Indian Shipping & Logistics – An Overview

Pullat

Indian shipping continues to paddle below potential at about 6% of Indian seaborne exim-trades. Despite support and promotions with cheap funds, forex allocations, cargo reservation, Tonnage tax etc over decades, it has stayed stymied, essentially due to sovereign risk rating for funding, and flagging-manning and operational issues too. Promoting Indian shipping could save considerable forex outgo, channelling the same expenses within India with multiplier and trickledown benefits. Indian trade itself is puny 4% in global scenario, but not without scope for macro economics.

True, that shipowning per se is not pursued by most countries, when cheap freighting is available from `flags of convenience’ in all cargo haulage sectors. Design, shipbuilding, drydocking, repairs etc too have evaded India, though Indians are atop in manning & management, with employment and NRI remittances. Long coastline with need-potential to serve communities along coast, creating jobs in new settlements, decongesting cities are compulsive: Sagar Mala with ports every hundred miles apart, such a scheme is yet to take off.

Ports & terminals as gateways of trade have come up to international standards after liberalisation, but with foreign holdings too. Ports being in `joint’ sector between Centre and States, Maritime States Development Council aside, littoral states tend to pursue policies suiting themselves, in the absence of National Master Plan, resulting in politicised land grabbing and avoidable duplicated capital expenses in close proximities.

Preserving heritage & environment seems to be sacrificed imparting policy support for transhipment container terminal in Andamans; activists and Constitutional Conduct Group of about 100 ex civil servants have submitted protest to the President on the same.  Mumbai port the biggest landlord, choosing job generating employment within the city, seems misled with short term myopia, whereas to decongest-to avoid traffic flow jams- recreational facilities in port areas are best alternatives. It is typical historical dilemma of port cities of hinterlands grown to conurbations with maritime trades.

Our subcontinent lay necessitates two major transhipment terminals, one on each coast, though east coast is not close to main sea routes. Golden quadrilateral has compelled ease of haulage directly over land; as such coastal haulage around Sri Lanka is not a worthwhile option. Sethu canal at the southern tip doesn’t make cost and strategic sense given its disadvantages and ambiguities.

Logistics -the support system of trade from exporters to sea carriers, and from ships to importers for easy quick timely cost-effective distribution, is one that need be served with alacrity in all respects. True, certain policies have been focused on these through digitalisation, dismantling check posts etc, but accrued cost-benefits remain to be passed on to trades; efficiencies still lag behind international standards. Trade finance and typical Indian juggad practices do ply and play its own pivotal roles.

Multiple handling delays and costs are the bane of logistics. Hence it must be smooth, timeous and cheap as can be.  A major terminal near the southern tip will not suffice, as multimodal coastal, rail and road haulages to serve it with cargoes from all over will be expensive and of longer transits.

Indian port and terminal costs are one of the highest regionally and internationally, mainly because of the carry over of the `cost plus’ formulae approach of major ports. In ’92 on liberalisation, Vessel Related Charges (VRC) were converted to US$ at the then exchange rate of 32 (now$=abt82Rs). So ports are charging/earning 2.5times that means. In the privatised context, the new entities thus stand benefited by windfall profits. Thus it is paramount that port costs are pared to realistic levels, as otherwise competitiveness of trade suffers, and of course consumers too without any recourse.

Compliance culture need be enforced strictly, as misdeclaration of cargoes -of dangerous ones- is prevalent. Ratifying international conventions for HNS -hazardous and Noxious substances- covering packaged dangerous goods (those not in IMDG/UN nbr), LNG & LPG are a must, as also protocols to Pollution Conventions for compensation. Including marine matters in National disaster management plan is critical, as major crude oil trade passes off our southwest coast.

Socialism, import substitution, technology transfer etc aside, what need not be pursued is that which is available on lease or rent without capital expenses and blockage for long. It is the simplest purest basis of core competency and economic competitiveness of factors of land, labour, capital and of course technology also, as crystalised in locational advantage. Suffice to say that focus with sparse capital should be on necessities and unavoidables, and not to avoid everything imported. Starting with auto components, just because we have turned out as a major automobile manufacturer ,  such success needn’t be tried to replicate in all other fields. Comparative cost advantage is the one to go by. Like Iphone manufacturing and market share, the emphasis and thrust should be on high end value items that translates to substantial savings and contributes to market making for the long run.

Recent efforts to make `containers’ -that are easily and cheaply available at least prices from China- is a misdirected one. High cost domestic boxes will perpetuate high logistic component costs for a long while, even if it is for railways alone. As such rail share of box haulage is 2% too little; even with dedicated freight corridors, it may not improve drastically. Though slower, cheapest alternatives are through rivers and waterways, India is far behind.  We have to emulate Europe, the Dutch inland haulage systems to perfect waterways, their usage and maintenance.

Should India continue to lead in `scrapping ships’ is not a worrisome probe even when importing iron ore to export finished steel of various qualities and usages. As long as we have demand for rerolled steel, it is valuable provided labour and environment aren’t unduly risked. Environment, Social and Governance of ESG need be structurally incorporated to spread benefits from share holders to stakeholders.

Merchant Navy as second line of defence need be promoted, recognising seafarers’ contributions too, bestowing them postal and remote digital voting for elections. Ageing Indian fleet need be replaced and shipbuilding -essentially assembly with potential for a lot of technology transfer- need be attracted to take over such portfolios from China and elsewhere -as it has moved around globe geographically after the last world war, from Europe to Asia and within Asia itself.

Merchant Shipping Act of ’58, outdated Contract Act of 1872 etc need be repealed. Anti-Bribery Act is a must to clean up system procedure-delays and be in line with developed countries. GST impact on freight+trade must be clarified beyond doubt -for ease of doing biz- with its applicability limited to territorial waters, so as not to inconvenience freedom in FIO/FOB, Freight paid/payable etc.

Given humungous population, natural resources and appetite for growth, India remains poised for high economic growth, to lead the world, wherein shipping-trade would have dominant accelerating roles to contribute to sustain for long period. However policy makers, parliamentarians, politicians, trade, consumers et al are not aligned to realities and possibilities. Hence concerted efforts are called for by professionals to develop and sustain shipping with its macro-micro potentials.

Marex Media