THE TWO SHADES OF DPD
Direct Port Delivery (DPD) has been introduced with the noble intention of reducing congestion at the ports and bringing down cost and time for shippers, but CFS operators claim that they are still the essential cog in the wheel and very much relevant for the success of DPD
Launched barely about two years ago, the Direct Port Delivery system at the ports has shaken and stirred the entire logistics chain. While the ports hail DPD as a tremendous initiative to reduce congestion while saving on time and cost for the trade by moving the cargo directly to the consignee’s door step from the port, the CFS claim they are still the essential cog in the wheel, without which the DPD will get derailed as the volume of cargo moving through this direct delivery process grows in future.
Ports hail the DPD strategy
“The path breaking initiatives of Direct Port Delivery (DPD) and Direct Port Entry (DPE) have started showing results helping in not only reducing transaction cost and time but increasing the overall efficiency of the Port,” said Neeraj Bansal, Chairmanin- Charge JNPT. DPD is gaining more and more popularity with EXIM trade at JNPT and its share in the traffic has gone up to 38 per cent, while more than 1600 clients have accepted DPD mode. When JNPT announced DPD for all ACP clients (irrespective of their volumes) in February 2016, only 11 agencies were availing the facility and subsequently the number increased to 1,317 in 2017. In December 2017, a total of 52,000 teus of cargo was cleared at JNPT under DPD, which is 735 per cent higher compared to December 2016.
Coming to India’s only riverine port, the traffic department at Kolkata Dock System prides in revealing that “Kolkata Port has always been one of the pioneers in facilitating DPD. The DPD volume has consistently remained at around 40 per cent over last 3 years. This is mainly because about 25 per cent of our Imports are Nepal/Bhutan bound containers and these containers auto-qualify to obtain DPD from the Port. To promote DPD we have other categories such as port’s volume importers recording 1500 teus/FY gets DPD facility. Also, Customs ACP/AEO clients and coastal and ICD and SEZ bound containers also obtain DPD facility from the port.” As per Kolkata Customs PN 04/2018, 82 customers fall under the category of AEO clients and these shall avail DPD in the new FY. “DPD as a scheme is vital since it reduces the dependence on Off Dock CFS. It is essential in port’s ability to provide cost efficient service to its customers. However excessive DPD can increase the dwell time of the containers inside the terminal leading to shortage in stacking space. Hence DPD as a facility should be extended to those customers who needs it the most. DPD Policy when formulated efficiently can bring in a paradigm shift in the cost effectiveness of trade through a port.”
Neeraj Bansal
Chairman-in-Charge JNPT
“The path breaking initiatives of Direct Port Delivery (DPD) and Direct Port Entry (DPE) have started showing results helping in not only reducing transaction cost and time but increasing the overall efficiency of the Port”
Coming down to the South, the most recent initiative has been CONCOR, Chennai commencing movement of DPD and Direct Port Entry (DPE) between CONCOR HOM Annexe (Chennai Port) and CONCOR Tondiarpet. The inaugural train, carrying 62 DPD containers, was flagged off in March 2018. The trains will carry DPD/other import containers for delivery/clearance to Tondiarpet and, in the reverse direction, DPE/ other export cleared containers will move to Chennai Port.
In March 2017 Chennai Customs had inaugurated the ‘DPD Cell/RMS Facilitation Centre,’ servicing about 224 importers availing the facility and by June nearly 19 per cent of all import cargo at the port was being cleared under this programme. Importers are able to save around `5000 per box. These 224 importers handle nearly 60 per cent of import cargo at Chennai port which includes machinery, automobile spare parts and paper products.
A recent study by CARE Ratings reveals that DPD has witnessed steady growth in terms of proportion of total containers handled. In the month of November 2017, 34.7 per cent of container cargo was cleared through DPD compared with 25-27 per cent during the beginning of the year. Animporter is assured clearance of cargo in less than 48 hours under DPD as against an average of seven days if routed through a CFS. Additionally, delivery of containers at terminals is expected on a 24×7 basis which is not possible on custom bounded warehouses. Hence improved dwell time of goods and additional cost savings are expected on account of reduction in handling, storage, transportation and container detention charges. Particularly dwell time is expected to reduce by about 4-5 days, according to the CARE Ratings report.
Benefit to importers
As per the CARE Ratings report, importers opting for DPD will benefit with timely delivery, savings in transportation, handling and storage charges at warehouse as a result of reduction in dwell time. CFS charges constitute rentals (50-60 per cent), transportation & handling (30 per cent) and the remaining for miscellaneous charges, cranes charges, refrigeration, plugging, monitoring etc. Importers also require to re-work their logistics chain as they now have to take delivery of containers as soon as they reach terminals.
