AMTOI · 2017-09-22 · under the Pradhan Mantri Kaushal Kendra (PMKK) guidelines, are setting up a National Skill Development Centre (NSDC) at Nhava Sheva. The ministry, City and

Volume 1 Issue 9 | Quarterly News July 2017 | www.amtoi.org

AMTOI

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ASSOCIATION OFMULTIMODAL TRANSPORTOPERATORS OF INDIA

Impact of GST on Ports and Logistics

Contents

Interview : Sameer Shah, Partner, JBS Group of Companies

Interview : Captain Sandeep Mehta, President, (APSEZ)

Emergence of Alliances in Container Shipping

No Crash Course, This!

Editorial

04

06

09

08

10

13

14

16

17

From the President's Desk

The Right Road

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Editor Shantanu Bhadkamkar / Xerxes P Master

Special CreditXerxes P Master

Publisher Sailesh Bhatia

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Computer Artworks Sanjay Punjabi

Printed and Published by B N Prints on behalf of AMTOI (Association of Multimodal Transport Operations of India)

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Understanding the Good & Simple Tax - II

Intermodal Transport Replaces Sea Route 22

Understanding the Good & Simple Tax - I

AMTOI NEWS : Volume 1 | Issue 94

Dear Members,

Season's Greetings!

This will be my last communication to you as the President of AMTOI. My term as President is ending this September.

AMTOI has striven to keep its members abreast of the latest news about its activities and the changes in the logistics and freight forwarding industry. I am grateful to all of you and to my colleagues from the trade for their wholehearted support and encouragement; this has kept me moving forward and helped me begin new initiatives for the benefit of our community. I would like to share with you the various accomplishments of the last two years.

Federation of Indian Logistics Associations (FILA)AMTOI, along with eight other leading industry associations, has conceived the formation of a federation of logistics associations. The objective is to create a platform to pursue the joint objectives of a cargo community system, skill development and address common issues dogging the industry, by engaging with the government to find solutions.

Port Community System (PCS 2.0)PCS 2.0 is intended to integrate the flow of trade-related information and function as an electronic platform for all stakeholders involved in cross-border trade. This includes both private and public bodies.

Continuous engagement with the Indian Port Association (IPA) has resulted in the formation of a work-group and steering committee, comprising various segments of the trade who are now providing valuable inputs to the government on the structure and functioning of the system.

Skill DevelopmentThe Ministry of Skill Development and Entrepreneurship, under the Pradhan Mantri Kaushal Kendra (PMKK) guidelines, are setting up a National Skill Development Centre (NSDC) at Nhava Sheva. The ministry, City and Industrial Development Corporation (CIDCO) and JNPT are supporting the project in various capacities. It is the endeavour of AMTOI and other trade associations under the banner of FILA to set this up at the earliest so that we are able to improve the skill-sets of the workforce around Nava Sheva.

Amendment of MMTG Act 1993The international trade community today has seen the concept of moving cargo shifting from port-to-port to

door-to-door. If this model of cargo movement is to be adopted, then it has to be governed by a single law under a single contract with a liability regime clearly defined, scope of applicability of the law widened, scope of self-regulation and dispute resolution mechanism embedded. AMTOI is closely working with office of DG Shipping to discuss and propose amendments to MMTG Act 1993.

Goods and Services TaxThe biggest tax reform in India since Independence was finally implemented on July 1, 2017, despite numerous apprehensions. To keep our members well-informed about the changes in the tax structures, AMTOI consulted reputed GST consultants and interacted with government representatives to understand the nuances of the new law. Accordingly, we issued various advisories to members on various aspects of the new tax law.

AMTOI New Office PremisesI thank the members for their financial support in acquiring the new office premises for AMTOI. I am pleased to inform you that the interior work has commenced and we are hopeful it will be completed in the first half of September, 2017.

