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Why ICDs and CFSs in India need to consolidate

Why ICDs and CFSs in India need to consolidate

Consider this: At 4.5 mn TEUs last year, Jawaharlal Nehru Port handled over 55 percent of India's container volumes.Yet it handled less than a fifth of Singapore's 25 mn TEUs.What ails India's container trade? In this issue, we focus on the most important piece in the container logistics eco system: dry ports.Exporters near important dry ports like Palwal near Delhi are facing connectivity problems, often due to prolonged rail and highway projects. How can dry ports make themselves more useful? Neeta Ramnath explains.

Inland Container Depots (ICDs) and Container Freight Stations (CFSs) are also called dry ports, as they handle all customs formalities related to export or import of goods at these locations.Hence if an exporter located in Delhi sends his goods to Tughlakabad ICD (operated by Concor), he can be free of his export responsibility in Delhi, and not encounter some customs related problem later at the exporting port.His goods are cleared by customs and his container is sealed at Tughlakabad, and then sent to Jawaharlal Nehru Port (JNP) for directly loading onto a vessel.As per Ministry of Commerce, there were 247 dry ports in India (functional or under implementation) in June 2011.Of these over 170 were functional.Of the total dry ports in India, nearly 40 percent are owned by Concor and the Central Warehousing Corporation (CWC), and the remaining by the private sector.

Most ICDs are connected by rail to the respective container ports.This is the key difference between Container Freight Stations (CFSs) and ICDs:CFSs also offer similar services as ICDs but they are typically adjoining or in close proximity to the port and often do not have rail connectivity. ICDs and CFSs play an important role in the development of containerisationespecially in storage and consolidationand in making the container logistics more efficient:

•Decongest the ports:Whether the container is waiting to be loaded on to the ship, or waiting for delivery to customer, or pending customs inspection, it need not occupy space at the port.CFS is used as a back up area for the ports, and helps to enhance port handling capacity.
•Reduce carbon footprint:ICDs play the role of consolidator: they pool the goods of small exporters into a single container. ICDs also are consolidation points for rail services (one rake carries 90 containers).Large ICDs are able to operate trains at high frequency to the ports.This ensures that ICDs bring down the cost of container logistics. In the absence of such a consolidator, more containers would be moving on road and rail freight share would have been even lower than today (the current overall freight modal mix in India is 30:70 favouring road).
•Provide one stop logistics and customs solution: Besides, they help increase containerisation in India.They provide services of stuffing /destuffing of con­tainers, transport, customs clearance, warehousing, handling and servicing of empty containers etc.

Currently India has a containerisation level of just above 50 percent (implying that 50 percent of cargo that could have been containerised, is actually containerised in India), while the average containerisation in developed economies is approximately 70 percent.In order to reach higher containerisation levels, India needs to simplify its container logistics.ICDs and CFSs need to implement the following activities to play their role fully, and to assist the Indian ports in achieving higher containerisation.

Reliable rail service for ICDs:Assume that an exporter in Ludhiana wants his container to take a vessel calling on JNPT on 30 March.The rail transit time between Tughlakabad and JNPT is 42 hours (against 19 hours for passenger trains). In reality, Concor cannot control even the 42 hours transit time, since the rail line is controlled by Indian Railways, and there are no dedicated freight lines.Hence the transit time can go up too.The exporter typically keeps a buffer of a few days and will send the container by say, March 20 (instead of March 25 if he was assured of the delivery times) thereby incurring extra inventory cost. If the Indian Railways are providing a service to Concor, they need to have a service level commitment.Due to the monopoly of the Indian Railways, this service commitment is virtually absent.The Dedicated Freight Corridor (DFC) between Dadri (UP) and JNPT and Ludhiana Dankuni is expected to support ICDs in the Northern hinterland in their ability to service their customers better.However, the delay in this freight corridor has cost India heavily in its container trade. Other dedicated freight lines in India are only in very early stages of planning.

Availability of land for building new ICDs: Out of the approximately 170 functional dry ports in India, we have 50 60 ICDs (most of these operated by Concor).While many private players have tried setting up ICDs to make the ICD space more competitive, land for rail sidings is either not available or is exorbitantly priced. Land can contribute anywhere between 15 percent and 50 percent of the total dry port capital cost.Rail land Development Authority (RLDA) must expedite auction of sale / lease of such lands for ICDs / other multimodal logistics hubs.

