. “It will allow us to design services that can reduce cost and increase reliability for our customers. We are currently engaging with various stakeholders to understand the nuances of the development opportunities and sharing our inputs as well. We are evaluating our options keeping in mind the basket of products that we currently offer in the market and the future needs of our customers, focussing on flexibility, speed and reliability.”
It is anticipated that there would be around 48 stations on the Western DFC route. Allcargo is participating in the tender to submit bids for owning and managing Private Freight Terminals (PFTs) on land located near DFC railway stations.
“The government is embarking on a major push to decongest roads and make railways the primary cargo transporters in the country. We are also planning to participate in bids to own and develop PFTs on the Eastern DFC. We believe that the next wave of growth would come from ICDs and remains a key focus area for us from a future perspective,” says Ashish.
On the Western DFC, Allcargo already has a presence in Dadri on the one end and at JNPT on the other end. The company is further planning to have presence on 2-3 stations on this route.
“We already have a presence on the west coast, southern coast and we are coming up with an ICD at Jhajjhar in Haryana in the north,” informs Ashish.
The Allcargo official is anticipating the Railway Cargo Plan that the Railways are coming up with. “With the roll-out of the Western and Eastern DFCs and the government introducing 3 more DFCs in the Union Budget 2021-22, rail is the future of logistics business. We also envision that ICDs will witness a surge in cargo handling activities.”
In the meantime, Prof. Srivastava sheds light on the revised policy and guidelines for setting up of ICDs/CFSs and AFSs would definitely further developments in the sector.
The Central Board of Indirect Taxes and Customs (CBIC) in November last year issued the revised policy and guidelines for setting up of ICDs, CFSs as well as airfreight stations (AFSs) to address the issues of geographical disparity and concentration and aims to align future developments with projects like rail freight corridor and inland waterways.
The revised policy aims to boost investment in the CFS/ICD sector in underdeveloped regions in the country, while the approvals in regions where already high concentration is there will be discouraged except in exceptional cases. It has factored the developments in the sector in the last two decades, including the growth in volumes during this period, geographical concentration of CFS/ICD, implementation of schemes like direct port delivery/direct port entry. Besides, the revised policy has also taken into consideration other automation and efficiency improvement measures; and also, the infrastructure developments like Direct Freight Corridor and inland waterways.
“Approval for new ICDs directly along or linked with DFC will be accorded with no more than one ICD directly connected with these corridors, within chargeable distance of 100 km in both directions. An ICD should have a minimum area of seven hectares, of which at least four hectares should be a customs notified area, while one hectare should be devoted for DPD and DPE requirements,” Prof. Srivastava states.
“The revised policy and guidelines for setting up ICDs/CFSs is an excellent move by the government. It will help in improving the functional dynamics of the sector through improved regulatory frameworks,” agrees Ashish.
However, Prof. Srivastava feels the policies need to be further streamlined and improved in consultation with the stakeholders.
Dixit strongly feels any policy change cannot be looked at in isolation and needs to be evaluated as a part of the overall vision for a segment of the economy. “For example, with DPD, the need for traditional CFS infrastructure is reducing but at the same time requirement of cargo handling, storage and distribution services are increasing. Also, with increase of e-commerce the need for warehousing and logistics has also evolved from traditional set-up to more responsive set-ups.”
The overall realisation per container is expected to be on the lower side in FY21 as well for CFS players, as their transportation revenue continues to remain under threat. However, the setback is expected to be limited to CFS operators. Meanwhile, the ICD segment is expected to continue growing in line with the trends in container traffic at Indian ports.
Increasing investments and cargo traffic point towards a healthy outlook for the Indian ports sector. Providers of services such as operation and maintenance (O&M), pilotage and harbouring and marine assets such as barges and dredgers are also benefiting from the desired investments.
Domestic waterways have been found to be a cost-effective and environmentally sustainable mode of freight transportation. The government aims to operationalise 23 waterways by 2030. As part of the Sagarmala project, more than 574 projects worth Rs 6 lakh crore (US$ 82 billion) have been planned for implementation between 2015 and 2035.
