National conference on Container Infrastructure in India 2012 Background Paper

February 2012 www.deloitte.com/in

Contents
Introduction Policies & Trends in Containerization Container Infrastructure Development at Ports Container Movements in India, Way of Transportation & Challenges Container Freight Stations & Inland Container Depot Infrastructure Container Rail operations Bibliography & References Contact 1 5 11 14 20 29 34 35

Introduction
Containerization is the use of containers to unitize cargo for transportation, supply and storage. Container logistics thus incorporates supply, transportation, packaging, storage, and security together with visibility of container and its contents into a distribution system from source to user. Ports, railways, roads, warehouses, shipping & logistics companies, by virtue of being the primary players dealing with containers are also the key contributors to the development of container trade & infrastructure. The advancement in overall trade and benefits due to adoption of containers for transport has brought forward the term Trading in the Box. Containerization thus, in trade terms, is the driver of various players towards utilizing containers for transporting goods between various places and by various modes of transport. There are various container types catering to different needs: General purpose dry cargo containers for boxes, cartons, cases, sacks, bales, pallets, drums in standard, high or half height High cube purpose container, which is a 40- foot container of 9' 6" height. It is recommended for light voluminous cargoes which would otherwise not fit in a normal 8' height container Refrigerated or reefer containers Open top containers for bulk minerals, heavy machinery Open side for loading oversize pallet Flush folding flat-rack containers for heavy and bulky semi-finished goods, out of gauge cargo Platform or bolster for barrels and drums, crates, cable drums, out of gauge cargo, machinery, and processed timber Insulated Containers for perishable goods (fruits, vegetables etc) which require protection from temperature change without necessity of refrigeration. Ventilated containers for organic products requiring ventilation Tank containers for bulk liquids and dangerous goods Rolling floor for difficult to handle cargo Collapsible or folding flat rack containers Bulk containers for grain, fertilizers, chemicals etc in bulk. It is fitted with manholes to facilitate bulk cargo through gravity. Garment containers are fitted with hangers to help loading a large number of garments in hangers inside the container. Pen container for cattle or livestock. It has netted windows on the side or ends to facilitate ventilation. On the lower part of the side walls it has cleaning and drainage outlets.

National conference on Container Infrastructure in India 2012 Background Paper

The advancement in overall trade and benefits due to adoption of containers for transport has brought forward the term Trading in the Box. Containerization thus, in trade terms, is the driver of various players towards utilizing containers.

National conference on Container Infrastructure in India 2012 Background Paper

The advantages of containerization are well known throughout the industry. Few of them are: effective handling of cargo (specially liquid cargo), minimal or no damage to goods, optimum utilization of storage & warehousing capacity, technology adoption due to mechanized handling required for handling containers, skill development of workers for operating containers, reduction in transport time, door-to-door or end-to-end delivery of goods etc.

Additionally, containers enhance the effectiveness of overall supply chain mechanism in the trade. The abundant opportunities offered by containers lure various transport sector players to promote the containerization drive. Government of India has taken several initiatives & brought forth policies to increase the utilization of containers.

Containers & Ports

Ports are the primary influence to the containerization movement. The following chart provides a glimpse of the container traffic handled at the major ports in the past .

Container Traffic at Major Ports (in MT) 120 100 80 60 40 20 0 200506 200607 200708 200809 200910 201011

Container Traffic (in MT) 61.98 Growth in Container Traffic (in %)

74.44

92.27

93.14

101.24 114.05
8.70% 12.65%

20.10% 23.95% 0.94%

The Container traffic at major ports has almost doubled in the past 5-6 years Container traffic at major ports shows growth at an average rate of 13.27% per year Globally the container traffic has grown at around 10% in the past 20 years This showcases the consolidated position of Indian container industry vis-vis the world

National conference on Container Infrastructure in India 2012 Background Paper

According to estimates, the world container throughput will reach 1 billion TEUs by 2020, which is almost double of the current container traffic. The emerging Asian & African Countries are expected to be the prime movers in achieving this growth. Most of the shipyards are filled with orders for container ships of over 10,000 TEUs capacity. These container ships will form the major part of the world maritime fleet in the coming years. India is going to be the preferred destination for a global manufacturing hub. This fact presents many opportunities for the ports to change their current operation style and be ready for the foreseen surge in demand of handling and faster evacuation of containers. Many investments have been proposed and steps have been taken by various port authorities for attracting the container traffic.

Containerized Cargo Commodities

The major cargo commodities that get containerized are garments, electronic goods, agro products, cotton yarn, machinery/parts, granite products, coir products, leather products and jute products. Indian ports have also been seeing many hitherto break bulk cargoes like rice, maize, glass, granite, garnet sand, sugar, soya, cement and flowers now moving in containers. Some break-bulk cargo such as banana, cotton and green coffee beans have become permanent container fixtures, while others such as pulp, lumber, cocoa and onions migrate from container to ship holds and back to containers, according to the rise and fall of box rates. Even iron ore has been successfully exported from Chennai in containers. All this points to a steady move towards containerization for value added benefits. The main beneficiary would be the container shipping industry and container terminals.

In addition, with regards to the cost economics, the handling cost is lower for containerized cargo as opposed to break bulk leading to containerization of minerals exported. With 40 per cent more imports than exports, incoming containers wait for repositioning to other locations. Container lines, instead of spending on shipping out empties, offer good deals for shippers to specific locations as a result of which soya, sugar, steel plates and agricultural products have gone the container way.

National conference on Container Infrastructure in India 2012 Background Paper

Policies & Trends in Containerization

The success of any sector or industry depends on both private players and the Government Authorities. Accordingly, the success of the infrastructure sector or containerization as a subset cannot be attributed to efforts of single side. Policies and regulations thus play an important part for the development of container infrastructure. The following section provides an assessment of the salient features of various policy & regulations affecting the development of container infrastructure and in turn growth of container movement in India.

Policies affecting Containerization

Foreign Direct Investment
One of the parameters for judging the maturity of a countrys trade & industry i s development of infrastructure. In emerging economies like India, the budgetary allocation for development of infrastructure is structured phase-wise so as to develop the infrastructure as well as to do justice to other sectors like education, health, food & nutrition, defence etc. In such cases the investments by FIIs & lending from multilateral agencies form a major part of the sources of finance for funding the long term and huge capital expenditure involved in the infrastructure sector. While relaxing the norms for foreign investments in India in 1992, Indian government also considered the infrastructure requirements and thus opened the infrastructure sector for investments. Infrastructure development is of prime importance to the containerization drive. In the transport infrastructure sector, there are no restrictions on investment. Following are the salient features of FDI policy on transport infrastructure sector: 100% FDI in maritime infrastructure like ports, terminals, jetties, harbors, merchant shipbuilding 100% FDI in support infrastructure like warehousing, roads, Inland Water Transport, other logistics components

Draft Policy on Private Freight Terminals (PFT)