Training InitiativesThe training courses introduced by AMTOI in collaboration

From the President’s desk

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with Maersk Training, Chennai, for the southern region chapter and Mumbai have been very successful and well-attended. We have taken the initiative of extending these training programmes to Gandhidham and Cochin in partnership with ship agents' associations there. This has helped to give our members access to world-class training facilities at negligible costs. We have realised there is a need for organising many more such training courses.

Introduction of AMTOI Business Forum on WhatsAppTo increase the outreach for our members who would like to share their information on their business-related activities, we have created a business group on WhatsApp. This initiative will facilitate members in accessing trade-related information easily. It is also a great way for them to network effectively with their counterparts in the industry.

Signing of MOU with World Trade Centre, PuneAMTOI has collaborated with the Pune wing of the World Trade Centre to help trade and business, for skill development, technology sharing, organising seminars and other related issues of mutual interest. An MOU was signed by AMTOI with WTC, Pune in this respect.

Invitation to Other Interest Group Operators to Join AMTOI PlatformAfter some discussion, the managing committee of AMTOI has invited other interest group operators to join with it and use its platform to addressing their issues/grievances with the concerned authorities. The objective is to consolidate various segments of the trade and

organise their activities under the umbrella of AMTOI.

AMTOI ChaptersTo give a boost to the northern region chapter (NRC), a three-member core committee was constituted which organised a meeting of MTOs at Delhi. This was done to promote the activities of AMTOI and increase membership base.

The southern region chapter (SRC) is working satisfactorily and has completed a year of organising training courses. Meetings are held every quarter to review their working.

The eastern region chapter (ERC) is working towards increasing membership base. It is proposed to commence training activities in Kolkata in due course of time.

Digital and Print Communication AMTOI continues to communicate with its members and the trade at large through website updates, the weekly newsletter, quarterly printed magazine, and now, through a WhatsApp group.

Once again, I thank all our members and colleagues in the managing committee for providing me guidance during my tenure as President and which encouraged me to carry forward the agenda of AMTOI.

Best regards

Vivek KelePresidentAMTOI


EDITORIAL

GST, today, is the most talked about issue in business circles. Since the past year, a lot has been written, and even more has been spoken about its various aspects. My thoughts are, therefore, dedicated to GST, but without repeating what everyone is saying. The enormity of impact of transition to the GST regime can be understood by the fact it is something not only the taxation departments of companies are concerned with, but the entire hierarchy in the companies across all segments of its functional units, be it sales, purchase, finance, costing, planning and budget, logistics – all have a role to play. The impact of GST, on our industry, crosses national boundaries as our foreign associates/agents and our foreign customers will also be stakeholders in this scheme for taxation.

The Kelkar Committee, in 2004, strongly recommended unification of all indirect taxes by integrating all indirect taxes in GST on a national basis. Since the submission of this report, various other committees and commissions have worked on the transition to the GST regime.

In this context, July 1, 2017, when GST was launched, is as historical a movement in India’s

history as the economic liberalisation reforms initiated in 1991. This is notwithstanding the fact that the regime that has been introduced is a much watered down version of the original concept of GST – one nation, one market, one tax, one authority, one law, one rate and one form, one return. Nonetheless, it is a big leap forward towards this objective. We hope we will soon achieve this simplicity as originally expected.

Due to its integrated structure, GST will certainly facilitate high level of tax compliance in a manner where evasion will be systematically dis-incentivised, not just by the punitive enforcement of the central and state GST authorities and other revenue enforcement departments, but by all stakeholders in the supply chain. This will lead to much required widening of the tax base. Since all transactions between buyers and sellers will be captured and mapped by the GSTN, not only evasion of GST will become almost impossible, in addition, evasion of direct tax such as income tax will also be almost impossible. Service sector constitutes over 50% of the GDP (and the share is increasing every year); until now only the central government was empowered to collect service tax. With the transition to GST, the

A Perspective on GST

People really have to believe in their tax system.

They have to believe that there is an equitable distribution of the burden, but there is

also an important investment based upon the potential

achievements that come from us paying our taxes.

