When do you see the current strained global supply chain scenario return back to normal?
The current strained global scenario is not only due to Covid but various other geopolitical (Ukraine- Russia conflict) reasons resulting in economic crisis globally and especially European nations, are severely impacted. The global EXIM trade has shrunk and it is feared that the depressed market scenario will continue till this conflict is resolved. The nations are worried about food and energy security and FMCG are not a priority. Secondly, China continues to have spurts of total lockdown due to COVID. The alternate markets, especially India is emerging but this too is a long drawn process.
However on a positive note, China as a super power is still the biggest consumer and supplier of all the commodities and it is expected that normalcy would return in 2023 post pandemic. China opening and a resolution to Ukraine crisis will allow world economy to bounce back. The supply chain normalcy too is expected.
What are the lessons learnt from the pandemic and the ongoing supply chain crisis?
The pandemic hit the global supply chain into a chaos and disruption as never seen before. As the supply chains globally were not really resilient and they could not quickly recover from disruption. Logistics was considered a routine activity in most organizations and was left to the Managerial level but now it is monitored in the “Board Room”. All global major players realized that in case of such an unprecedented disruption, the production line could come to a grinding halt. Global players and industries as a knee jerk reaction have now become more resilient and measures such as alternative factories, dual sourcing and more generous safety stocks go against the well-versed philosophy of lean supply chains that has prevailed in recent decades. This would all be at a huge cost. Business as usual will be back in years to come. Rebalancing of efficiency and resiliency will not be easy.
In the New Year what will be the key shipping and logistics trends?
As far as Shipping trends are concerned, the market analytics speak of the tough times ahead. The unprecedented windfall profits in the last 2 years for the Container Lines and other MTOs/ NVOCCs/ Freight Forwarders has also seen vessels chartered at astronomical rates & container production boom. In the last 4 months the freight rates have literally collapsed d by 70 % in most of the routes. Older and smaller tonnage is now being scrapped. Further, overall dwindling containerized trade, economic crisis in most of the countries due to geopolitical conditions is making the situation worse.
On the Logistics front, “National Logistics Plan” launched recently has positive indicators for growth of MMLPs and warehousing. DFC, once commissioned will increase the rail capacity 4-6 times and a gradual shift form Road to rail is envisaged. Several new Rail terminals are likely to come up in the next few years.
Following the announcement of DPD and DPE, what is the survival strategy of CFSs?
A very relevant question indeed. Let us first talk about DPE…it has always been the trend barring few locations like Mundra where exports CFS stuffing constitutes to about 50%. Otherwise CFSs normally handle only 25% of exports. However with surge in export, CFS stuffing volumes are likely to see an upward trend.
CFSs at most of the locations cater to 70-75 % of total imports. In the short term import volumes are not growing but in the long term, with economic growth, if the exports surge, import too will surge. As far as Imports are concerned, DPD has stabilized in last 1-2yeras to around 60% in JNPT and 40-50% in other locations. For DPD, a lot depends on the commodity. However Interestingly 85% of the DPD Imports in JNPT are still handled by CFSs as importers and trade find value in CFS services, albeit lesser services are requirement for DPD boxes. This obviously impacts CFSs revenues. Enblock evacuation of Imports from Terminals and safe storage is key requirement of Importers which CFSs have been providing. The higher percentage of RMS facilitation is also resulting in a quicker turn around and the CFSs ground rent, another revenue component for CFSs is shrinking.
CFS industry has been pitching for doing additional value added services like packaging – repackaging , bar coding , environment friendly MSME activities as well as the activities permitted in MMLPs .Interestingly new National logistics Policy includes this activity. CFSs would be keen to reengineer their business plan and convert CFSs to “SmartYards” wherein multiple activities as mentioned earlier could be performed. This paradigm shift can be achieved by focusing on creating Virtual boundaries through digitization as existing infra is adequate.
Lastly with the new airports coming in and surge in air cargo being predicted, CFSs especially in Panvel area of JNPT can work as AFSs also, instead of creating new Air Freight stations
On the policy front what are your expectations from the government?
NLP, Prima facie spells out Governments intent to link as many as 16 Ministries through Unified Logistics Interface Platform “ULIP” and also “Gati Shakti” would speed up all the clearances and development of Infra. Since it is being monitored by a Group of secretaries under PMO, we are hopeful of positive developments, provided perpetual bureaucratic hurdles are addressed. This perhaps would be the biggest challenge to rejig the bureaucratic mind-set. The Government in-fact is doing its best and we expect Infra to grow substantially in the next 2 years.
How many CFSs are preparing to offer value added services or become smart yards? Will it require additional investments?
It is a bit too premature as the policy has just been released. Few of our large members having multiple faculties pan-India have been working on automated processes using SmartYard Solutions especially in their existing Logistics Parks which gives them a competitive edge as a high-tech facility. To that extent it is proven system. In CFSs being CCSPs, they are regulated by Customs who would need to be satisfied that the system is fully safe and secured. We have made presentations to JNCH and prepared an SOP and would be pursuing for a “pilot run” of the project.
Has any preliminary study been done to assess the industries’ eagerness to avail smart yard services? What could be the potential demand?
There are quite a few facilities, especially in the warehouse and logistics park sector and there are 2-3 competitive IT System developers. This technology involves use of Artificial intelligence and high Tech IT Systems. Going forward, any facility before taking up the project would do basis a thorough Techno-economic feasibility and get a DPR, determine the potential as each location would have different types of cargoes / activity, supply & demand and other factors. The policy is only an enabler and whether to go ahead with conversion to a SmartYard would be purely based on whether it makes business sense to the CFS/ICD.
Offering value added service also depends on the type of commodities handled by the CFS. Which are the other factors that will decide the capability of a CFS to become a smart yard?
Presently CFSs as CCSPs are allowed to handle and Service EXIM cargoes only. On an average CFSs/ ICDs are functioning at say 55-60%. By re-engineering business plans and through SmartYard , the proposal is to seek a mandate to handle additional activities like Packaging / repackaging , barcoding , Cold chain, container repairs and also handling domestic cargoes, in addition to EXIM. This can be achieved by creating Virtual Boundaries and not Physical boundaries. However as mentioned earlier, it would solely depend on an individual facility whether to go ahead or continue business as it is.