New PFT policy supersedes the Old PFT policy. The policy aims to stimulate development of privately owned freight terminals on private land for dealing with break bulk goods, parcel traffic and containers. Under this policy PFTs are envisaged to provide goods handling, warehousing and other associated logistics services to rail users and facilitate expansion of third party logistics sector. The following are some of the salient features of the PFT policy. Salient Features PFTs are envisaged to provide goods handling, warehousing and other associated logistics services to rail users and facilitate expansion of third party logistics sector Beneficiaries / Key stakeholders Warehousing and distribution companies Subsidiaries and joint ventures of private companies

National conference on Container Infrastructure in India 2012 Background Paper

The revenue model involves fee sharing between the Indian Railways and the private operator after 5 years of commissioning the terminal The private operator will be allowed a wagon freight rebate of 12% rebate for a period of 20 year extendable by another 10 years The terminal can be done on green field and well as brownfield land

Investors 3 party logistic providers

Benefits The freight operator can carry fertilizers, cement, chemicals, edible oil and petrochemicals excluding gas, auto fuel and kerosene. Relevant to manufacturers of FMCG goods for inbound and outbound logistics or high volume goods manufacturers Investors in this scheme will have direct rail access to third party freight forwarding cargo, If the investing company is a 3PL they can provide value added services or assembly at these locations and charge for the same, The contract is long term for a period of 20 years Underutilized/unutilized existing sidings get opportunity for commercial utilization for their facility

Challenges Procurement of greenfield land is time consuming and setting up terminal could take more than 2 year. This results into forfeiture of security deposit Commercial non-viability of project does not make it an attractive proposition for private siding owners The clause to change private siding into a brownfield PFT and the minimum land and line requirement to be called a PFT cannot be necessarily followed at the same time. Not all private siding owners would have additional land in the vicinity of the terminal to install a structure Policy is still being amended and lack of clarity makes it unattractive to investors

Cabotage Policy & Coastal shipping recommendations (from Draft new policy)
The Cabotage Policy checks the coastal trade of a country. Few countries practice absolute Cabotage law while others practice a tailored one. In India, the Cabotage Policy is not absolute. It is regulated through provisions of Sec. 406 & 407 of the Merchant Shipping Act, 1958. The Draft Coastal Shipping Policy submitted to Ministry of Shipping for approval recognizes that due to lack of containerization & restrictions on feedering of the cargo under the current Cabotage policy, a considerable part of Indian cargo for transshipment through containers gets diverted to Colombo, Singapore & Jebel Ali Ports.

National conference on Container Infrastructure in India 2012 Background Paper

Key recommendations under the Coastal Shipping policy for container trade boost Opening up of foreign flag vessels will boost containerization and requisite infrastructure & practices. To develop a Freight Exchange for India centric international container trade later extendible to coastal operations. Doing this will lead to an e-market for supply of freight and corresponding tonnages to cater to such trade. Shippers can access the database and book cargo against the capacity. This facility is proposed to be also available for containerized cargo originating from select CFS/ICDs.

Policy to Permit Various Operators to Move Container Trains on Indian Railways

This policy was formulated to permit rail linking of Inland Container Depots (ICDs) by private parties other than CONCOR and allowing them to move container trains on the same lines as CONCOR for both international and domestic traffic. Following are the salient features of the policy:

Sr.
1. 1.1

Policy Heads
Eligibility General

Features

The scheme is open to all registered Indian public/private sector companies/persons either individually or in joint venture. It will include Indian registered companies of foreign entities The prospective operator should have a suitable access to a rail linked ICD with adequate handling capacity in the hinterland / inland location for handling of container trains OR The operator should enter into an agreement with an existing rail ICD operator/rail terminal operator for using his facility for container train operations, within six months of obtaining in principal approval from MOR. OR The operator gives an undertaking that he will develop his own ICD with rail facility within a period of three years from the date of in principal approval to operate container trains.

1.2

EXIM Traffic

1.3

Domestic Traffic

The prospective operator should have a suitable access to two rail linked ICDs with adequate handling capacity in two hinterland/inland locations for handling of container trains OR The operator should enter into an agreement with an existing rail ICD operator/rail terminal operator for using his facility at two locations for container train operations, within six months of obtaining in principal approval from MOR OR

National conference on Container Infrastructure in India 2012 Background Paper

The operator gives an undertaking that he will his own ICD with rail facility at two locations within a period of three years from the date of in principal approval to operate container trains 1.4 Should be engaged in any of the following services 2. Regulation of Rail Container Operations Transport Trade and Commerce Infrastructure Handling of Goods / Cargo Port / Land Terminal operations Logistics Warehousing Manufacturing Leasing

In order to regulate the entry of new rail container operators on lndian Railways (IR) network, various routes have been grouped into four categories largely based on the existing as well as anticipated traffic volumes on different rail corridors serving gateway ports. These categories are as follows: This category includes all existing/future ICDs serving JNP/Mumbai Port in National Capital Region like Tughlakabad, Dadri, Gurgaon, etc. This will also include all destinations reached via National Capital Region like Dhandari Kalan, Moradabad etc. This category will also include all domestic traffic This category includes all existing/future, ICDs serving JNP/Mumbai Port at locations other than those covered in category I. This category will also include all domestic traffic except on category I routes

2.1

Category I: JNP/Mumbai Port - National Capital Region Rail Corridor and beyond

2.2

Category II: Rail corridors serving JNP/Mumbai Port and its hinterland in other than National Capital Region and beyond Category III: Rail corridors serving the ports of Pipavav, Mundra, Chennai/Ennore, Vizag and Kochi and their Hinterland Category IV: Rail corridors serving other ports like Kandla, New Mangalore, Tuticorin, Haldia/Kolkata, Paradip and Mormugao and their hinterland and all domestic traffic routes

2.3

This category includes all existing/future ICDs serving these ports. This category will also include all domestic traffic except on category I routes

2.4

This category includes all existing/future ICDs serving these ports. This category will also include all domestic traffic except on category I routes

National conference on Container Infrastructure in India 2012 Background Paper

3. 3.1

Financial Capability In case of an individual or a single company, either the turnover or the net worth should be a minimum of Rs 100 crore In case a number of companies form a consortium for the purpose of operating container trains, each constituent member should have either annual turnover or net worth of at least Rs 50 crore Companies which have been declared sick under SICA Act will not be eligible to participate in the proposed scheme either singly or in association with the other companies for container train operation Approval Process If the proposed operator has to set up a new ICD then for rail linking an Inland Container Depot (ICD) he must obtain the requisite permissions from the concerned authorities of the Government of India for setting up and operating the ICD within six months The proposed operator should submit his request in, writing to MOR indicating therein his legal identity, intended, scope of operations for the next five years atleast, proof of complying with various eligibility criteria indicated in this' policy, and willingness to abide by the terms and conditions laid down in the policy and as amended from time to time Based on the documents furnished and clarification, if any, Railways will give their in principle approval. In case the prospective operator fails to indicate his readiness to operate his container trains to Railway's sat isfaction within 3 years of grant of in principle approval it will be deemed to have lapsed unless prior extension is given by railways at its sole discretion Before actually commencing operations, the operator will enter into an agreement with the Railways containing the detailed operating and accounting procedure: including the ownership of the new lines/assets and other relevant details. The agreement will have provision for suitable arbitration procedure for resolving any dispute. The scheme will be open for one month every year. Registration Fee At the time of submission of request to run container trains every applicant would be required to deposit a nonrefundable registration fee of Rs 50 crore for applying for all categories of routes including category I and Rs 10 crore for each individual category of routes except category I. Applications only for category I routes will not be accepted The registration fee of applicants who are not found eligible will be refunded without any interest

3.2

3.3

4. 4.1

4.2

4.3

4.4

4.5 5.

