Make infrastructure and trade competitive

Julian Michael Bevis, Senior Director, Group Relations, Asia, A.P. Moller-Maersk Group:

Julian Michael Bevis, Senior Director, Group Relations, Asia, A.P. Moller-Maersk Group: “The language around logistics in this country has for so long been – ports having the capability to handle so many tonnes per year or rail network and runways which are so long, but that frankly doesn’t matter. What really matters is the cost effectiveness of that infrastructure

Let me begin by asking you a question that has been bothering us for the last six months. With this global pandemic continuing for so long, what are the lessons that we have learnt?
I think the lessons that are there for the learning are really going to tell the key things, I would point to is firstly, the absolute importance of looking after one’s staff, making sure that everybody is okay and the operating circumstances in which they work are adequate. And that includes not just one’s own staff but all the staff that come into the facilities that we operate in India and in South Asia more generally.

The second general point is around customers. You know, we and every other organization that is in this industry, one hopes, tries to keep as close as they possibly can to their customers to try and anticipate what they want, and as you know, the economies of the world have been very seriously, adversely affected. And that means that customer requirements have changed hugely and very rapidly in some cases. So, the importance of listening all the time to the marketplace is paramount. I think all that leads to a couple of other observations, firstly, the absolute need to try and be as agile as one possibly can. Particularly in terms of responding to customer requirements and that means adjusting networks not just in terms of the vessel networks but also in land so that one can, as far as possible, look after the customers’ requirements.

And the second other point I would really underline as you know Maersk has spent a lot of time and resources in the last few years in trying to innovate and improve the way in which we do business, where people couldn’t move around in the way that they previously could. The importance of being able to handle documentation digitally is really, enormously important and what we’ve done over the last few years has certainly stood us in good stead. I think the impetus provided by the pandemic has brought that last factor into real focus. And now there is an urgent need to build on what we have done in cooperation with government. To ensure that digital processes or rather processes are digitised as quickly and as efficiently as possible.

Till recently, till last year, we have seen lot of investments coming into the port terminal sector including inland infrastructure. Post pandemic, do you see further investments coming into this sector?
I think, without question. I am brave enough to tell you exactly how that process will re-establish itself. But you and I have talked about the infrastructure in South Asia many times and we know that a healthy logistics industry is essential for healthy economic growth and that logistics industry depends enormously on the provision of adequate infrastructure. India and the surrounding countries, in particular Bangladesh, have experienced rapid growth over the last few years. And that means the infrastructure that supports that growth has got to continuously be expanding, so, I don’t think there’s any doubt that both the port infrastructure and the inland infrastructure and particularly inland infrastructure is going to continue to grow, there is no doubt about it.

Because if that does not happen, then the economic growth which this part of the world very much needs to get itself out of the after effects of the pandemic or the effects of the pandemic, I should say, cause we are not really out of it yet. Its not going to happen, so it is inarguable that there will be investment. When, where and how, I think, is much more difficult to tell because we still don’t really know what the effects of this extraordinary episode is going to be. But its undeniable that there will have to be further investment. And not as I have said on several occasions, just investment in the physical infrastructure; it is not just about cranes and key-cranes and railway lines and roads. It’s about the regular trade infrastructure as well. And that also has got to move forward and change. Some of it has got to be digitised, some of it has got to be simplified. And the government is clearly focused on that. And that too will happen as well and it’s very important that industry creates its path as a partner to the government in seeing that happen.

Let me come to the two points that you mentioned in your response. One is, can we say that still South Asia is the heart for investment in the logistics sector?
Yes. I think as a generality, yes, that’s right. If one is going to get back to the sort of levels of GDP growth that we need to see to fundamentally change the face of the economies here, then there has to be growth in infrastructure. As I said earlier, we know that there are deficiencies. And that’s not a criticism. As any economy grows, you’ve got to build more infrastructure. I mean look at Asia and look at Africa; there is development in infrastructure all over the place. And the same is true here.

You talked about soft infrastructure like regulatory framework. You lived in India for long and in your second coming, another 7 to 8 years. So, what regulatory ecosystem you have seen? Is government doing enough to bring the ease of doing business in our sector?
Well, if you judge these things by looking at indices like ease of doing business and within that criterion, the indices that measure for example, ease of foreign trade, you can say that the numbers have improved. So, there is no question that government has first of all, recognised that there is an issue which is an enormous step forward. But at the end of the day, I suppose the acid test to all of this is the cost of logistics and oft quoted and somewhat misused sometimes figure of 15% or 14% of GDP. It’s a fact, that’s not a figure we made up. It came from the OECD I think.

But the importance is the difference between that figure of 14% or 15% and the equivalent figure with our competitors who are showing figures of 7% or 8%. It’s the scale of the margin and the consequences on our relative competitiveness that is important. So, the quick answer to your question is yes, government has done a lot firstly by recognizing that there is an issue and then by instituting a whole host of programs both in the soft area and in the physical area but as with all these things, you can never stand still. Other countries aren’t standing still. And we can’t either. The logistics industry, government, regulators, ports, terminals, importers will have to work together. And we have to do that much better than we do at the moment.

And that’s one of the reasons why I was saying before we started this discussion, the importance of conferences like the ones that you organised because it facilitates understanding, it facilitates exchanges of view, and hopefully the communication of what the priorities are. And that’s all positive stuff. But we have to keep on doing it. We have to do more. And I think the government obviously already has a key role to play in that. And the recent formulation and publication of the National Logistics Policy, I think is very constructive stuff. So, I think it’s a very positive message around all this. But there is a lot of work to do. There is no denying it.

