“CFSs can take up additional activities that FTWZ, MMLPs and air freight stations perform, but at a much lower cost.”
Let us begin the discussion with a very burning issue. Container freight stations have been facing trouble and challenges for the last 2 to 3 years. First it was Direct Port Delivery which has affected business. Then it is COVID-19 which has brought in a host of other issues and challenges. So, can you give me an insight into the business of Container Freight Stations and key challenges you are facing?
CFSs have been facing challenges for almost 4 to 5 years now, but we have overcome most of them. Let’s start with the reduced volumes resulting from Direct Port Delivery, which started in 2016. Prior to this foundation, newsprint and certain items were going Direct Port Delivery, which were about 6%. And the DPD within 2 years went up to 40% – 50%. CFSs are heavily dependent on imports, because 75% of business is imports and 25% is exports, so this hit the CFSs badly. But then with innovation and re-engineering of business plans, they could capture a lot of DPD volumes because the importers found it difficult to clear their cargo within a certain span of time and CFSs have an expertise in clearing very fast, as they have the wherewithal. So, almost 85% of the DPD business was routed through the CFSs. And success of the 50% DPD was because of the CFSs, albeit with much lower revenues.
So, yes, the bottom line got hit very badly but the volumes were there, and with the increase in the port traffic, I think they were able to sustain. Then, came in the COVID in March 2020 and CFSs being extension of the ports, were declared an essential service under the pandemic act and we were required to perform so that the ports don’t get congested and the lifeline of the country which is the supply chain is not impacted. So, CFSs took up the challenge, they brought in extra labour, truckers, paid them very heavily and kept evacuating as many as 6,000 to 7,000 containers a day. And within 10 to 20 days, they made the ports free and in the process they got themselves congested.
Although the government had declared entire exim trade, whether essential commodity or non-essential commodity, exempted from the lockdown, but the importers were not coming forward to take deliveries because the factories were closed. Further the government supported the trade and issued advisories recommending CFSs for providing total waiver to the trade, which we said, is not possible. CFSs themselves are compassionate, and had given waivers to the extent possible. But giving total waivers was not possible because CFSs generate revenues only when the consignee takes delivery, but their payoff starts when cargo evacuation from the port begins. CFSs have to pay the vendors, truckers, labour and the staff. So, it was a very tight situation. But after 2 to 3 months, the deliveries started going despite waivers and CFSs realized revenues and could sustain.
Now, in the last 2 to 3 months, with imports shrinking by about 25% to 30%, and exports rising, the business is hit again and CFSs are working at 40% to 50% of volumes.
CFSs definitely are an important link in the entire supply chain and the business itself is facing challenges. But why every time CFS operators are shown as bad boys?
In our country the importers and exporters get preference and the service providers who have put in a huge infrastructure, spent crores of rupees, have a huge Capex/Opex are assumed to be making big money. Let’s be honest, CFSs make money, but not by any dishonest means. The whole trade takes clearance from CFS in 15 to 20 days, and our revenue comes from the ground rent. Slowly the trade got disciplined and so did the CFSs because we live with lesser revenues but the increase in volumes has helped us sustain.
So, CFSs somehow have been projected in bad light by the trade, though we are custom cargo service providers and we are servicing the cargo. If the ports do not have the space to service the cargo, and if evacuation to CFS doesn’t happen, then the exim trade will come to a standstill like it happened during the pandemic. There was 50% DPD, but not a single DPD importer came to take the deliveries, and for handling all the cargos, the CFSs came into support, and I think, the government realized the importance of CFSs at that point of time. But the memory is short lived. Again, they will forget, and again they will be getting us whipped.
What is the current capacity utilization of the CFSs? Could you please share the numbers at the national level?
Yeah. I have the national figures as far as CSFAI and NACFS combined are concerned. If you take all the major and the private ports, CFSAI utilization is between 40% to 50%, or some of them 55%. Mundra is doing pretty well because a lot of exports happened at Mundra through the CFSs, and exports are booming plus there is no oversupply in Mundra. So Mundra CFSs are working at a better capacity but at all other places, it is anything between 45% to 50% capacity.
How will be the business model in the future? With a lot of digitalization or streamlining of logistics bottlenecks, turnaround time is getting shorter. As the main revenue model of CFSs revolves around the ground rent, what will be their future business model?
This is one thing which has been worrying us and we have also been taking it up with the government. Yes, the ground rent is a very important component. As the trade gets disciplined they move faster. 1. In case the volumes increase, then at least you have larger volumes to handle, so revenues will come, and we will be able to sustain. But we need to effectively utilize the high tech infra which has been setup at a huge costs.