But, are the ports ready?
While the major ports are chasing targets for moving 40 per cent of their cargo imports through DPD, but they need to keep a strict watch on operational efficiency at the terminals, else it may result in congestion and chaos. Going by the dwell times reported by major ports in first half of the previous fiscal year, there needs to be a serious effort to tighten their belts. In the first half of FY18, dwell times at most of the major ports stepped up to around 3.4 days. While DPD facility primarily aims at reducing the logistics cost and time for the exim community, but increase in dwell time means cargo staying longer at the harbour which can cause congestion and extra storage charges for shippers, adding to their logistics cost.
To expedite flow of cargo, major ports have implemented several measures such as standardizing of carting hours for export cargo and reduction in free storage time for railed shipments. However, the increase in dwell time doesn’t gel well with these initiatives.
Ashutosh Jaiswal
President – Intl Business Divn & Logistics, Century Plyboards (I) Ltd
“As far as city- based ports like Chennai and Kolkata are concerned these ports have dearth of space and so they will have to face serious congestion both inside and outside of the port due to DPD”
Deciphering DPD from CFS operators point-of-view
While the ports are hailing the DPD policy for swift movement of cargo, reducing the cost and time for importers, here is the point of view of the CFS operators: Umesh Grover, Secretary General, CFS Association of India says, CFS were designed as extension of the ports because ports like JNPT were built on the CFS model, which means the port was designed in a restricted space to handle vessel related activities and they neither invested in infrastructure for handling of the cargo nor in labour for moving the cargo. So the CFS were setup and encouraged by the government of India and the first CFS was setup inside the port and as the volume increased and more terminals cropped up the government had encouraged formation of CFSs through CWC. SOPs were offered to the entrepreneurs to build up CFSs because that was the need of the day, further they were offered exemption under section 80i of the Income Tax Act, similar to what is offered to the port sector.
India till date did not have DPD while other global ports like Rotterdam or Hamburg have it since their inception, because the ports abroad are designed and covered in a very large area – it could be about 10-20 times more than the area of JNPT, with hundreds of kilometres of road ways. Secondly, the trade moves in a different fashion in global ports.
Now coming to the myth that DPD will help ports in improving ease of doing business and remove congestion – on the contrary CFS have been playing a major role in helping ports to move out the cargo speedier and reduce congestion. Let’s take the example of JNPT: This major port handles roughly 2.2 million teu of imports on a monthly basis, out of which 30,000 to 40,000 teu are ICD containers which go directly to the ICDs. So what is routed under DPD or which was earlier routed through CFS is about 70 per cent or 150,000 teus. Now, over a period of years DPD has increased from 6 per cent in a year to 36 per cent and more or less a plateau has been reached. Last month the figure was roughly 52,000 teu which was about 36 per cent, which was more or less the same in the previous two months. So, the DPD movement of cargo has reached a plateau and beyond this point it will be counterproductive to the ports, for the reason, out of 52,000 teu DPD containers only 12,000 to 13,000 are cleared directly by the DPD client, balance containers if not cleared in 48 hours will go to the government/customs designated CFS called “Speedy”. So, out of the 52,000 teu containers (which is 36 per cent), 12 per cent containers are going direct to the importers, whereas the remaining 24 per cent (about 30,000 to 35,000 teu) are still being routed through CFSs, which is known as DPD/CFS.
The consignee is taking the DPD container but he wants the CFS to evacuate it. Now the evacuation time is what actually matters as it will determine the congestion at the port. Evacuation of DPD type containers from CFS is being done in 28.1 hours (as per the figures published by FIEO) and the time taken by DPD client in moving the container from port directly to his facility is 51 hours. So, if all the 40 per cent of the imports at the port are to go direct then the time taken in moving the containers will further increase to maybe 70 to 80 hours and there will be huge congestion, opines Umesh Grover.
Coinciding with the views of Umesh Grover, Ashutosh Jaiswal, President – Intl Business Divn & Logistics, Century Plyboards (I) Ltd says, “As far as city- based ports like Chennai and Kolkata are concerned these ports have dearth of space and so they will have to face serious congestion both inside and outside of the port due to DPD. Unlike other ports where the CFSs are a little away from the gateway terminals, for Kolkata Port, most of the CFSs are at a distance of two-and-half to three kilometres. As of now DPD in Kolkata Port is about 36 per cent and since the cargo is not coming to CFS, so CFS business is also going down. Currently all the CFS in Kolkata are under-utilised.”