Lets’ talk about business. Earlier, we have seen whenever there was a crisis, and global trade became dull, the freight used to fluctuate, and carriers would compete, offering lower freight rates to attract more cargo. But now, freight rates are strong and rising. What has happened?
I think the scale of the economic consequences of what has happened have induced carriers and indeed other businesses to react much more assertively than perhaps as previously been the case. They have adjusted networks. I mean the airline industry has fundamentally adjusted networks. And lots of other industries had to do the same cause they knew perfectly well that if they didn’t do that, then simply would not survive. So, I think the quick answer is that people have been faced with what is probably the biggest economic shock of within living memory. I mean, if you exclude the world wars of the last century, the economic consequences or the economic shock of this is almost unparalleled.

And I think people have responded in that light. And that has in turn meant that networks have been changed in a way that the supply and demand equation has remained more or less imbalanced. I mean, clearly there are areas, you know, where it hasn’t always worked. But generally speaking, you are right and that’s the reason, I think.

Recently, Maersk has expressed interest in developing the East Container Terminal in Colombo. Maersk has also inked an MOU with National Bank in Sri Lanka to support exporters gain expertise in the shipping sector. So, what’s the strategy behind the focus on Sri Lanka?
Sri Lanka is a very important market for us. It’s also a very important location. I mean as we have said many a time when you look at the map and look at history and the way in which trade routes across the Indian Ocean have developed, Sri Lanka, by definition, because of geography, is a focus. And therefore, talking about the issue around the terminal, if there is an opportunity there, then clearly, we are going to show an interest because as I say, its pivotal.

I think probably it would be fair to say that relatively recent political changes in Sri Lanka have meant that the development of the capacity in the port of Colombo has lagged a bit. I mean one of the things that one can say about Sri Lanka over the last 20 odd years that I’ve been involved is that they’ve always had something going, you know, the extension of a terminal, a new terminal, the South Harbour or whatever it was… so that the industry could see that there were developments taking place and they could be confident that as trade grows, which as we have already discussed I think in this part of the world is a certainty, then capacity would be provided.

The government is now saying we’ve got to develop ECT, which is great stuff and very positive and good for them for doing it. And if there is an opportunity for us to be involved somehow, then we will be delighted to do it in a market as I say which is one that we regard as being very important. You talked about the arrangements with the Bank. I mean, I think one needs to see that development in the context of, again, what we were talking about earlier in terms of our reorganization or the continuing process of organizational development – I think it’s a better way of putting it.

What we are trying to do is to put ourselves in the situation whereby we can provide an absolutely comprehensive range of services to customers under one roof. And if that means being able to provide financial services and trade information services in the way that we’ve done in Sri Lanka and as we are doing through other means in other parts of the world, then that’s what we will do. There are quite a lot of small enterprises in Sri Lanka and they are very keen to export where governments are very keen to encourage that, particularly in the aftermath of what’s been happening as a result of Covid-19. And that’s something that we are very keen to try and provide to the marketplace.

You mentioned about National Logistics Policy. Now Ministry of Commerce is circulating the draft and picking feedback, suggestions and comments. As a senior in the industry and you have been interacting with this as far as India and the trade and government for long. So, what are your key recommendations or suggestions. If you can list down few and what exactly you wish to see when the policy comes out?
Well, I think there are few observations to make about this, the first one is the fact that the ministry is developing and articulating a policy in an area where there has never been a policy before, is a huge step forward. I mean, I cannot put it too strongly. When I first came to this country, I don’t think most people in politics or the government could barely spell the word “logistics,” let alone understand what it really meant. That’s changed. And the articulation of a policy in the way that is being done by the Ministry of Commerce is an enormous step forward. So, that’s very positive. The fact that as you said rightly, it is being circulated in draft for comment by industry and other stakeholders, again, I think is enormously positive if one contrasts some of the government’s edicts that were published, you know, 15, 20 years ago, that the degree of consultation or the level of consultation was minimal. Now we are seeing a much enhanced level of consultation.

It’s not an easy process because there are so many voices and so often so many conflicting views. But I think that is very constructive and I hope that the policy as it goes forward, will continue to be a live document because whilst the basic structure obviously has to remain fairly static cause otherwise you end up not knowing where you are going. The detail around it will need to evolve and I think the ministry is operating very constructively in doing what they do. I think the third point I would make is logistics is a joined-up game. We’ve seen policymakers and regulators operating in silos. Those silos are now breaking down, the role of logistics cell within commerce is very constructive cause it crosses a number of ministries, but it clearly has to be remade to go across.

And I think the recognition that the sort of joined up policy making has to take place is very very constructive. The last point I would make and it’s a repetition of what we were saying earlier is the absolute need to digitise things, not just digitise but simplify them. When the policy comes out, you know, it will be very important to read it with care because the words chosen do have particular meanings and when it says, for example, traffic must move in the swiftest possible way with the least possible interference and so on, that really says something and hopefully, whatever structure is put in place and it’s good to see that there will be an implementation structure involving industry. We will follow up on that.

The last point I would make is, and again, it goes back to competitiveness. I think the language around logistics in this country has for so long, people have talked about, you know, ports having the capability to handle so many tonnes per year or runways which are so long or whatever it is; that frankly doesn’t matter. What really matters is the cost effectiveness of that infrastructure and I very much hope that the logistics policy will draw all this together and help deliver infrastructure, both physical and regulatory, which is truly cost effective, which will drive the country’s competitiveness.