- Richard Neal (Member of the House Ways

and Means Committee and former chairman of the Subcommittee on Select Revenue

Measures of US Congress)

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state government will also get a share on the tax from the service sector, thereby increasing their revenue exponentially, the potential of which is yet to be completely recognised by them.

GST being a consumption-based tax; it will be somewhat disadvantageous to producing/manufacturing states and will be exceptionally beneficial to the states that are predominantly consumption states. Since by and large the producing/manufacturing states are financially better off than the rest, the change will act as a leveller. It will also be a leveller in other ways, i.e., earlier, a compliant tax payer bore the entire burden while the non-compliant almost got away scot free and had a financial advantage out of non-compliance. With the compulsion of increased compliance, almost to an absolute level, the financial advantage of a tax evader and the non-compliant will perish. Considering all these benefits that will accrue to the union and state governments, the trade and industry legitimately and deservingly expects the following:

• A more trust based system; more respectful treatment to tax payers and removal of hardships, with significant improvement of ease of doing business.

• A more competitive taxation regime, comparable to the region and neighbouring economies. Just as water finds its level, capital also migrates to the place where the taxation is predictable and the returns after tax on capital employed are highest.

• A less punitive tax regime that will reduce disputes and litigation enabling the managements to spend more time on business development. It is presently estimated that SME owners have to spend up to 30% of their management time on tax and statutory compliance.

Some of the features of interest to smaller businesses include provisions such as reversal of GST credit, in case vendor has not been paid by the customer. Studies by chambers of commerce, government agencies and others have found that payment delays by big corporate companies raise the transaction cost of SMEs which eventually brings SMEs to the verge of sickness. The new GST provisions will suo-moto trigger the action wherein the buyer who has not paid the vendor in six months, is obliged to reverse the GST credit. The GST and the GSTN will facilitate a clean-up of the commercial transactions among the private sector, and it will hopefully reduce the private sector corruption. AMTOI, along with other trade bodies representing cargo logistics interests has taken a joint initiative for facilitating members’ smooth transition to the new tax regime. Besides joining forces with other trade bodies for a more effective advocacy, AMTOI is also working on harmonisation of practices and processes across the logistics and maritime industry. AMTOI has circulated the response of experts on frequently asked questions. It is important that all the members co-operate and take active interest in establishing common practices and harmonised interpretation across the industry.

We hope the Good & Simple Tax is a new beginning for a brighter, emerging India!

Warm regardsShantanu Bhadkamkar

We contend that for a nation to try and tax itself into prosperity is like a man standing in a bucket and trying

to lift himself up by the handle.

- Winston S. Churchill

EDITORIAL


PortsRoll-out of GST will be positive for entities in infrastructure, due to the streamlining in taxation of works contracts* as project owners/operators get involved in the same for different aspects of asset operations. (E.g., construction of assets and general repair and maintenance).

Major issues in earlier tax regime were the applicability of VAT for services contracts and ambiguity in segregation of works contracts into supply of goods and supply of services, while GST law treats works contracts as a service.

Schedule of GST rates for services, classifies ‘composite supply of works contracts’ into 18% tax slab, with full tax credit. Majority of the contracts for a port entity, as well as ports services, will fall in this segment. Though overall tax incidence for contracts can marginally increase (14 - 18% based on VAT incidence, to 18%), the benefits from full tax credit and simplification of taxation of contracts will outweigh the same.

Port entities can avail input tax credit against construction services contracts, maintenance services contracts and port operations contracts, if any, where contractors will be taxed under composite supply of works category with 18% tax and full input tax credit, resulting in a higher tax compliance and reduced tax burden across entire value chain.

Impact of GST on construction costs would also be neutral as effective change in tax incidence is marginal for cement and steel respectively, which are major construction materials.

Other key monitorables for the sector are provisions for contract renegotiation among the service providers and asset operators (port operators/authorities, etc.), in case of change in scope of services and project costs.

