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Domestic container manufacturing in limbo

Escalating prices of raw materials, high cost of testing facilities have played spoilsport, besides inadequate government support.

In April last year, Bhavnagar in Gujarat was being touted as the next container manufacturing hub. The Centre said it aimed to make India self-reliant in container production, as part of its Atmanirbhar Bharat vision. The proposal, eyeing Rs 1,000-crore investment from private players, came up following an acute global shortage of containers because of a demand-supply mismatch.

The container shortage — a fallout of the Covid-19 pandemic — was due to an improvement in exports and slump in imports, particularly from China, leading to a much longer wait time for containers. It increased the woes of the exporting fraternity that was already bogged down by the Covid-19 impact.

The Bhavnagar project, however, is now in a limbo. According to sources, aspects such as escalating prices of raw materials and the high cost of testing facilities have played spoilsport, besides inadequate government support.

It isn’t something that can be done overnight. Vicky Bahl, Partner-Growth, Grant Thornton Bharat, says it will take 36-48 months to set up a manufacturing facility that can cater to India’s container demand. “It is not a 9-12-month job to set up a container manufacturing hub. We need either a steel player to forward integrate into container manufacturing or very strong backward integration tie-ups between container manufacturers and steel makers so that there is some competitiveness per se in the Indian manufacturing ecosystem,” he says.

The missing gaps
Bahl’s concerns are not unfounded. The primary raw material for shipping containers is a specialised steel called COR-TEN steel, which has increased resistance to atmospheric corrosion. This steel is typically imported from China, and ends up being more costly for Indian manufacturers.

Sibin Bose, Partner at Cochin-based logistics company Shipment Solutions, says this steel is approximately 50-100% costlier for Indian manufacturers. He narrates how the situation typically plays out for a manufacturer. “One of my former colleagues has a small facility in the north. He has to procure steel plates from Jindal Steel in Bellary, Karnataka. These have to be purchased from Faridabad, which is the hub for such steel plates. So, it adds to the logistics cost and ends up being more uncompetitive for manufacturers in the country,” he says.

Moreover, the GST rate of 18% on purchase or sale of containers is also a deterrent. “More benefits need to be extended to exporters. Tax itself is so high, in addition to the sharp logistic costs. If some sort of subsidy can be available for manufacturers, it will help them be more competitive,” Bose adds.

Besides this, container manufacturing needs a lot of planning, technical knowhow, permissions, standard licences and approvals from across the world for it to be a reality. Richard Theknath, Chairman & MD, Jet Freight Logistics, doesn’t mince words when he says that while India has the resources and the potential to do it, the expertise is missing. “Getting someone on board from China International Marine Containers (Group) Co (CIMC), which is the largest container manufacturer in the world, and setting up a committee to plan together with all the stakeholders concerned can be a step in the right direction,” he says.

This would be imperative to corner a share of the global shipping container market, valued at $8.70 billion in 2019 by Allied Market Research. It is projected to reach $12.08 billion by 2027, registering a CAGR of 4.3% in 2020-2027. China entered this market in 1980 and by 2007, made 82% of the world’s ISO shipping containers, said the research report. India has no container manufacturing capacity.

Without having some control on container supply, no country will be able to become a manufacturing hub or a global sourcing hub or an export powerhouse — all the three are among the visions the government has laid out for India to achieve.

The China connection
CIMC alone has a market share of over 40% in the international container business. According to its third quarterly report released in October 2021, the company said it was focussed on resolving the tight container supply in the market and meeting the demand for containers of China’s foreign trade exports. The group then intensified its efforts in container manufacturing. “Affected by the continuous strong demand for containers and the hike in raw material prices resulting from rising commodity prices, the price of new containers also increased. In the first three quarters of 2021, the revenue from the container manufacturing business of the group recorded a significant year-on-year increase,” the release said.

It mentioned that while the accumulated sales volume of dry containers was 1,908,500 TEUs (594,900 TEUs in year-ago period), it was 130,000 TEUs (84,100 TEUs in year-ago period) for reefer containers — which are equipped with a temperature controlling system to transport sensitive and perishable products.

Bahl of Grant Thornton Bharat says the situation has turned around for Chinese container makers in the past 12 months. “Some of these companies were on wafer-thin margins in 2019. But container prices have doubled from around $1,750 to $3,500 in the last 24 months. So, they are sitting on massive profitability because the demand now is far more than supply and they have the ecosystem to reap the benefits out of it,” he says.

It is a view seconded by others in the industry. Shipment Solutions’ Bose affirms that high demand has spiked costs compared with those in 2019. A 20-ft used container, he says, costs $650 in 2019; now this can go upwards of $2,600. The cost differential is stark between India and China. “In India, a 20-ft container costs $4,400, while in China it is $3,800. A 40-ft container costs $7,500 in India but only $6,700 in China,” he says. The most commonly used containers for shipping are 20 ft or 40 ft.

Make in India
Given that this could be the perfect time for India to corner a piece of the global container market, what really should the government do to actualise this opportunity?

An email to the Ministry of Ports, Shipping and Waterways did not elicit any response.

Bose says a project like the one that was planned in Bhavnagar could have helped as it would have brought the raw material and manufacturers in proximity to each other. This would have led to a scaling down of transportation costs and easier facilitation of processes.

Other industry experts say it is not too late yet as there is a lot of scope for this market to open up in the future.

Venkateswara Rao, Head-Logistics, Jindal Stainless, is of the view that once Indian corporate houses do get into container manufacturing according to the norms of the Research Design and Standards Organisation (RDSO), and work closely with Indian Railways, it will open the gates for a huge market. “The Indian container industry is at a very nascent stage. While China manufactures nearly 200 containers in a single day, India is currently able to produce a single container in a day (at its facility in Trichy). This underlines a wide gap in the technological know-how and skill. With the right intervention at the industry and policymaker levels, this gap can certainly be closed in the years to come,” he says.

The other aspect is on capital subsidy for such a product. Experts contend that container making will require capital subsidy as these are a globally benchmarked commodity, which is medium to high on the technical aspects as well. “Containers, even if you are stacking them up, have to meet certain norms, and a warehouse for containers, in itself, requires 100 acres. There has to be a commitment from the government — state and central — in terms of import restrictions to some extent or some kind of buffer for the Indian players, as well as providing them with capital subsidies, tax rebates, land subsidies, etc, to make them more competitive in the longer run,” adds Bahl.

It would make sense to take action immediately. Freight rates have again started increasing in January, after showing some level of steadiness in December. Given how shipping costs have spiralled over the course of the past year, with container availability being at the helm of this move, it is imperative that steps are taken as quickly as possible to make these boxes indigenously.

If India wants to be “atmanirbhar” and reach its target of $1 trillion in exports by FY28, it needs to start by developing capacity and expertise to make containers.

Source : Economic Times


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