6.

Modalities of Granting New Licenses

In case the successful operator opts for category I, he will get a flexible permission to run trains between any pairs of points in the entire country. This will include permission for all other categories also. In case the operator applies for a particular category (except category I), he will get permission to run trains between any pairs, of points in that category

National conference on Container Infrastructure in India 2012 Background Paper

only for EXIM traffic and in domestic traffic for all routes, except those in category I. There will be no limit on number of trains on any of the routes. 7. 7.1 Period of Validity of Permission for Operating Container Trains The validity of permission will be for a period of 20 years from the date of operation of container trains by the operator. The permission can be extended by 10 years to the same party after expiry of the validity of permission subject to satisfactory performance and on payment of the fee as applicable at that time, which will be decided by Railway Board An operator will be permitted to exit from the market or transfer the permission to another operator for container train operational subject to the latter fulfilling the selection criteria and subject to prior approval of the Ministry of Railways. This permission will however, be granted only one year after rail borne container traffic has commenced from his ICD

Impact of VAT
The phasing out of the Central Sales Tax (CST) and the introduction of Value Added Tax (VAT) will tend to facilitate movement of goods by containers. CST compelled companies to set up warehouses in the major states to avoid the tax implications. VAT would encourage the manufacturers to realign their supply chain network by doing away with their many warehouses across the country and concentrating on fewer & bigger regional warehouses. Manufacturers would also be improving their hub and spoke distribution system, which would entail efficient and safe transfer of goods from point to point. It can easily be achieved by containerization movement. Hence a steady increase in the containerization of cargo even for domestic movement is expected. Implementation of VAT is expected to bring in uniformity not only in tax rates, but also procedures. VAT would also remove the tax-based advantage, which some locations had in terms of setting up a manufacturing unit or a warehouse, while IT Enabling of documentation would lead to less flow of physical documents and workload. With the introduction of VAT, the business community thus has an opportunity to work in close association with their logistics service providers and put in place a lean supply chain network and improve their supply chain efficiency.

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Container Infrastructure Development at Ports

Ports provide an interface between the ocean transport and land-based transport. Indias port infrastructure constitutes of 13 major ports and 187 non-major ports. Of the non-major ports, only about 48 are operational; while the rest are only fishing harbors. While the non-major ports contribute significantly to the overall traffic, the containerization traffic mostly belongs to the major ports. Only select non-major / intermediate ports like Pipavav Port, Mundra Port etc. cater to the containerized traffic. In other words the container infrastructure and trade is untapped by the non-major ports. The reason for it may be the drafts required for the large container ships or due to the major investments required to be done in the containerization process. Dedicated container terminals have been constructed across almost all the major ports to cater to the demand of container traffic. Private players have set up the CFSs/ICDs in proximity of the major ports. The growth of container traffic is primarily dependent on items like capital & engineering goods, textiles and food items which are transported in containers. The various major ports have proposed to invest in infrastructure for development of containerized traffic. The following table gives the details of some of the major container related investments proposed by Major Ports: Sr. 1 Project Name Port Name Capacity 0.80 MTEUs Project Cost (in Mn) 14610 Status Anticipated date of completion is September, 2012.

Construction of two New Mumbai Off-shore Container Port berths & Development of Container Terminal berth on BOT basis in Mumbai Harbour. Development of Berth No. 7 as second coal handling terminal on DBFOT basis. Mormugao

4.61 MTPA

4060

The date of award of concession was fixed on 15.5.2010. Physical progress of the overall project in terms of percentage is 13.75%. Financial progress of the overall project in terms of percentage is 19.62% (Rs. 79.65 cr.). Phase I of the ICTT Project with an investment of Rs. 1262 commissioned

Development & Operation of International Container Transshipment Terminal

Cochin

Capacity addition

21180

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Sr.

Project Name (ICTT) at Vallarpadam (BOT basis by M/s India Gateway Terminal Pvt. Ltd. a subsidiary of M/s. Dubai Ports International)

Port Name

Capacity of 12.5 to 40 MMT In phases

Project Cost (in Mn)

Status on 11th February, 2011.

Development of Second Container Terminal (CITPL) on BOT basis.

Chennai

4920

Project facilities and services were completed & commercial operation has already been commenced on 22.9.09. Preliminary works are going on and expected to be completed in 201314 Letter of Award has been issued to the H1 bidder i.e. Consortium of Sterlite Leighton @ 23.4% revenue share to the port. In the meantime, Sterlite Leighton has sought time till 30th June, 2011 to complete all formalities on the SPV and have requested Port for expediting Environmental & Forest clearance Likely commission period of Phase I, is May, 2014. In respect of Phase-II the development will be taken up after completion of Phase-I. Out of seven shortlisted applicants five have collected RFP. The project is currently under biding

Construction of Container Terminal on BOT basis

Ennore

18.0 MTPA

14070

Development of MultiPurpose berths to handle clean cargo including container on BOT basis

Paradip

5.0 MTPA

3873

Fourth Container Terminal (DBFOT Basis).

JNPT

6.8 MTEUs

41000 Phase -1 27000 Phase II

Development of standalone Container handling facility with a quay length of 330 m. to the north of JNPT.

JNPT

10.0 MTPA

6000

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Sr. 9

Project Name Development of Container Terminal at NMP on BOT basis.

Port Name New Mangalor e

Capacity NA

Project Cost (in Mn) 2697

Status No bids have been received on the due date. The project is under review. Invitation of RFQ process completed. Ministrys approval awaited for issue of Bids to the prequalified RFQ applicants. Awaiting Ministrys approval on restriction of Monopoly policy decision. Likely commission period is December 2011 Share holding pattern approved. Environmental clearance awaited. Anticipated date of completion is 2010

10

Development of Mega Container Terminal on BOT basis.

Chennai

4.0 MTEUs

36860

11

Conversion of berth No. 8 as container terminal on BOT basis.