We have been proposing to the government that CFSs can do a lot more; we can do what a multimodal logistics park will do or a FTWZ will do. Allow us certain additional activities. Activities like aggregation, segregation of cargo, labelling, and sort of barcoding can be done in the CFS. Secondly, domestic cargo, non-exim cargo can be handled in CFSs though they are Custom cargo service providers, Custom stations, but virtual boundaries can be created for distinction of cargo. And you can monitor, track the movement of goods as well as persons through a virtual boundary and reports can be generated.
So, there is a solution available which I am proposing to the government and we do hope that government will listen. Especially at JNPT, with the new airport coming in, and the air cargo seeing a lot of increase, these container freight stations can also serve as readymade air freight stations. It will bring down the cost, because setting up a new facility involves huge cost and so these readymade facilities can start from day one.
During COVID pandemic, one good thing that happened is digitalization got accelerated. Everybody is looking at moving onto digital platforms. So, in that aspect where do CFSs stand?
Yes, during this pandemic digitization has taught the logistics world a new lesson that going forward this is the way, there is no other way. The usual procedure is that documents are sent through air, courier to banks, LCs are opened and the documents are negotiated. But during the initial days of COVID-19 all these procedures came to an end.
But cargoes need to move and so innovative methods came up – there was a PCS1.O but the trade was reluctant to use it because of data security and later everybody followed line and so did the CFSs. We started accepting e-delivery orders, e-payments, e-invoicing, and I think for a lot of information which is being shared – digitization is the way forward. This is one of the positives which COVID has given.
Logistics industry was granted infrastructure status some time ago. Has it helped any way to the CFSs?
We all felt this would help and a lot of investments came in with the newer CFSs when the ports were expanding – we got benefit under IT Act. That was a holiday for a while, but the lenders are still not comfortable because of the risk assessment. They feel, because the government policies keep changing, like how the DPD came and utilization of CFSs and their revenues were down by 50%, all the lenders who had worked on the basis of IRR of around 18 to 22% suddenly found that the CFSs would not be able to service their loans. Secondly, even though the loans are not coming at a very high rate, they should have been ideally coming at 3% or 4% for a longer tenure but that has not happened. Until there is some sort of assurance that these policies are going to stay and CFSs are treated as an essential part, till then, I foresee that the infrastructure status is not helping the CFSs in anyway.
But going forward, I think that would be an appeal to the government, let everybody benefit because ultimately the trade is going to benefit, if the costs come down, the end user benefits. The importer benefits, the exporter benefits.
Customs have come up with a lot of regulatory changes and in fact, we should say they have been rapidly changing, adopting new models, new ways of doing things. But some of them as I understand from the market feedback are not working well for the trade like faceless assessment is causing some delays during clearances. So, what is the ground reality? Is it because the trade is not adapted to that or are there any unforeseen fears or what is it?
You are right, there have been a lot of complaints especially from the broker community and the importers that it is taking much longer time for the queries to be answered, the assessment process is faceless, which means somebody sitting at Bangalore, or in Delhi is doing an assessment at JNPT. Everybody, all across India are not familiar with so many products – so they do not know what is the duty? So it takes longer time. They come out with wrong assessment that is creating problems. There are a lot of positives which have come from customs – of late, it has been “Turant,” filing all the documents online, but I think over a period of time, it should settle down,
Going forward, if these obstacles are not cleared, the trade will suffer. It’s a good initiative by the customs, we hope it works. But if it doesn’t, they will have to review.
As Secretary General CFSAI, what is your new agenda?
Our new agenda is: We would like our members to continue performing and not become NPAs. So, we have been taking up with the government, with the CBIC, with the Customs and the logistics ministry. No.1, to allow all the MMLP activities and FTWZ activities. Earlier they wanted a 200 acres land for an FTWZ, which was brought down to 100 acres. But I don’t think that big parcel size is required. That doesn’t have a role to play. Then you have this multi modal logistics park activities like I mentioned. Allow manufacturing if required in a small way – packing and whatever I mentioned about the change in business plans. We have to re-engineer the business plan and the government has to support. I think that’s the way for CFSs to go forward. These are all state-of-the-art infra, doing a great job and they have a future provided the government supports you. Government also needs you, it was proved during the Covid, that none of the importers, none of the DPD importers came forward. It is only CFSs who came forward, worked day and night to evacuate and kept the logistics chain moving. So, I am proud of our members who have done all that. And good luck to all of them.