He further adds, “On one side, government is going on giving permissions for new CFS and on the other hand they are implementing DPD which again curtails the business of CFSs. So this contradictory policy makes it very difficult for the CFS operators to understand which way the government is heading.”
CFS claim to be faster than ports
The reason why CFS are able to clear the containers faster than the ports is because they do end-block movement. At the port when the container is lifted from the ship it goes to the container import yard, where they are segregated as per the vessel plan for various CFS and ICDs, so they may take about 40-50 stacks of the containers. Now if there are going to be 1000 DPD clients, to give delivery of four containers to a single client, the trailer which comes in will have to wait for a very long time. When segregation is done at the port, supposing the trailer which takes 1.5 hours inside the terminal, it will take 3 hours before the containers are identified and loaded. As the containers of a particular client will have to be cherry picked from the huge stacks of containers imported, there will be more moves by the crane/reach stacker incurring extra cost and time and further there will be more congestion. Whereas, at the CFS the containers are segregated properly such that they can be delivered to the clients making less number of moves, saving on time and cost.
“Government can still go ahead with the DPD programme and even further increase the volumes of DPD cargo to 60 or 70 per cent, but it will be only successful if they set up complete infrastructure inside the port where customs can do examination and then release the cargo,” says Umesh Grover.
CFSs have invested roughly `3000 to 4000 crores, apart from the land cost and the 30,000 to 40,000 labour being employed there. Ports are not employing such huge labour, so CFS will only add to the ports capabilities to evacuate the cargo faster. CFSs have re-engineered their plan and they are evacuating the containers out-ofcharge for which their earnings are much lesser. But the existing equipment, infrastructure and manpower present with the CFS should be well utilised, before the government considers adding any new infrastructure, suggests Umesh Grover.
Umesh Grover
Secretary General, CFS Association of India
“Government can still go ahead with the DPD programme and even further increase the volumes of DPD cargo to 60 or 70 per cent, but it will be only successful if they set up complete infrastructure inside the port where customs can do examination and then release the cargo”
DPD clients still routing their cargo through the CFS
After the container is out-ofcharge, many consignees do not have sufficient warehouse space to keep their containers. Customs were well aware of the fact that there is going to be a huge storage problem. While the consignee can dump the containers at any warehouse, but CFS offer a costeffective and tech-enabled optimum solution. But after the container is out-of-charge, since port and CFS both are customs notified area, so an out-ofcharge container, after exiting a customs notified area (port), cannot enter another customs notified area (CFS). Now since the container is going to enter a CFS again for ease of business, so the customs de-marked certain area in each CFS for DPD boxes.
In the developed countries most of the imports are FMCG, chemicals or machineries which can directly go to the consignee’s location, but we import about 35 per cent of heavy metal scrap, which necessarily needs to be inspected by customs, now ports do not have the infrastructure and space to examine this. So such cargo has to be re-routed through CFS.
Further if the consignee does not remove his containers within 48 hours from the port, then they will be sent to the speedy. Whereas a better alternative is that the containers can be brought to a CFS within 24 hours of unloading from the ship and can be stored at the CFS at a nominal amount, which gives a lot of flexibility and comfort to the consignee. This is the reason that out of the 52,000 teu DPD imports, 32,000 to 33,000 teu is still routed through the CFS.
Pramod Kumar Srivastava
Director & CEO, Allied ICD Services Limited
“DPD is a good policy by the government where the pricing for customers can be made under control and I personally feel the definition of DPD should be widened because even at JNPT they have declared CFS as the DPD extension of the container yard”
Not many importers are convenient with DPD
Not many importers are happy with the DPD because certain consignments they would like to import as DPD, while others they may not like to import as DPD. But the law says that if you are a DPD client, you should compulsorily clear all your imports as DPD.
“I fully endorse that DPD should be there, but the government should not enforce it. DPD should be the prerogative of the importer. The regulations should be enforced in such a way that there should be no binding,” suggests Ashutosh Jaiswal, President – Intl Business Divn & Logistics Century Plyboards (I) Ltd. Coinciding with the views, Pramod Kumar Srivastava, Director & CEO, Allied ICD Services Limited says, “DPD is a good policy by the government where the pricing for customers can be made under control and I personally feel the definition of DPD should be widened because even at JNPT they have declared CFS as the DPD extension of the container yard.”