Tuticorin

7.2 MTPA

3122

12

Development of all Maharas weather and Multi user htra Port on BOOST basis by M/s. Amma Lines Ltd (To become hub port in South Asia with draft 20 Mtrs.) Development of Mundra Mundra port ( South port and (Gujarat) North port ) for containers, LNG, Liquid Bulk, Car Terminal & General cargo. By Mundra port SEZ Ltd. Mechnization of Okhla port by GVK power and Infrastructure Ltd. Okha (Gujarat)

44.7 MTPA (1.7 MTEUs) Container 125

43000

13

12000

Capital dredging in progress for south port.

14

9.28 MMTPA + 0625M TEU

790

Pre-feasibility study has been completed. Detailed studies are underway

From the table above we can see that the major ports in India have already endeavored to adopt containerization and reap its benefits. The ports in India have taken steps to ensure that we just not do the bare minimum but go ahead by leaps and bounds.

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Container Movements in India, Way of Transportation & Challenges

Transportation infrastructure works as a catalyst for the economic betterment of any country. Better transportation network in a country leads to faster movement of goods and services, resulting into higher turnover of goods and increase in GDP. Connectivity to the hinterland is of prime importance to boost the container trade. Adequately planned schedules, well synchronized intermodal network and availability of end-to-end connectivity to the prime destinations or consumption centers improve the distribution network and reduce the transit times. Roads and railways form an invaluable part of the connectivity network of the Indian Transport System. IWT in India is not well developed and is also not available for the last mile connectivity. Thus Indian goods transport has to rely a lot on the roads and railways for the end-to-end delivery of goods. Government of India has taken up the challenge to form a dedicated network of highways and railway lines through various schemes and plans. The Expressway and the Golden Quadrilateral are some of the examples of the highways network development initiatives while the Dedicated Freight Corridor is representative of the efforts by the Ministry of Railways. Additionally, Indian Railways and the Railway Ministry have set out quite a few policies like Private Freight Terminals policy etc. for enabling the container infrastructure setup.

The Great Indian Roads:

India is a country having one of the largest road network of approximately 42.36 lakh kms. However the quality of the road infrastructure is inferior as compared to other countries. Analysis of the transport budgets of some states shows that the amount of money allocated to the sustenance of the existing road network far surpasses the allocation to the new road development. In some regions, it is almost double the budget for new works. Despite this, the quality of the roads and their actual life expectancy is far less than expected.. As per the Road Transport & Highways Department around 60% of the total freight and around 87% of passenger traffic is carried by Indian roads. The traffic forecasts show that the road traffic is expected to grow at a rate of around 8-10%.

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The Indian Roads Network is divided into the following major heads:

Indian Roads

Expressways
6-lane highway. A shoulder-type extra lane is given on both sides Currently connects to major cities. Total length of an Expressway is around 200 km Design Speed is around 120 kms per hour Plans for direct / indirect connectivity to Expressways from various Port are ongoing Total length of Expressways + National Highways = 70934 kms

National Highways
They connect state capitals with national capital & major ports Carry around 40% of total road traffic NHAI is the responsible authority for their development & sustenance NHDP programme by Central Govt. proposes 4 phased development of the overall road infrastructure.

State Highways
Connect with the state capitals, National Highways, District headquarters, major cities and non-major ports These are funded through the state budget allocations Total length of state highways is 1,54,522

District Roads
Connects the towns & production centers with state highways & villages to the towns & cities Total length = 25,77,396

Rural Roads
These roads form around 35% of the total length of the roads in India Total length of rural roads is 14,33,577 kms

As indicated, NHDPis a single multi-crore project with several phases. The completion of these phases will be a landmark achievement in the road transport network. The following table shows the current status of the NHDP projects started by NHAI & GOI: Overall Status, Length Completed As On 31.12.2010 Of Different Phases Of NHDP Phases Total Length (in km) 7,498 Length Completed (in Km) 7384 Likely date of Completion -

I - GQ,EW-NS corridors, Port connectivity & others II - 4/6-laning North South- East West Corridor, Others III - Upgradation, 4/6laning IV- 2- laning with paved Shoulders

6,647

4934

Dec -2010

12,109

1968

Dec-2013

20,000

Dec- 2015 (as per financing plan)

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V - 6-laning of GQ and High density corridor VI - Expressways VII - Ring Roads, Bypasses and flyovers and other structures

6,500

443

Dec-2012

1000 700 km of ring roads/ bypass+ flyovers etc.

NIL NIL

Dec-2015 Dec-2014

Source: Annual Report of MORTH, 2010-11

The following table represents the allocation from the Central Road Fund under various heads for the year 2010-11. We can clearly see that the National Highways (including Expressways) allocation clearly outclasses the other allocations. Sr. 1 2 Allocation Head Grant to State Governments and UTs for State Roads Grant to States & UTs for Roads of Inter-state Connectivity & Economic Importance National Highways Rural Roads Railways Total Amount (In Cr.) 1893.75 210.42

3 4 5

7848.98 4434.12 876.73 15264.00

Allocation from CRF

Railways 6%

Grant to State Governments and UTs for State Roads 12%

Rural Roads 29%

Grant to States & UTs for Roads of ICEI 1%

National Highways 52%

It is noteworthy that most of the projects under NHDP are proposed to being developed in association with private players / developers on PPP basis. While developing such an extensive network of highways across India, many restraints and challenges are faced by both, the government as well as the private players. The common yet key challenges raising their hood against the advancement of the road network have been summarized below:

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Sr.
1

Challenges
Land acquisition:

Details
There has been inordinate delay in acquisition of land in some States mainly due to procedural formalities, court cases and lack of full co-operation from the State Governments concerned There have been considerable delays in getting the forest clearance both at the Central and State level Rail Over Bridges (ROBs) and Rail under Bridges (RUBs) had to be constructed to make the NHDP free from level crossing on Railways. Obtaining the clearances/approval from the Railways involves co-ordination with several Departments within Railways and it takes a long time to get the necessary approvals Shifting of utilities of different types e.g. electric lines, water pipelines, sewer lines, telecommunication lines which were to be completed with the assistance of the concerned utility owning agencies took a considerable time In many States, works have been affected because of adverse law and order conditions and activities of anti-social groups. In addition, the stoppage of works by the local population demanding additional underpasses / bypasses, flyovers, etc. was also frequent. Performance of some of the contractors has been very poor. Cash flow problem has been one of the major reasons for poor performance. The termination of such contracts often results in long-drawn litigation and further delays in completion of works

Environment and Forest Clearances Clearances of Railways for ROB designs

Shifting of Utilities

Law and order problems

Poor performance by some contractors

Source: Annual Report of MORTH, 2010-11

Addressing the above bottlenecks will expedite the development of the road network & other untouched areas of technological innovations for road safety and sustainable transport.

The Indian Railways:

Indian Railways is the 5th largest network in the world. The only nations ahead of India in terms of the Railway infrastructure are the United States, Russia, Canada and China. The total length of Indian Railway is around 63,327 kms out of which 41% is electrified. There are a total of 17 zones divided in accordance with various administration jurisdictions. Each of these zones is responsible for the operations, management & sustenance of the subdivisions and the railway tracks coming under its jurisdiction. Almost 72.5% of total railways length is single line and is utilized by passenger as well as freight trains. The sharing of railway sidings amongst the passenger and freight trains causes disruption in the smooth functioning of the trains. Long waiting time and uncertainty of arrival are the two primary reasons for the delay in time of freight goods. For augmenting the rail transport capacity and to meet the growing demand of the freight traffic, the Indian Railways planned the Dedicated Freight Corridors which will cater to only the freight traffic.

