 "Representational image")
Representational image
India’s 300 dry ports, also known as inland container depots (ICDs), are finally getting the attention they deserve. The first fortnight of January saw the commerce ministry announce that it would overhaul the infrastructure standards in dry ports. A significant part of the exercise would involve a comparative assessment of the laws governing ICDs, their funding patterns and subsidies with international best practices.
The move is part of the commerce ministry’s focus on port-led development to boost exports and is expected to complement the Rs 8-trillion Sagarmala project that entails setting up six mega projects and modernising several others. Given that ICDs are, in effect, intermediary service hubs for international freight (they provide temporary storage and customs facilities, for example), their importance cannot be overstated. Yet, ICDs in India containerise just 17 to 18 per cent cargo, far below the international standards of 76 to 77 per cent.
This statistic underlines both the chronic under-utilisation of India’s ICDs (average capacity utilisation is 45 per cent) and the potential for growth in containerisation of cargo. “There is a lot of imbalance in the ICD market in terms of its capacity utilisation levels. Utilisations vary from as low as 20 per cent to as high as 85 per cent in certain regions, making business uneven,” says Anish Maheshwari, chief financial officer at Navkar Corporation, a company that offers container freight services. The company’s wholly-owned arm Navkar Terminals, has developed an ICD at Tumb village, in the Valsad district of Gujarat. The facility is located 3 km off the National Highway-8 that links Mumbai to New Delhi and runs parallel to the upcoming dedicated freight corridor.
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The problem of under-utilisation is a common one for all players in the sector. “Our utilisation levels reduce in certain markets but it is made up by other ICDs in busier markets. So overall, the company is able to do the balancing act,” said a senior Container Corporation of India (Concor) official on condition of anonymity.
So what ails India’s ICDs, the bulk of which, nearly 70 percent, are owned by government-owned Container Corporation of India? Location is one issue. “Certain ICDs due to their inappropriate location are of no use at all to the market,” informed Maheshwari. For example, Panipat and Gwailor are strong consumption hubs, which have little in the name of manufacturing. Cargo traffic to these ICDs, therefore, moves just one-way, leading to facilities staying under-utilised. In contrast, Kanpur receives leather as raw material which is then converted into finished goods and sent out across the country. This two-way movement of cargo makes the ICD here economically viable.
“A hinterland ICD would need at least seven to 10 industrial corridors for its utilisation level to remain strong. The location of an ICD should be such that it is surrounded by an industrial area within a radius of 20-25 km. Only then will the business be viable,” explained Maheshwari of Navkar Corporation. The company’s ICD at Valsad in Gujarat is surrounded by industrial parks of Achhad, Bhilad, Dadra, Daman, Sarigam, Silvassa, Umbergaon, Valsad and Vapi, making it a viable proposition.
The lack of rail and road connectivity, the backbone of an efficient ICD network, is another. “Rail and road connectivity network to the ICDs is not sufficient and a lot more needs to be done in this area rather than the government's plan of refurbishing ICD facilities alone,” said Hitesh Avachat, senior manager at Care Ratings. In particular, regions close to main cities such as Delhi and Raipur need better connectivity with ICDs. The National Capital Region, for example, he says, has insufficient rail connectivity to Delhi, while road transport is comparatively costlier.
The infrastructure at ICDs, which the government plans to refurbish, is the least of their problems. Most industry officials believe that standalone ICDs, which do not have a tie-up with either a third-party logistics company or a shipping line, stand little chance of survival due to poor revenue visibility. “There are clusters of standalone (without partnership) ICDs in the country, which eventually will not be able to survive if they are not tied-up with any cargo handler,” said Avachat of Care Ratings. “It makes much more sense to have an ICD in partnership rather than a standalone facility as it would give higher revenue visibility for the party,” he added. Such tie-ups promise assured cargo to ICDs every month.
Experts say more than a rethink on the way ICDs are funded, developing infrastructure in and around ICDs is crucial to draw fresh investments into the sector. In the present shape, they say, fresh investments are unlikely.
“Investors are waiting for projects like Navi Mumbai airport and rail corridors among others to come up to allow them to invest in the ICD sector. At least for the next five years we do not see a big change in this investment pattern in the industry. ICD cannot be a fully local requirement. Investments will not pick up till infrastructure is built,” said James Joseph, general manager at Mumbai-based Gateway Distriparks.
The Navi Mumbai project was first conceived in November 1997. After several approvals and extensions for submission of bids for construction, the Rs 160-billion project will finally be built by GVK Group. At present, pre-development work on the project is on, while financial closure is still to be achieved.
The Delhi-Mumbai industrial corridor, meanwhile, was expected to be completed in three phases over nine years starting from January 2008. Of this, Phase-1 was expected to be completed by 2012 and subsequent phases by December 2016. However, the project is running far behind schedule. The Rs 461.78-billion dedicated freight corridor project, too, is still under construction.
At present, investments in ICDs are largely dominated by domestic companies with minimal inroads made by international players. “Global companies have refrained from investing in ICDs since dealing with local transporters such as truckers has been a challenge for them,” said Maheshwari. “It is the difference in mindset that has been making it difficult for international players to come to India for investment in this sector,” he added.
Involvement of ICDs in the supply chain is necessary to cut the overall costs for manufacturers. Logistics cost in India is among the highest in the world at 14-15 per cent of manufacturing costs, compared to 4-5 per cent globally. The routing of cargo to a ship via an ICD cuts the number of free days, thus reducing the overall cost for manufacturers. For example, if a cargo from its origin point to final destination is expected to take five days, the vessel awaiting the cargo will charge for all five free days. However, if an ICD is involved in the supply chain, the free-day count will start from the time the cargo hits the ICD. However, it may still be a while before the tide turns for ICDs.
