'Direct port delivery an existential threat to CFS operators'

The shift to direct port delivery (DPD) at ports like JNPT puts the Rs 4,500-crore container freight stations (CFS) industry in an "existential crisis", ratings agency Crisil said today.

"Surging share of DPD, especially at JNPT, means growth in the CFS industry in India would be facing an existential crisis sooner than later, starting with flatlining of revenues this fiscal," its research wing said in a note.

In the last five years, the industry has grown at 6-8 per cent annually to be a Rs 4,500-crore sector, it said, adding that there were 169 CFS and 67 inland container depots (ICDs) in the country as of July 2017.

JNPT, which alone accounts for over 50 per cent of the container handling in the country, witnessed a 428 per cent increase in the DPD volume, or the number of containers which did not use any CFS.

A CFS is used for customs clearance and other regulatory procedures outside the port premises, while ICDs are located in hinterland, the agency said. It can be noted that in a DPD, the importer directly gets the delivery of the container without it being stored at any CFS, which saves time for the trade.

"The regulatory revenue of CFSs, comprising handling, storage and inspection charges, would dip further this fiscal. To offset this, CFS operators are expected to focus on alternative revenue sources from allied logistics and transportation services," the research wing's senior director Prasad Koparkar said.

However, the note said that more than half of the DPD containers are resent to a CFS either because of non-clearance within 48 hours or voluntarily by importers for storage and onward transportation to hinterland, which offers a revenue stream for them.

"While the government pushes for DPD across major ports starting with JNPT, the use of CFS as a transport and storage solution would remain worthwhile for some importers," it said.

The CFS players can also benefit from the opportunity to handle non-cleared and damaged containers, given the fact that they account for up to 20 per cent of the throughput.

But on the flipside, the decision to provide transportation services to importers across five geographical corridors at pre-decided tariffs starting May 2018 is expected to increase pressure on CFS players, it said.

Smaller CFS players in the JNPT cluster are expected to suffer the most as handling and storage rentals are their primary revenue source, Crisil director Binaifer Jehani said, adding larger integrated players are expected to fare marginally better.