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Dedicated Freight Corridors were proposed to be developed on the Eastern (Ludhiana in Punjab to Dankuni near Kolkata 1839 kms) and Western (from JNPT to Tughlakhbad and Dadri in Delhi 1534 kms) Corridors. Of the two, the Western Corridor is specifically dedicated to the container traffic requirements for the existing as well as emerging ports of Gujarat, Maharashtra and northern hinterland. The Western corridor route comprises of following main destinations: JNPT-Surat-VadodaraAhmedabad-Palanpur-Ajmer-Rewari. It is proposed to be an electrified automatic double line corridor except for a patch of 32kms from main corridor to Tughlakabad where it will be a single line link. DFCCIL a SPV, is specifically created for implementation of these project. The salient features of these two corridors can be given as: Features Route Description Western Corridor JNPT-AhmedabadPalanpur-RewariTughlakabad / Dadri 1534 Double (SingleTughlakabad-Pirthala) Automatic signaling with 2 kms spacing on double line. Absolute block system on single line Electrified (2x25 KV AC) 25 Tonne (sub-structure of bridges fit for 32.5 tons axle load) 100 kmph 128 million tonnes (6 million TEUs), (264 trains) 1516 Km Rs. 22,956 crore Eastern Corridor Dankuni-GomohSonnagar- MughalsaraiKanpur- Khurja-Ludhiana 1839 Double (Single KhurjaLudhiana) Automatic signaling with 2 kms. Spacing on double line. Absolute block system on single line Electrified (2x25 KV AC) 25 Tonne (substructure of bridges fit for 32.5 tonne axle load) 100 kmph 144 million tons (160 trains) 3071 Km Rs. 23,605 crore

Route Kilometre No. of lines

Signaling

Traction Axle loads

Speeds Traffic projections (2021-22) Feeder Routes Total Cost [Current excluding cost escalation, Taxes, Insurance, IDC, Private Investment and Cost of Land (Rs.4200 Cr.)]
Source: DFCCIL

The Western Corridor has been divided into two phases. Phase 1 consists of section from Rewari to Varodara (approx. 950 kms) and the Phase 2 consists of section from JNPT to Vadodara and Rewari to Dadri (approx. 584 kms). JICA will be funding the development of both sections to the extent of 80%. Its investment in Phase 1 is INR 21,000 crore and in Phase 2 is 11,500 crore. So far the civil contract for the two packages has been initiated in March 2011. The main loan agreement for Phase 2 is aimed to be signed by March 2012. Inspection and visits from the JICA Contact Mission is on-going. Additional 54 major and important bridges are planned to be developed on the Western Corridor between Vaitarana-Bharuch sections. This will be funded by the Indian Railways. Overall these projects are proposed to be completed by 2016-17.

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Container Freight Stations & Inland Container Depot Infrastructure

CFS and ICDs form a key part of the logistics industry infrastructure. CFSs are also termed as Dry Ports in Western Countries. A CFS/ICD/Dry Port can be defined as Common user facility with public authority status equipped with fixed installations and offering services for handling and temporary storage of import/export laden and empty containers carried under customs control. Transshipment of cargo can also take place from such stations.

Distinction between CFS & ICDs

In terms of functions there is no particular distinction between a CFS and an ICD. Both cater to the transit facilities offering containerization of break bulk cargo and vice-versa. These are served by rail and road transport. ICDs are generally located in the interiors or outside the port towns of country, distant from the ports. CFS on the other hand are off-dock facility located near the port area. CFS are largely expected to deal with break bulk cargo originating / terminating in the immediate hinterland of port. They also deal with rail borne traffic to and from inland locations Considering the requirements of the Customs Act, and need to introduce clarity in nomenclature, all containers terminal facilities in the hinterland are designated as "ICDs".

Functions & benefits of CFSs/ICDs:

Functions:
The primary functions of ICD/CFS may be summed up as under: a. Receipt and dispatch/delivery of cargo. b. Stuffing and stripping of containers. c. Transit operations by rail/road to and from serving ports. d. Customs clearance. e. Consolidation and desegregation of LCL cargo. f. Temporary storage of cargo and containers. g. Reworking of containers. h. Maintenance and repair of container units.

Benefits:
The benefits as envisaged from an ICD/CFS are: Concentration points for long distance cargoes and its unitisation. Service as a transit facility.

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Customs clearance facility available near the centres of production and consumption Reduced level of demurrage and pilferage. No Customs required at gateway ports. Issuance of through bill of lading by shipping lines, hereby resuming full liability of shipments. Reduced overall level of empty container movement. Competitive transport cost. Reduced inventory cost. Increased trade flows.

Drivers & Challenges for the development of CFS / ICDs

The CFS/ICDs investments are lucrative investment avenues as they provide, high margins in comparison with other logistics activities while the entry barriers and overall development scope far more exceeds the other logistics services lines of business. The following table analyzes the above discussed point.

Road Freight Scenario Mature

Express

Coast-ocoast Growth

Container Haulage Growth Capital Intensive High 20% 30%

CFS / ICD

MTO

Growth

Growth

Mature

Entry Barrier Low Growth EBIDTA margins 5-10% 3-5%

High 20-22% 8-10%

High 15% 25%

Medium 35% 40%

Low 10-15% 4-6%

The operations of the ICDs/CFSs revolve around the following centers of activity: 1. Rail siding (in case of a rail based terminal): The containers are loaded on and unloaded from rail wagons at the siding through overhead cranes and / or other lifting equipments. 2. Container Yard: Container yard occupies the largest area in the ICD.CFS. It is stacking area were the export containers are aggregated prior to dispatch to port, import containers

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are stored till Customs clearance and where empties await onward movement. Likewise, some stacking areas are earmarked for keeping special containers such as refrigerated, hazardous, overweight/over-length, etc. 3. Warehouse: A covered space/shed where export cargo is received and import cargo stored/delivered; containers are stuffed/stripped or reworked; LCL exports are consolidated and import LCLs are unpacked; and cargo is physically examined by Customs. Export and import consignments are generally handled either at separate areas in a warehouse or in different nominated warehouses/sheds. 4. Gate Complex: The gate complex regulates the entry and exit of road vehicles carrying cargo and containers through the terminal. It is place where documentation, security and container inspection procedures are undertaken

Steps for setting up of a CFS / ICD:

The Ministry of Commerce, Government of India has issued guidelines for the setting up of the CFSs/ICDs in India. These guidelines are summarized in the coming sections.

