Friday Focus -- The challenge for India

With containers still blocking approach channels and preventing the full reopening of container terminals at Jawaharlal Nehru Port (JNPT), the collision between two ships off the Mumbai coast almost two weeks ago is continuing to cause Indian shippers major logistics challenges. 

But while the short-term impact of the incident has been severe, some hope it may prompt India to address more fully its chronic shortage of both port and hinterland transport options. 

Even before the collision, between containership MSC Chitra and cargo vessel Khalijia 3 on 7 August, lines had imposed congestion surcharges on shipments to and from JNPT’s overworked Nhava Sheva box facilities, which handle some 60% of India’s total container requirements. As cargo built up, capacity at alternative ports, such as Pipavav and Mundra, was quickly overwhelmed.

With few other options, many lines simply bypassed western India.  

Expanding ocean freight capacity will be critical. Although DP World will open a new container port at Cochin this year, this is not expected to ease capacity, because it is located away from the main commercial centres and aimed largely at winning transhipment traffic away from Colombo in Sri Lanka. 

There are also doubts about whether India’s domestic fleet has adequate capacity to offer suitable feeder services, because of India’s stringent cabotage laws. 

Shippers believe the real lesson for India is that more investment in ports and linking road and rail infrastructure should now be a priority. Some analysts claim the lack of transport planning is stifling economic growth. 

Accordingly to a study conducted by McKinsey & Co, poor logistics infrastructure currently costs the Indian economy the equivalent of 4.3% of its GDP each year. 

Sanjay Tejwani, Director of ocean freight for DHL Global Forwarding in India, says that while industry spend on logistics is low, its relative cost is high, primarily because of poor infrastructure. 

He says. “Rail and coastal shipping costs in India are approximately 7% higher than those in the US. Likewise, road costs are higher by about 30%. This not only results in higher prices and lower competitiveness, but also hampers economic growth.” 

The challenges span the transport modes, according to Gracias Thevar, Country Manager for logistics services at GAC India. Not only is port capacity woefully inadequate for a country with a population of over one billion people and a rapidly expanding middle-class, he tells IFW, but hinterland connectivity is also in disarray. 

“Out of annual logistics costs in India estimated at US$100bn, over 95% was accounted for by the ‘unorganised’ sector, such as owners of fewer than five trucks, small warehouse operators, custom brokers and freight forwarders. The remaining 5%, or about $5 billion, is being contributed by the ‘organised’ sector. Fragmented logistics is one of the key issues here.” 

Illustrating the challenges ahead, Amarthi Consulting estimates that road freight demand is expected to rise from about three billion tonnes in 2009-10 to approximately 3.7 billion tonnes in 2012-13. 

“Inadequate road infrastructure makes a truck cover only 250-400km a day, compared with 700-800km a day in developed countries such as the US and Europe,” says GAC’s Thevar. 

“The pace of road building should be increased from the present 2km a day to a target of 20km a day.” 

Indian airports registered healthy growth in air cargo in 2009-10. Domestic cargo is expected to increase at a rate of 10% and international cargo by 12% year-on-year until 2011-12. 

However, Amarthi reports that challenges in this segment include high airport charges, and recommends uniformity in taxes on fuel, use of old airports and reducing airport fees to give the sector a boost. 

A spokesman for FedEx says India’s air infrastructure has also not kept pace with the development of industry and is hindering the economy. 

“Airports are hampered by factors like inadequate parking bays and single runways, cargo handling/customs clearance capabilities that have led to congestion and delay,” he says. 

However, he adds: “There have been considerable long-term investments by the air cargo industry in India. A visible trend is the emergence of new companies, both foreign and local players. The under-tapped potential and the growth in the economy is expected to create several opportunities thus attracting fresh investment.” 

But, he warns, while planned upgrades of cargo terminal facilities at Mumbai and Delhi international airports are welcome, more investment is required. 

With high economic growth rates predicted in the years to come, time is of the essence, says Thevar. 

“It is imperative that the government fast-tracks implementation of all key infrastructure projects, the majority of which are either delayed or suffering from cost over-runs. This could pave the way to a better future.”