*Model GST law classifies works contract as “works contract” means a contract for building, construction, fabrication, completion, erection, installation, fitting out, improvement, modification, repair, maintenance, renovation, alteration or commissioning of any immovable property wherein transfer of property in goods (whether as goods or in some other form) is involved in the execution of such contract.

Impact of GST on Ports and Logistics

GST

A research and ratings agency analyses the impact of GST on ports and logistics.

Inefficiencies in the previous tax regime

Taxation Structure

• Entire value chain not covered

• Cascading Tax burden

- Full credit not received on input taxes

- No credit for CST

- Tax on Tax, CST and State VAT levied on the excise component also.

• Complex taxation redues transparency

Inefficient logistics

• Warehouses set up in different states to avoid CST

- This increases the logistics and warehousing costs and renders supply chain inefficient

• Long delays in transit

- Long documentation process for varied taxes and delays at check posts

- Higher taxation and logistics costs increase final prices of products and thus export competitiveness decreases

Cascading effect of taxes

Higher warehousing

costs

Long delay in transit

Scope for tax evasion

Dis-advantages of previous tax system

Lower export competitiveness

Logistics - GST to address the issue of inefficient supply chain

GST to create business efficiency in the medium term (1-3 years) - Supply chain efficiency to improve. Companies

to move to hub and spoke model of warehousing supply chain

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For the benefit of the logistics community, AMTOI’s southern region chapter (SRC) conducted an interactive session on the new goods and services tax (GST) regime, on July 29, 2017, at Hotel Hyatt Regency, Chennai.

An eminent panel, comprising those who were directly involved in introducing the new tax system to the country, discussed different aspects of GST at length. Those on the panel were C P Rao, principle chief commissioner, GST, J M Kennedy, IRS-Head, working group on GST for transport and logistics, and K Vaitheeswaran, an expert on indirect tax. In his opening remarks, Mr. Rao mentioned how the government is committed to working with the industry for ironing out the initial issues pertaining to GST.

The GST Council’s initiatives were presented by Mr.Kennedy. Subsequently, an industry perspective was provided by Mr. Vaitheeswaran.

Both AMTOI - SRC’s members and others present had a healthy interaction with the Mr. Rao, K Srinivas, deputy commissioner, and Mr. Vaitheeswaran, who took queries from the audience. Earlier, Vivek Kele, President, AMTOI, welcomed the gathering and gave an overview of the association’s efforts pertaining to the new regime. Nailesh Gandhi, treasurer, AMTOI, also summed up the efforts taken by the association in addressing its

A heavyweight panel of experts demystified various issues on the new tax regime.

members’ concerns with the government. He said he hoped for a litigation-free environment, unlike the earlier service tax regime.

The session concluded with an indication that more such events would be held for the benefit of the industry as the new tax regime unfolds.

Udaybhaskar Reddy, AMTOI’s SRC convener, was the master-of-ceremonies for all of the above proceedings.

Understanding Good & Simple Tax - I

SEMINAR


The Association of Multimodal Transport Operators of India (AMTOI), Federation of Freight Forwarders’ Associations in India (FFFAI), Consolidators Association of India (CAI) and Air Cargo Agents’ Association of India (ACAAI), jointly organised a seminar on Compliance of GST Rules on May 5, 2017.

It was conducted by K Vaitheeswaran, a leading advocate and tax consultant. A similar session was subsequently held in Ahmedabad.

In an engrossing presentation, Mr. Vaitheeswaran began by elaborating to the full house the modalities of the existing multiple central and state taxes, before giving an overview of how the Goods & Services Tax (GST) came into being, its various aspects and its impact.

It was pointed out that Article 366 (12A) defines Goods and Services Tax to mean any tax on supply of goods, or services, or both, except taxes on the supply of alcoholic liquor for human consumption. GST, therefore, is a tax on both goods and services across the supply chain and is levied at every stage of supply.

GST, in the context of goods as a levy, would commence from the manufacturer/producer/trader and will go through the entire supply chain. An effective and efficient GST system would provide for elimination of the cascading effect of taxes.

Mr. Vaitheeswaran called on the trade to gear up for this major tax reform.