Steps / Phases 1 Feasibility Study

Particulars / details A feasibility study must precede the setting up of all ICDs/CFSs and copy of the report should invariably accompany the application for setting up such a facility. Data for carrying out analysis could be from secondary sources and field observations, structured over time and space. Prior discussions must be held with exporters, shipping lines, freight forwarders, port authorities, concerned Commissioners of Customs/Excise etc., and their point of view fully reflected in the report

Analysis of traffic flows

The analysis of traffic flows between centres of production & ports shall be analysed with reference to the following: Commodities Directional-split (Imports/Exports) Proportions of less-than-container load (LCL) & fullcontainer-load (FCL) Forecast of future growth. Modes of transport available. Possible reduction in tonne per kilometre or Box per kilometre costs

Assessment of economic viability

The facility should be a viable unit for various stakeholders like the railways, transport operators, seaports, shipping lines, freight forwarders etc. the guidelines stipulate certain minimum amount of traffic (measured in TEUs) for the facilities to be set up. The following are the suggested indicative norms which form a part of criteria for the approval of CFSs/ICDs of at any location across India: For ICD 6,000 TEUs per year (Two way) For CFS 1,000 TEUs per year (Two way)

Land Requirements

The minimum area requirement for a CFS is 1 hectare and for ICD 4 Hectares. There is however, a clause, which allows the

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CFSs/ICDs to be setup on a smaller than recommended area considering the technological upgradation and other features which could justify the demands 5 Design & Layouts CFS/ICDs are primarily designed for the reduction of congestion at ports and other facilities of transport and therefore must be designed in such a way which optimizes the usage of the facility, reduces the congestion at ports and minimizes the transaction time for transport of cargoes etc. The design & layout should be well equipped with mechanical & electrical facilities, preferably of international standards. The design must support the smooth flow of containers, cargo & vehicles The design should be prepared taking into consideration the estimated first 10 years volume and type of facilities the exporters require The broad design should encompass features like rail siding, container yard, gate house, security features like boundary wall, fencing, pavements, office building and public amenities The perimeter fencing and lighting must meet the standards required by Custom Authorities The administration building should be focal point of the production & production & processing of all documentation relating to handling of cargo & containers and its size shall be determined by needs of occupants Sanitation and food service facilities should also be accounted for. Good communication systems with EDI connectivity is also essential

The following infrastructure should however be available at CFS/ICDs: Provision of standard pavement for heavy duty equipment for use in the operational and stacking area of the terminal. In cases where only chassis operation is to be performed, the pavement standard could be limited to that of a highway. Office building for ICD, Customs office and a separate block for user agencies equipped with basic facilities. Warehousing facility, separately for exports and imports and long term storage of bonded cargo. Gate Complex with separate entry and exit. Adequate parking space for vehicles awaiting entry to the terminal. Boundary wall according to standards specified by Customs. Internal roads for service and circulating areas. Electronic weighbridge. Computerized processing of documents with capability of being linked to EDI. The ICD/CFS would select most modern handling equipment for loading, unloading of containers from rail flats, chassis, their stacking, movement, cargo handling,

Equipments

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stuffing/de-stuffing, etc. Following minimum equipment should be made available at ICDs/CFSs (Reach stacker may not be mandatory): Dedicated equipment such as lift truck (front end loader, side loader or reach-stacker), straddle carrier, rail mounted yard gantry crane, rubber tyred yard gantry crane, etc. of reputed make and in good working condition (not more than 5 to 8 years old) and equipped with a telescopic spreader for handling the 20 ft and 40 ft boxes. The equipment must have a minimum residual life of 8 years duly certified by the manufacturer or a recognized inspection agency. An additional unit of equipment should be provided when the throughput exceeds 8000 TEUs per annum or its multiples for lift truck based operations. Terminals resorting to purely chassis-based operations do not require dedicated box handling equipment. However, chassis-based operations should be restricted to CFSs proposed to be set up near ports. Small capacity (2 to 5 tonnes) forklifts must be provided for cargo handling operations in all terminals. The main function of an ICD/CFS being receipt, despatch and clearance of containerised cargo, the need for an upto-date inventory control and tracking system to locate containers / cargo is paramount. Each functional unit of the facility (e.g. siding, container yard gate, stuffing/destuffing area, etc.) should have up-todate and where possible on-line, real time information about all the containers, etc., to meet the requirements of customers, administration, railways etc. As far as possible, these operations shall be through electronic mode Tariff structure and costing is supposed to be worked out along with the feasibility study and information should be provided with the application

Tariff

Source: Ministry of Commerce Website

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Procedure for setting up of CFS/ICDs & implementation

1. Proposals for setting up ICD/CFS will be considered and cleared, on merits, by an Inter-Ministerial Committee for ICDs/CFSs, which consists of officials of the Ministries of Commerce, Finance (Department of Revenue), Railways and Shipping. Views of the State Governments as necessary would be obtained Application 10 copies in enclosed form should be submitted to the Infrastructure Division in the Ministry of Commerce, Udyog Bhavan, New Delhi. Application must be accompanied by 10 copies of feasibility reports mentioned in the guidelines The applicant should also send a separate copy of the application to the jurisdictional Commissioner of Customs. The Commissioner of Customs will send his comments to the Ministry of Commerce and the Central Board of Excise & Customs (CBEC) within 30 days. In case, the project is planned in a port town, a copy of the proposal should also be sent to the concerned Port Authority who would furnish their comments within 30 days to the Ministry of Surface Transport and the Ministry of Commerce The applicants are also requested to familiarize with the statutory Custom requirements in relation to Bonding, Transit Bond, Security Insurance and other necessary procedural requirements and cost recovery charges payable before filing the application On receipt of the proposal, the Ministry of Commerce would take action to obtain the comments from the jurisdictional Commissioner of Customs and other concerned agencies within 30 days. Wherever necessary, a copy of the proposal should also be sent to Zonal Railway Manager, under intimation to the Ministry of Railways One copy of the proposal would also be made available to the IMC Members for advance action. The decision of the IMC would be taken within six weeks of the receipt of the proposal under normal circumstances On acceptance of a proposal, a Letter of Intent will be issued to the applicant, which will enable it to initiate steps to create infrastructure The applicant would be required to set up the infrastructure within one year from the date of approval. The Ministry of Commerce may grant an extension of six months keeping in view the justification given by the party. Thereafter, a report would be submitted to IMC to consider extension for a further (final) period of six months. The IMC may consider extension or may submitted to IMC to withdraw the approval granted The applicant, after receipt of approval, shall send quarterly progress report to Ministry of Commerce. Three formats (given as annexure I to III) for sending the quarterly/ annual report shall have to be submitted to Department of Commerce through electronic mode as well as through hard copy After the applicant has put up the required infrastructure, met the security standards of the jurisdictional Commissioner of Customs and provided a bond backed by bank guarantee to the Customs, final clearance and Customs notification will be issued

2.

3.

4.

5.

6.

7.

8.

9.