Indian Railways has approximately 43,000 hectares of vacant land. Land which is not required for operational purposes in the foreseeable future is given to RLDA by Railway Board for commercial development.With the formation of RLDA in 2006, there was expectation that some of this railways land would be made available for commercial purposes.However the pace of land auction / development through RLDA has been excruciatingly slow; in fact, only about four sites have been bid out by them in the last two years.The key issues have been absence of clear title papers in several land parcels, and high expectations regarding value of the land.

So far, RLDA has been focusing more on commercial exploitation of the land. However, it could do well by prioritising lands next to railway tracks (which would in any case have lower commercial value due to the noise factor) and bid them out for ICDs and logistics parks.RLDA could retain some equity in such projects, or have revenue share models instead of an upfront premium to make them a win win proposition for both sides.

Efficiency needs scale: One of the key roles performed by CFSs and ICDs is that of consolidation of cargo. In smaller CFSs, a customer may have to wait very long to get other customers to fill up his Less than a Container Load (LCL) container.In a larger facility with more customers, this time may be reduced substantially. In some smaller CFSs, it may become necessary to move an LCL container to another CFS for it to fill up faster.This is not an efficient practice: It creates higher inventory, handling and transport costs.The larger the CFS, the better are its chances of consolidating a container faster.

Similarly, large scale would permit the CFS to invest in superior material handling systems.Singapore port's warehousing centre Keppel Distriparkhas a 14 m high ceiling to support high rack automated storage and retrieval systems.Many of the CFSs in India do not look any better than plain vanilla godowns with poor handling practices.

The following are the approximate numbers of CFSs (as per Ministry of Commerce, June 2011) operational or under implementation in the following regions:
•11 CFSs at Mundra
•~30 CFSs at JNP / Navi Mumbai
•~30 CFSs at Chennai / Ennore

A wider network: ICDs and CFSs need a wide network to be successful: One of the key success factors in running a rail based logistics service is the ability to get return cargo on the rail line, and also the ability to get enough cargo to be able to run frequent service.Many of the private con­tainer rail operators in India have been struggling because they are unable to get return cargo on many of their routes, or are unable to run very high frequency rail services.Concor, with its wide network of terminals across India, has a significant edge over its competitors.This is where my previous point of land availability at the appropriate prices gains relevance. Today, there is no private player who even comes close to Concor in its width of services.

Change in customs inspection procedures: Dry ports' income streams are from:
•Handling, stuffing / destuffing, and customs inspection
•Transport to and fro port
•Ground rent for container
•Warehousing charges for the cargo

As Customs move to random checking of containers (instead of all containers being sealed / unsealed in their presence), the revenue streams of  dry ports will be affected as containers would need to spend lesser time at the warehouse.Hence it is important for dry ports to focus on improving their service quality (improving logistics coordination, reducing pilferage and handling losses, etc) to be competitive.With Customs implementing Risk Management System (RMS) and Electronic Data Interchange (EDI), thereby reducing the time spent on customs procedures, the ICD and CFS business model is bound to change in future.

In the period between 2005 and 2010, when the logistics sector was the darling of all equity funds, money poured into Indian dry ports.With the sobering economic effect, the economic viability of a dry port will depend on its scale and service levels. Hence the dry ports sector clearly needs some consolidation.Some consolidation among the private players can certainly help in creating the scale and network that is essential in this industry. However for consolidation to take place, valuations need to become more realistic.

It also needs government support in providing rail sid­ing land at appropriate rates.Several state governments (such as Karnataka) and entities such as Dedi­cated Freight Corridor Corporation of India (DFCCIL) are planning to bid out government lands at specific loca­tions for setting up large ICDs / multimodal logistics hubs. This is a welcome move, and needs to be supported by stro­ng project structuring efforts to create large successful facilities.

And most importantly, the sector needs the support of the Government in providing reliable rail connectivity. Indian Railways need to give sufficient importance to freight cargo by having delivery time commitments. These steps are of utmost importance to ensure that Indian container trade becomes more competitive.

The author is Senior Vice President Transportation Advisory & Engineering Division, Feedback Infrastructure, which provides professional and technical services company in the infrastructure sector in India.


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