Reducing cost: Are we looking at the wrong tree?

L to R: Tarlochan Singh Ahluwalia, President, Northern India Shipper Association; Shailesh Garg, Director, General Manager India, Drewry Maritime Services Private Limited; Capt. Deepak Tewari, Chairman, Container Shipping Lines Association; Michael Pinto, IAS(Retd), Former Secretary, Ministry of Shipping, Government of India; Geeta Uppal, Sr. Vice President. Head - Procurement & Contracts, Reliance Industries Ltd; Avinash Chand Rai, Chief Operating Officer, Adani Mundra Port Pvt Ltd; Surya N Lenka, Head (Container Management & Logistics Services), Tata Steel Limited.

Industry leaders on the panel and audience brainstormed to figure out various elements that add to the cost and can reduce cost right from terminal operations to first/last mile connectivity

The first session examined under the microscope each and every aspect of inland logistics that either adds to the cost or can reduce cost. “One of the ways for reducing cost is by slashing taxes on logistics,” suggested Tarlochan Singh Ahluwalia, President, Northern India Shipper Association. For example, If 26 metric tonnes of rice is sent stuffed in a container through ICD from north India to Mundra Port the cost is `73000. The same consignment when sent in a truck costs about 60 per cent. Sending by road the exporter saves on THC, 400 litres of fuel is consumed on the journey which attracts `10,000 in taxes on fuel. The logistics cost via road from factory to the port is `30,000, which includes tax on fuel and toll tax, the later is also `10,000. If the government gives refund of these two taxes then costs can be reduced.

“The government says taxes cannot be exported and thus we are getting the IGST refund. If the government wants to refund the taxes, then why not refund the taxes on fuel as they are on the higher side, suggested Ahluwalia. Warehousing charges for stuffing and de-stuffing of goods also come upto `10,000 which can be avoided if the government allows a separate area for DPE consignments stuffing and de-stuffing. If the above mentioned charges are removed then cost can come down by 50 per cent.

Ahluwalia added, to cut cost we can focus on logistics because it doesn’t add any value into the product directly. The freight forwarders and CHAs should look at the logistics chain and figure out ways to cut cost or add value to products. For example, from North India basmati rice is exported through Mundra Port. There are 2 options for connecting to the port – one is CONCOR that operates on a profit of 16.7 per cent, while truck operators work on 2 per cent profit. If all Navratna’s like CONCOR aim at such high profit then cutting cost will be difficult.

Another important point was raised by Geeta Uppal, Sr. Vice President. Head – Procurement & Contracts, Reliance Industries Ltd. She said, “Increase the access points for moving cargo and bring transparency to cost.” Her company moves 900,000 tonnes which sums to 100 trucks on the road every day, which should be substituted by a more economical and environmentally friendly dedicated system that connects the point of manufacturing to the port. Connectivity from the production units to the port through rail siding or waterways can reduce the cost. “We would move every cbm of cargo through coastal route to southern India if we had a chance,” said Geeta Uppal. We need to attract more coastal operators to increase frequency of services. For instance, there is no coastal service at Nhava Sheva because it is too costly.

Coming to transparency in cost – if an exporter is able to pay each service provider directly rather than through the shipping line (as is the current situation) that acts as a mediator, it will bring more transparency to the logistics cost. If an exporter is paying the shipping line which in turn is paying the terminal then we don’t have the transparent itemised cost. In India both the terminal costs and land side costs are high. In china for importing a 40’ container the freight is $200 at any port, now compare this to $400 charged in India.

“As an exporter I feel the marine fee should be reduced,“ said Surya N Lenka, Head (Container Management & Logistics Services), Tata Steel Limited. Terminal handling charges in India is 1.5 times at Colombo, this is because the container handling fees is 1.2 times and marine fee is 4.5 times. The older terminals (NSICT and GTI) charge about $90 per container, but Colombo is at $75 per container, Jebel Ali is at $70, Port Klang is at $50 and Singapore is at $80. Our NCICT and GTI terminals are at par with Singapore, but a bit higher than Colombo, Jebel Ali and Port Klang. Coming to the first mile connectivity the cost is high as the logistics mix is skewed towards road.

Avinash Chand Rai, Chief Operating Officer, Adani Mundra Port Pvt Ltd focused on time value of money, i.e., the time taken for moving goods to the market.

Michael Pinto IAS (Retd), Former Secretary, Ministry of Shipping, Government of India, questioned the subsidies people ask for using coastal shipping or waterways and asked, can all concessions be removed to make all modes of transport compete at par by charging a lower tax? To which Capt. Deepak Tewari, Chairman, CSLA said, “It is the cost of shifting the goods at the interface that kills the transport mode in a multimodal logistics.” MSC Shipping tried inland water transport between Kolkata and Guwahati with return cargo available. The quotation received was `1,27,000 for a 40’ box, in which, the cost of moving on waterways is just `50,000 and the balance is the interface cost (movement of goods from road to jetty to barge). The government should address these issues of last-mile connectivity, lifton/ lift-off charges through a policy, suggested Michael Pinto.

As the session proceeded there were several vital questions raised by inquisitive audience.

Michael Pinto: Should we have a landlord port model wherein the general operations are handled by the port and the cargo operations are handled by private terminal operators to make it more economical?

Avinash Chand Rai: It hardly makes any difference. Rather than looking at one leg of the entire logistics cycle we need to device a complete end-to-end logistics solution to bring the cost down.

Michael Pinto: Can DFCs bring down the logistics cost as they have lesser interface cost?

Tarlochan Singh Ahluwalia: In DFCs the speed of movement will increase but the cost will not be reduced as the government has invested hugely in infrastructure.

Another question raised was: Can we make logistics and transport into one ministry which is incharge of one person? To which Michael Pinto responded, “I think, personally this is a huge reform whose time has come.”

Michael Pinto: The cost of offdock charges by shipping lines in addition to incentives and rebates taken by shipping lines through CFSs add to the cost for the customer. How can they be reduced?

 Capt. Deepak Tewari: With the choice of CFS granted to the importer, the rebates or incentives for shipping lines have vanished. If the customer is still paying rebates to the CFS then they need to discuss.

Michael Pinto: Can we ensure when Vizhinjam Port comes up it attracts all the Indian cargo for transshipment?

Avinash Chand Rai: There has to be an intersection of exporter, shipping line and the receiver of cargo to make it successful in addition to offering time and cost savings. Making a different point, Shailesh Garg said, transshipment is a cost and so if direct connection is available at JNPT then why do shippers go to Vizhinjam Port. But Capt. Deepak Tewari took a different stand, Colombo is at a 2 hours distance from Vizhinjam Port, so Vizhnjam can attract the entire feeder network from Colombo, provided the terminals at Vizhinjam become competitive to Colombo.

Michael Pinto: If goods are sent to ports how you expect them to be stuffed into containers without any cost?

Tarlochan Singh Ahluwalia: Certain cargo needs factory stuffing while other types can be stuffed into containers anywhere, for the later an area similar to DPD should be created for DPE where containers can be stuffed free of cost.