10. The approval will be subject to cancellation in the event of any abuse or violation of the conditions of approval 11. The working of the ICD/CFS will be open to review by the Inter Ministerial Committee
Source: Ministry of Commerce Website

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The CFS & ICDs are amongst the most rapidly growing segments of logistics industry in India. The increasing container traffic at ports needs the support infrastructure which can accommodate the traffic volumes of the containers. CFS & ICDs provide a safe investment segment with lot of returns. CFS / ICDs being the supporting infrastructure for the port development and port traffic fall under the direct trade segment of the ports. Thereby this is also a lucrative sector for investing the reserve funds / acquiring stake in the development of support infrastructure by ports. Container Terminal projects like Vallarpadam ICTT, Ennore Contaner Terminal and Chennai Mega container Terminal offer huge untapped opportunities to logistics players. These container terminals are proposed to add a capacity of around 9 milling TEUs by 2020 and thus boost the demand for CFS/ICDs in the adjacent areas to the ports. According to a study the 3 million TEU capacity of Vallarpadam is supposed to create demand for above 20 CFSs in the region. JN Port is currently the highest container traffic port and the growth of container is still expected to grow at exhoribant rates. In addition, Kandla port and Chennai Port also handle sizeable volume of containers. Mundra port (APSEZ) witnessed the handling of above 1 milllon TEUs last year (2010-11), which has surpassed again this year. The following table gives the list of ICDs/CFSs approved by the IMC which are under implementation or functioning. In total there are around 247 CFS/ICDs in India and by far the Tamil Nadu (60 in No.) ranks first according to number, followed by Maharashtra (48 in No.) and Gujarat (33 in No.). States wise number of registered CFSs/ICDs Andhra Pradesh Bihar Chandigarh Chhattisgarh Goa Gujarat Haryana Himachal Pradesh Jharkhand J&K Karnataka Kerala Maharashtra Madhya Pradesh Orissa Pondichery Punjab Rajasthan Tamil Nadu Uttar Pradesh West Bengal Total
Source: Ministry of Commerce, GOI website.

13 1 1 1 1 33 9 1 1 2 8 11 48 7 2 2 7 10 60 18 11 247

Complex procedures and systematic flow of goods needs to be planned out for the smooth functioning of the CFS. The flow of goods is also affected by the type of weather, type of cargo, frequency of the flow of goods, container handling facilities, time required for stuffing & destuffing of containers etc. In the Indian scenario this complexity goes up higher than normal and is the main cause of delays in delivery of goods. The ports as well as CFSs operators have

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came to a conclusion that IT inclusion and IT communications technology & infrastructure can enable them to effectively utilize their current capacities. For any business to be successful, it must generate revenues and profit for the investors / stakeholders. In CFS business, there are various segments which are the key revenue generating centers. Following is a brief on few important revenue generating facilities / services offered by CFSs.

Centers Warehousing

Status / remarks Bonded Warehouses are typically used by the Custom Handling Agents & shipping companies This segment, though important does not comprise a lucrative growth sector within the CFS functions It is dependent on the volumes of containers handled in a CFS It is usually outsourced to other specialized firms providing equipment, facilities and skilled manpower for the same The more efficient the handling of the containers, lesser the dwell time and more is the volume. This increases the revenue generation of the CFSs. Companies with efficient container handling systems and suitable technologies can work wonders CFS charge rent for the ground on which containers are kept. Usually the rent is based on incremental basis. It is minimum for first few days, and increases thereafter as the number of storage days increases. This increase in rent varies from time to time and from cargo to cargo. Though the ground rents are an important source of revenue for the CFSs, they are primarily kept as a negative covenant. As the rent increases, the profitability of the owner of cargo decreases due to which the owners prefer to evacuate the containers as soon as possible. The rent is directly associated with the number of containers and as the container turnover increases, so does the overall rent receipts. The rise of container traffic is also determined by the type of services offered for the cleaning, maintenance and repair of the containers. This is a relatively unchartered area as there are quite a few players specifically providing these services for the containers.

Handling

Rent

Maintenance & Repair

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Container Rail operations

It has been reiterated for quite some time that better connectivity of the hinterland and the ports is the key to achieving the set ambitious growth targets for the development of the ports and related infrastructure and thereby achieve the desired economic development. Various ways and means have been adapted for achieving these goals. Development of supporting infrastructure like CFS/ICDs, warehouses, mechanization of the ports, smooth data flow system and containerization initiatives are quite a few of them. The CFSs/ICDs function as dry ports or substitute arm which act in the capacity of the ports to reduce the congestion at the seaports. Connectivity of railways is one of the key to success of the containerization movement. Indian Government, realizing the business potential for the container rail operations and its strategic importance to the Indian companies, invited the players to take a stake in the container rail operations. Privatization of container rail operation enticed 16 players. According to the Indian Railways, private players would serve to: Increase Indian Railways market share of container traffic Provide incremental capacity to cater to the exponentially growing containerized traffic in India Ensure speedy clearance of export/ import of containerized traffic Substantially increase containerized domestic traffic on Indian Railways Improve quality of service to customers

These players offered integrated value added logistics solutions with last mile connectivity to ports with a possible modal shift from road to railways. Most private players expect a return of above 15% for investing in a business line so as to justify the investment decisions and cater to their financing plans. Utilization and efficiency along with lower turnaround time are extremely critical to generate returns of higher required returns. Indian Railway has set up categories and recommended fees structure for these privatized railway operators according to their areas of operations and needs. Indian Railways has given licenses to private players, which allows them to offer container train movement by rail. The private players can either take an all India license for Rs 50 crores or a route-specific license for Rs 10 crores. The following Table gives the areas of operation and registration fee for each category as was announced in the final policy: Category Areas of Operations Registration Fee (Rs. In Crores) 50

JNP/Mumbai Port - National Capital Region rail corridor and beyond. This category will also include all domestic traffic

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II

Rail corridors serving JNP/Mumbai Port and its hinterland in other than National Capital Region and beyond. This category will also include all domestic traffic except on category I routes Rail corridors serving the ports of Pipavav, Mundra, Chennai/Ennore, Vizag and Kochi and their hinterland. This category will also include all domestic traffic except on category I routes. Rail corridors serving other ports like Kandla, New Mangalore, Tuticorin, Haldia/Kolkata, Paradip and Mormugao and their hinterland and all domestic traffic routes. This category will also include all domestic traffic except on category I routes

10

III

10

IV

10

Since then, 14 new players, including Concor, have joined the fray. Of these players, 10 hold a pan-India license while four have opted for a route-specific license, which entitles them to operate only on NCR-JNPT route List of private licensed container freight train operators: License Fee Paid (Rs. crores) 50 50

Sr.

