How can India save $60 billion in forex every year? Start an international shipping line – The Economic Times

Clipped from: https://economictimes.indiatimes.com/small-biz/trade/exports/insights/how-can-india-save-60-billion-in-forex-every-year-start-an-international-shipping-line/articleshow/80779511.cms

Synopsis–It is an idea whose time has come. A shipping line along with a port-led development model is what can drive India towards economic growth.

J P Jain, Director of Jodhpur-based Suncity Art Exporters, has been navigating the last few months with much unease. As an exporter of handicrafts, the ongoing container shortage has meant pre-booking containers at least three weeks earlier compared to previous times. However, even such advancement does not necessarily translate to any respite in terms of container availability. Add to that the sea freight rates which have nearly trebled since lockdown, multiplying the woes of exporters manifold.

And then there are other issues that are playing up. “China is picking up all the containers for export. This has led to a shortage of containers, as Chinese dole out higher freight,” rues Jain.

Jain fears an acute financial crisis if such shortage continues and shipments are not released in a timely manner.

The global crisis of container shortage owing to export-import mismatch led to an upheaval for India’s exports just as they were trying to pick up some momentum. It also led to an unforeseen surge in freight rates and long delays, affecting the export cycles for a host of exporters.

But it also fuelled the dialogue on an issue of key significance — the need for India to develop its own international shipping line. “Every year we are remitting around $65 billion as transport services’ outward remittance, and most of that is in the form of freight. Unfortunately Shipping Corporation of India does not have much stake in that. But now that we are seeing private players enter the field, we should extend fiscal support and tax concessions. Helping them at this point in time will go a long way and will also save precious formal foreign exchange of around $60 billion plus for the country,” Ajay Sahai, DG & CEO, FIEO told ET Digital.

World shipping is currently concentrated around a few players that dominate global trade. According to AlphalinerMaersk has about 700 ships at its disposal and it has an alliance with Mediterranean Shipping Company, which has around 580 ships. Together these two shipping lines carry about a third of all container shipping in the world. The Ocean Alliance formed by shipping companies CMA CGM/APL, Cosco Shipping/OOCL, and Evergreen Line together command over 1200 ships and form another big block. There is a third grouping called “The Alliance” that has Hapag-Lloyd AG, Germany’s top container shipping line, and five Asian carriers – Japan’s Kawasaki Kisen Kaisha Ltd., Mitsui OSK Lines Ltd., Nippon Yusen KK, South Korea’s Hanjin Shipping Co. and Taiwan’s Yang Ming Marine Transport Corp. This group controls about 18 percent of the world’s container shipping fleet with over 620 vessels. These alliances have raised competition concerns and fears that their size can fix prices.

China showing the way
Experts give the example of China to reiterate their point. China’s COSCO Shipping Development, also known as China Shipping Container Lines (CSCL), was among the world’s largest container liner companies. It exited the container shipping business and got renamed as COSCO SHIPPING Development with the COSCO-China Shipping merger in 2016.

Maersk is the dominant player in moving containers across the world.Nitin Kunkolienker, President, Manufacturers’ Association of Information Technology (MAIT) says that China’s shipping structure spells excellence. “China’s exports are not just through export incentives. By creating an internal-external export environment, it cleverly created an internal framework via ease of doing business and creating expeditious movement of cargo in the port. From an external standpoint, they started creating shipping lines. China’s outward freight was very efficient. They also sensitised all their embassies in the world to become trade promotion officers, pushing Chinese trade forward,” he states.

Kunkolienker suggests incorporating a consortium of Indian exporters to begin with. “If you can create an Indigo, Jet Airways or Kingfisher, then what is so difficult in creating shipping lines?” he questions.

Culture, he says, stops India from going all out. “Most are happy by being in freight forwarding lines. They are making more money in this last mile connectivity with the customer and are happy about it. Post liberalisation, there was growth in imports and we became an import-led growth nation rather than export-led. So it only became inward, and we started finding it easier to get a shipping line into the country rather than creating our own shipping line,” he adds.

Kunkolienker’s stance is supported by others who talk about aspects that are amiss. A regulatory commission on shipping, for instance, which can monitor the pricing, terms and conditions and other provisions for shipment of goods will be integral for fair competition. “There is no regulatory commission on shipping currently and it is the need of the hour. Foreign shipping lines are taking customers for a ride. They increase their prices on a whim and make containers available at a high cost,” laments Rakesh Kumar, Director General, Export Promotion Council for Handicrafts (EPCH).

The industry body had raised the issue last year with Minister of Commerce and Industry Piyush Goyal citing how the problem of shortage of containers was faced by exporters from major handicraft clusters specifically from Moradabad, Firozabad, Jodhpur and Jaipur.

India’s economic growth has to be port-led.“The shortage of containers at ICDs has resulted in exporters being asked to source the containers from nearby ICDs and hence pay a repositioning charge ranging from Rs 10,000-Rs 20,000 depending upon the location of ICDs. This is an additional cost which the exporter has to bear, hence increasing the transaction cost for them,” the letter had stated in October last year.

Freight prices have been on fire with the Shanghai Containerized Freight Index (SCFI) hovering around 2884, which is about 190% higher than last year.

Container manufacturing
Steps have been initiated to address such container shortage and move towards being ‘Aatmanirbhar.’ The Ministry of Ports, Shipping and Waterways has appointed a committee to understand the feasibility of container manufacturing in Bhavnagar, Gujarat and eventually transform it into a container manufacturing hub.

China dominates the manufacturing cargo containers segment – 90% of the global shipping containers are made in China. “Such dominance also increases the cost of containers in India by 40%. It is a good thing that we have taken the lead and the government is looking at manufacturing of containers in Bhavnagar. As an immediate measure, we should also see if we can offload the goods in the warehouses from the containers which have been detained by various authorities. And these containers, which are normally between 45,000-50,000 can be added to the pool,” adds Sahai.

Rows of containers are stored and handled at the container terminal of Shanghai Yangshan Port.Steel major Jindal Steel & Power Limited (JSPL) will also soon be entering the container manufacturing business, with a facility being set up either in Odisha or Chhattisgarh. Such initiatives will help facilitate freer availability of containers at more cost effective rates and address the current shortage bottlenecks.

Dhruvil Sanghvi, CEO, LogiNext says that though players like Jindal Steel are entering the business of manufacturing containers, at a broader level better planning and foreseeing such problems is a long term solution. “Bringing in digitisation at freight yards, having complete visibility and tracking solutions in place and adapting to the technology wave going on in the logistics industry is one key area to be looked at, apart from increasing capacity and manufacturing,” he says.

The way forward
Industry experts want that this issue plaguing the exports sector should be taken up on utmost priority by the government if export-led growth and a $5 trillion economy is the eventual aim. Kunkolienker, for instance, says that port-based development is essential when one talks of growth in exports. “A vicious circle of a very inefficient logistics cycle is being created. If you make a survey of the last 25-30 years, any destination in the country which has grown has been through exports and not inward consumption. And every destination has taken a growth model through port-based development, be it China, Dubai, Singapore, Thailand or Malaysia to name a few. Every place has grown with a port-led strategy, whereas India does not have that strategy,” he says emphatically.

Focusing on ramping up ports to create efficiencies, private sector investment and a structured mechanism to create India centric shipping lines with an export focus can all be real forward moving steps that give India its advantage globally. Around 95% of India’s trading by volume and 70% by value is done through maritime transport, as per the Ministry of Shipping.
That says it all.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s