Reportedly, in the Maritime India Summit 2021, the Ministry of Ports, Shipping and Waterways identified a total of 400 projects worth Rs 2.25 lakh crore (US$ 31 billion) investment potential.
With above, the capacity addition at ports is expected to grow at a CAGR of 5-6 per cent till 2022, thereby adding 275-325 MT of capacity. According to a report by the National Transport Development Policy Committee, India’s cargo traffic handled by ports is expected to reach 1,695 million metric tonnes (MMT) by 2021-22.
“With the passing of the Major Port Authorities Bill 2020, the government has replaced existing Port Trusts. It has sought to grant greater autonomy to major ports in the country and enhance their competitiveness. The new policies which are going to be rolled out in the near future will take care of a majority of problems affecting Indian logistics,” says Ashish.
“The government’s massive infra spending focussed on building highways, roads coupled with multiple DFC projects will help improve connectivity with the country’s hinterlands. Speedier cargo movement from the ports through the DFCs and therein to factories/industrial units via roads will be a game-changer for the Indian logistics sector. It will not only enhance supply chain efficiencies but also enable businesses to avail substantial economies of scale,” he adds.
Trends in inland services in 2021 and beyond
Going forward, we may see CFSs handling more logistics services, especially domestic cargo, so that their idling space can be gainfully engaged. This is something the Container Freight Stations Association (CFSes Association), whose members have been finding their going tough since 2016, has been repeatedly pointing out to the centre.
According to the association, 160-odd CFSs across ports have been operating at around 40 per cent capacity on one hand, and on wafer-thin margins on the other, as most containers are directly delivered to consignees now.
Besides, with various Customs-initiated reforms like Risk Management Systems (RMS), almost all the CFSs remain largely underutilised.
To tide over the crisis of falling business volume and the plunging margins, which have fallen by over 50 per cent from the pre-DPD days, the association expects the draft National Logistics Policy (NLP) to allow CFSs to utilise their excess capacity by handling non-EXIM cargo, especially domestic cargo bound for coastal shipping.
All the more, Prof. Srivastava feels rail-linked ICDs should be favoured at inland locations to promote intermodality between different types of transport and there have already been some beginnings on this at the policy level. According to him, the government’s November 2020 policy says states low on ICD/CFS infrastructure will be listed under the Green Zone and will be open for setting up new dry ports.
“Development of ICDs along waterways is being encouraged, with relaxations being given in geographical zone and distance rules. These are initial baby steps, much more needs to be done,” he says.
“As in other sectors and services, inland services too will be driven by newer business models, innovations, sustainability powered by technology and application of emergent technologies. Focus would be on enhanced speed, reliability, and real-time traceability and visibility. There would be increasing investment into logistics startups from VCs and business conglomerates. Finally, there would be disruptive innovations by industry newcomers and/or other innovative business models,” observes Prof. Srivastava.
Ashish sounded upbeat on the country’s warehousing sector, as he foresees it will become an integral part of ICDs. “Rapid rise in manufacturing activity will drive warehousing demand in 2021 and beyond. AFSs would also emerge as a major trend in inland services in the coming years,” he says.
“As we mature and DFC becomes operational, we will see increase of rail on the long haul and road transport will be focussed more on the short haul,” says Dixit. “This will also have a positive impact on environment along with improvement in logistics.”
“Our ambition is to expand our footprint and coverage in strategic locations as per the need of our customers for which we are looking at different opportunities in CFSs, ICDs, and warehousing and distribution services.”
“Maersk is committed to provide seamless experience to its customers; thus it is equally important for the company to bring new technology-driven solutions in this space. Different business platforms are being developed to achieve that ambition.”
Streamlining significant developments, the state of Madhya Pradesh has added more ICDs to strengthen its logistics infrastructure. Since container depots are mostly concentrated in the western and northern parts of the state, the new depots at four cities that include—Satna, Katni, Jabalpur and Chhindwara will be opened in the eastern and southern districts.
Madhya Pradesh is a landlocked state and there is huge distance gap between ports. Considering convenience and demand of industrialists to promote exports, the need for ICDs in the eastern and southern districts was being felt for quite long.