Name of Company

Promoter Group

Category

1 2

Adani Logistics Central Warehousing Corporation

Adani Group PSU under the Ministry of Consumer Affairs & Public Distribution

I I

3 4

CONCOR Emirates Trading Agency Gateway Rail Freight Hind Terminals & MSC Agency India Infrastructure & Logistics Emirates Trading Agency

I I

50 50

5 6

Gateway Distriparks Hind Terminals, Mediterranean Shipping Company APL India, Hindustan Infrastructure Project and Engineering DP World

I I

50 50

50

Container Rail Road Services Reliance Infrastructure Leasing

50

Reliance (ADAG)

50

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10

SICAL Multimodal and Rail Transport Delhi Assam Roadways Innovative B2B Logistics Solutions Boxtrans (India) Logistics Services Pipavav Rail Corporation

SICAL Logistics Ltd.

50

11

Delhi Assam Roadways

IV

10

12

Bagadiya Shipping and Bothra Brothers (P) Ltd. J.M. Baxi & Co.

IV

10

13

IV

10

14

Gujarat Pipavav Port Limited

III

10

Source: Various sources

Looking at the licenses granted to the Rail Freight Operators, we can see that maximum operators focus on the western corridor for JNPT-NCR route. This also sets tone for us to confirm the proposed growth after implementation of the western corridor of the DFC Interestingly, even though the transport through railways is quite cost effective, the railways handle quite less amount of the cargo as compared to the roads. To attain the target volumes of the container rail operators and to attract the volumes to container segment, the provision of reliable, regular and integrated services is necessary along with the last mile connectivity. Seamless transportation of goods is indeed the need of the hour. Proponents of privatization in the rail freight operations are also of the view that seamless logistics can be achieved by the integrated hub-and-spoke model. The hub and spoke model proposes to integrate various hubs by railway while the door-to-door delivery is given by the road transporters. Features of Rail Freight Operations Capital Intensive industry: Players have to invest into creation of an asset base comprising of rakes, terminals (ICDs/ rail sidings), containers, container handling equipment, etc. Higher utilization and turnaround time: the average turnaround time in the domestic freight typically stands at 3-4 trips (to and fro) in a month per rake, while turnaround times for EXIM is around 7-8 trips (to and fro). Sidings are required for success of the hub-and-spoke model. The rail sidings/ ICDs act as a hub for the rail connectivity. The hubs can also be utilized to provide value added services such as warehousing, packaging, repairs, cleaning maintenance etc. Longer gestation periods along with promise of higher returns in the long time: A research summarizes that on a base of 40 rakes and 4 ICDs at critical locations an operator has the ability to generate above 14%. Still further gains can be achieved through faster turnaround and usage of technology for operations.

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Risks faced by Rail Freight Operators

Risks and Operational hurdles faced by the Rail Operators Risks 1. The financial performance of the operators is dependent on the utilization of the facilities. Considering this, the relative low handling of traffic will have a material impact on the profitability The turnaround time of the related CFS / ICDs have great impact on the turnaround of the railway operator. Thus the business is in turn affected due to lower turnaround times Availability of land for railways entails a great cost socially as well as economically. It includes the excessive intervention and clearance from the Forest & Environment, rehabilitation requirements and costs. These can hamper the project even if the location is at an extremely strategic geography Cost control for the capital expenditure is not possible. The operators have very limited control over the largest cost component namely the rail haulage. The increase in the rates on ad-hoc basis by Indian Railways is also a point of concern So far, there is no independent arbitrator for dispute resolution between IR and the rail operators. This is also a risk due to which many private players may back up from investing in the facilities

2.

3.

4.

5.

Challenges 1. 2. Maximum traffic is witnessed on the JNPT-NCR route. Unreasonable haulage charge hikes by the railways are a cause of concern. This causes much trouble as there is less time for the operators to absorb the charges in the view of growing competition Mismatch in the turnaround times due to congestion and lack of proper facilities for loading and unloading of containers Danger lies in the fact that the shift of cargo from road to rail may take some time which may cause disruptions in the profitability and viability of the overall rail operations

3.

4.

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Risk and return go hand in hand. We first accounted for the risks & challenges associated with the rail operations business. However, we must not fail to appreciate the advantages that one can gain by applying the newer methods of rail transport. The following table details the advantages of private rail transport over the road transport: How does Private Rail Transport fare over Road Transport some findings! 1. Containerization brings the benefits of road transport to rail transport with respect to flexibility and the size of cargo Cargo such as iron & steel, electronic equipment, auto components, textiles, leather, chemical, paper, yarn, metals, etc can be containerized and moved by container rail operators through rail

2.

3.

A research reveals that over a distance of 1,000 km, freight costs are lower 20-25% for cargo transported via the rail route Heavy cargo preferred over light cargo load for rail movement. containers having lower weight tend to become expensive to move by rail vis--vis road and vice versa Companies can benefit through the Economies of scale on container rail movement. A single rake can handle around 2,400 tonnes of cargo, while a single truck has the capacity to carry 16-20 tonnes. Thus, to carry 2,430 tonnes, a road operator will require approximately120 trucks. Cost per ton for movement lower by above 35% as compared with roads Transport via road entails additional time lapse in loading/unloading the containers as well as more handling charges. This boosts efficiency with respect to time & stops pilferage & other losses to a considerable extent The railways are handled by a single operator due to which it is easier to for the materials handling / logistics departments to maintain contact and stay updated about the exact location and status of the containers. This also helps in reducing the documentation and paperwork while ensuring the accuracy of the same.

4.

5.

6. 7.

8.

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Bibliography & References

1. Maritime Agenda : 2010 2020, Ministry of Shipping, Government of India 2. Deloitte Research 3. Observer Research Foundation's Issue brief - India's coastal security challenges & policy recommendations, August 2010 4. Working paper on Policy for Indias Services Sector, Ministry of Finance 5. Times Shipping Journal, various issues 6. Scheme and Guidelines for Financial Support to Public Private Partnerships in Infrastructure 7. Investment in Infrastructure during the 11th Five year Plan, Secretariat for Infrastructure, GOI 8. PPIAF, Port Reform Toolkit 9. Report of committee on Rail-Road Connectivity of Major ports 10. Review of Marine and Coastal Policies in India, By Dr. Sangeeta Sonak, Prajwal Pangam, Asha Giriyan 11. Recent news articles 12. Websites of a. b. c. d. e. f. Ministry of Shipping, Govt. of India Indian Ports Association (IPA) Inland Waterways Authority of India (IWAI) IBSA Press Information Bureau (PIB) Shipping Biz360

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Contact

Deloitte Hemant B. Bhattbhatt

Senior Director Deloitte Touche Tohmatsu India Private Limited 264-265 Vaswani Chambers, Dr. Annie Besant Road, Worli, Mumbai 400 030, India Direct: +91 (22) 6619 8612 Fax: +91 (22) 6619 8601 Email: hbhattbhatt@deloitte.com

IBK Media Anita Verma

Conference Director 11, Anoto Industrial Estate, Nityanand Nagar,Ghatkopar (W), Mumbai - 400 086, India Tel: +91 (22) 2500 6681 Email: anita.verma@ibkmedia.com

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National conference on Container Infrastructure in India 2012 Background Paper

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