Suggesting on similar lines, S Padmanabhan, Director, Sattva Logistics Group says, “In future, as Customs clearance becomes fast and easy, it will move to the port premises, but all other activities will happen at the CFS. The importers should not be forced into DPD but they should be allowed the space to choose the DPD service voluntarily evaluating their cost and business model.”
CFS contribute to success of DPD
A major contribution of CFS is that by faster evacuation of import containers the dwell time for exports will also be reduced. If a port is congested with import containers then there will be no space for export containers. Another reason for the delays at the port is that the rail infrastructure is obsolete and the rakes cannot move until they are full, which again increases the dwell time at the ports. CFS will continue to aid in faster evacuation. Today the success that DPD programme has achieved is largely due to the active role of CFS in faster movement of cargo, else the 36 per cent DPD target would not have been achieved, reveals Umesh Grover.
Sharing the views, Ashutosh Jaiswal says, “Small industries with limited capacity in their warehouses will suffer as they can’t take the entire imports at once into their facilities. When CFS concept was introduced in Kolkata Port the port volume was around 263 thousand throughput and the port was getting congested. Over the years the port volumes have grown to around 650,000 teus and CFS have played a significant role in this growth to keep the port free of congestion.”
S Padmanabhan
Director, Sattva Logistics Group
“In future, as Customs clearance becomes fast and easy, it will move to the port premises, but all other activities will happen at the CFS. The importers should not be forced into DPD but they should be allowed the space to choose the DPD service voluntarily evaluating their cost and business model”
Impact of DPD on CFS
The revenues of CFS and the volumes moving through them have surely seen some impact. Ashutosh Jaiswal says, “If the port has instructions from the government for DPD then automatically CFS will be deprived of their volumes. Now the six CFSs in vicinity of the Kolkata Port are underutilised by around 35-40 per cent. Millions of investment has been made in CFS infrastructure till date and suddenly the government cannot deprive them of business.”
Talking about the survival strategy for CFS, Ashutosh Jaiswal adds, “CFS cannot have their own survival strategies as they are an extended arm of the port. CFSs should focus on exports and domestic volumes to sustain in business. Otherwise, just depending on imports it will be very difficult to sustain and the investments made in infrastructure will be jeopardised. We are working on a strategy wherein exports and domestic volumes will be our first priority and imports will be our second priority. CFSs can also denotify some of their area and use it for warehousing.”
“Initially we thought there would be a big impact but there has not been much impact especially for Mumbai region in terms of container volumes handled,” says S Padmanabhan, Director, Sattva Logistics Group. “Of course, there has been considerable reduction in the storage charges at the CFS so this has surely impacted their revenue model. Many of the CFS had to rework their pricing model to make their services attractive to customers.”
CFS reorient their business model
“Basically CFS were introduced in 1994 to facilitate customs clearance, but over the years the service model evolved to include other services as well such as warehouse, cargo storage, cargo handling and lashing for the benefit of the exim community. So even though we are not providing Customs services but we continue to offer other services. To further stay relevant in the logistics cycle, CFS have done a lot of value addition to their service model,” adds Padmanabhan.
Even at the global level there are container yards being operated by steamer agents, vessel operators or container operators. These facilities hold the cargo on behalf of the exim community till they obtain delivery order and other formalities are completed. In India, these services are offered by CFS for Customs facilitation, but since Customs has launched digital platforms and their procedures have become swift and streamlined, so today customers no longer have to wait at the CFS for Customs procedures, but a lot of other activities do happen at the CFS still, such as consolidation of cargo, inventory management, approving ownership of the cargo and providing logistics to the door step of the customer.
S Padmanabhan further reveals, small businesses that cannot own or operate a warehouse will eventually have to come to a common user facility like CFS, after their containers are cleared from the port. Automobile manufacturers like Ford and Hyundai use their facilities for manufacturing and storage of finished goods. They cannot spare their factory space for storing raw materials or imports, which necessarily have to be kept outside the factory. Here comes the role of CFS. The CFS have modified their service model, acting as storage point for manufacturers.
“CFSs need to evolve their business strategy, for instance, as per the absolute CFS policy DPD can be declared in the additional space of CFS as well. If a CFS has capacity of 5000 containers, they can easily make out 1000 containers space as additional container yard area and the containers can come directly from the vessel to the container yard area before being delivered to the customer. In future, CFS need to offer end-to-end solutions, they also need to develop 3PL operations and warehousing solutions. Another opportunity is the Direct Port Exports (DPE),” reveals Pramod Kumar Srivastava.
