To be or not to be

The continued economic boom of the past few years had resulted in a substantial increase in the Container Freight Stations (CFSs) surrounding our major container ports, particularly, JNPT. The original intention of these CFSs was to decongest the already overloaded ports. And they seem to have attained this objective in the short term. All parties involved are of the opinion that the rapid increase in container traffic over the past few years could never have been accommodated unless the CFS would have come up.

However, the rapid decline in container volumes over the last few quarters has now revealed that some players might have gone over enthusiastic on CFS development, and consequently pushed the supply on the higher side. Consolidation, if not complete closure, of some CFSs seems inevitable. In fact, there have been a few cases where the smaller ones unable to attract enough traffic have been on the verge of closing down. In such a scenario, to avoid closure, the bigger and stable companies have either taken over the small CFSs or have had an amalgamation of services. For instance, the Punjab State Container and Warehousing Corporation (Punjab Conware) CFS owned by Punjab government was taken over by Gateway Distriparks Ltd in order to avoid the closure of the CFS.

One of the biggest reasons for so many smaller private CFSs sprouting up within a few kilometres of the ports (mainly JNPT) was the pricing advantage they enjoyed over the ones located within the land owned by the ports.

Discussing the tariff differences between these two types of CFSs, Manish Puri, Principal Infrastructure, Trans Care India says, “A few CFSs functioning inside the ports come under the authority of Tariff Authority for Major Ports (TAMP) set up by the government, which decides all tariffs within the port. So anyone operating a CFS within the port will have to take permission from the port to operate the CFS. Other government owned as well as privately owned CFSs, which are currently functioning outside the ports do not come under any price regulation. Individual operators have complete freedom for deciding the prices for services being provided by them.”

Since there are no price controls, there seems to be a lot of competition amongst the private CFS players. Looking at the number of CFSs near the ports, the profitability of these freight stations is bound to get affected, which ultimately has led these private companies to look at options like competitive pricing to get business. “Pricing indeed has gone down in the past five years due to the growing competition to attract traffic as newer CFSs have come up. In case of the CFS business, supply has always been more than the demand even when the economy was better,” says N Shankar, National Head–Ocean Freight, AFL Dachser Pvt. Ltd.

Problems like quality of connectivity of the CFSs to the port terminal are now amplifying the effects of the downturn. These problems have always been there at all the major ports but the inability of government authorities to rectify these has taken a severe toll on the container volumes passing through the ports. Compelled by the apathy of the government authorities, some of the private parties had to take the necessary steps and bear the heavy expenditure of maintaining/constructing these roads in an attempt to improve their business prospects.

This is in stark contrast to some of the other private ports that have been very proactive in activities like building roads and basic infrastructure in an attempt to consistently attract more traffic. Vijay Minocha, Managing Director, Emirates Shipping Line points out, “In case of Mundra port, the last mile rail connectivity and also the nearby supportive infrastructure were taken care of by the Adanis and as a result of this the port is doing exceptionally well today. Either you should have the money to take care of these otherwise you are left at the mercy of the government for these important issues.”

There are also instances when there is excess traffic to handle due to delay in vessel schedules as a result of which this sudden increase in traffic can’t be handled by the available number of trailers. At times like these, CFSs having their own fleet are better off as they can manage their turnaround time. The others that outsource their fleet do face problems, such as drivers not turning up on time and even faulty trucks and trailers, which affect the overall turnaround time leading to delays in container transport, in turn, leading to congestion at ports. Also at times, the customs procedures lead to containers getting stuck up en route and causing delays for the end-users.

Most CFSs exist within a 18 to 20 km radius from the port. This is more prominent around JNPT due to the unavailability and higher cost of acquiring land near the port. However, this distance from the terminals has its own limitations. “The increasing distance from the ports is tiresome in cases, especially, when the trailers have to traverse through populated areas of the city, which creates problems for the shipper as well as the consignee. The Indian model, in terms, of CFSs requires being in proximity to the terminals but simultaneously; the trailers do not have to go through a populated area. However, this is more of a problem at Chennai port. In the case of Nhava Sheva (JNPT), even CFSs slightly at a distance from the port don’t traverse through populated areas. So they will definitely have good container traffic subject, of course, to the quality of service they provide to the shipper and consignee in terms of tariff and facilities,” explains Minocha.

Shankar quotes the availability of clearance free land as another reason for the increasing distance between the CFSs and the terminals. “Since investing in land for CFSs is not for a matter of five years but 50 years, the players have to look for land that is completely encumbrance free and there is nobody to lay claim on that because these are huge investments. In my opinion, it is still better to have CFS in a radius of 20 km than having CFS in a 200 km radius,” he says.

The lack of adequate technology also seems to be a bit of problem in many CFSs. “Due to the absence of technology and systems, there are times when containers can’t be located in the yard, which makes the whole process cumbersome,” says Amar More, Global Head – Logistics Practice, Kale Consultants. Often, customers even face losses due to lack of trained labour in the CFS, which causes damage to cargo while handling.

Despite all these problems, the case for CFSs looks strong. “Before the concept of CFS was introduced, all processes like storage, custom evaluation, custom duty payment were carried out at the port leading to an overflow of containers at the port terminals. Ports’ capacity used to get constrained and simultaneously the customers ended up paying enormous amounts as demurrage to the ports,” says R Kumar, Deputy CEO, Gateway Distriparks Ltd, while talking about how CFSs have improved the overall processes and also cut down on demurrage charges to be paid by customers.

With the space at ports is now being utilised for pre-stacking containers before moving them out to the CFS, the turnaround time at the ports is improving allowing higher throughput. CFS owners are also looking at automating their services by implementing better systems. Currently, the key challenge for CFS operators would be to streamline processes and look at providing value-added services on the lines of logistics parks found in overseas markets.