GST was introduced ceremoniously at the midnight hour on July 1, 2017.

Some of the other key points on GST explained were as follows:

On its relevance, it was pointed out that both Government and industry are keen to implement GST.

Governments are looking at increasing the tax base and tax collections through GST. States are looking at GST as a window for taxing services, while the Centre is looking at GST to go beyond the point of manufacture.Industry wants GST to eliminate the cascading effect of taxes

Understanding Good & Simple Tax - II

SEMINAR

AMTOI, FFFAI, CAI & ACAAI jointly organised seminars on the new Goods and Services Tax (GST) regime.

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• Where taxable supply is made in different states, registration required in each state.

• Every supplier will have to file details of outward supply online by the 10th of the succeeding month.

• Every supplier will have to file details of inward supply online by the 15th of the succeeding month.

• Matching has to take place to ensure that all the discrepancies are rectified.

• Monthly return has to be filed by the 20th of the succeeding month.

• Annual return to be filed on or before December 31, following the end of financial tear.

• From two service tax returns, service providers will have to go online 37 times in a year.

• In case TDS is applicable, another 12 times in a year.• In case input service distribution is applicable,

another 12 times a year.• 61 times online per state as against two online

filings for the whole country in a year.• Air Freight/Sea Freight GST• Section 12 of IGST applicable when the location of

supplier of service and the location of recipient of service is in India.

• Services provided by airline to freight forwarder.• Services of freight forwarder to exporters.• In the light of Section 12, international air freight

and sea freight is getting taxed under GST both in the hands of the airline/liner and the freight forwarder.

• Air Freight/Sea Freight GST 2• Foreign buyer located outside India.• Foreign buyer pays freight to freight forwarder

located outside India or pays the airline/liner registered in India.

• Airline/liner as a service provider located in India.• Recipient of service is the freight forwarder outside

India or the buyer outside India.• Section 13 of the IGST becomes applicable.• Destination of goods is outside India.• GST not applicable.• Loss of business to Indian freight forwarders.

Ideal Scenario• International transportation of goods should be

zero rated.• Ancillary transport services should be zero rated.• Freight forwarders providing single supply should

be zero rated.• Transportation, freight forwarding and related

and considers it as a path-breaking tax reform in the field of indirect taxes. It was stressed that GST is a path-breaking tax reform, effecting harmonisation of taxes, eliminating tax as a cost and possibly eliminating unwanted business structures. However, it will take time to stabilise given that it is not a simple law, has a complex legal structure as well as huge potential for conflict.

GST Details• CGST would be a levy by the Central Government

through law made by the Parliament.• SGST would be a levy by each state through law

made by state legislature.• UTGST would be a levy on intra-state supply of

goods or services or both.• IGST would be a levy by the Centre through law

made by the Parliament on the supply of any goods and/or services in the course of inter-state trade or commerce.

• IGST would also apply on supply of goods and/or services in the course of import into the territory of India.

• GST compensation cess would be a levy by the Central government on inter/intra-state supplies of goods or services or both.

GST on Exports

• Exports of goods and services would be zero rated.• Section 16 of the IGST Act deals with ‘zero-rated

supply’.• Credit of input tax is available.• Refund of credit for supply of goods or services or

both under bond or letter of undertaking without payment of IGST.

• Payment of IGST on supply of goods and or services or both and claim of refund of IGST.

• Supply of goods and/or services to a SEZ developer or a SEZ unit is treated as zero-rated supply.

Service Providers Under GST Regime• Licensing under Customs Act to continue.• Registration under Multimodal Transportation Act

to continue.• Customs duty, anti-dumping duty and safeguard

duty would continue.• CVD and SAD would become IGST.• Both Centre and state will tax service providers.• Items which are currently not liable to tax may

become liable under GST.• Multi-fold increase in compliance requirements.

SEMINAR


SEMINAR

services for export goods must not be taxed.• India has adopted a model which taxes international

freight whereas countries such as Singapore, Australia, Malaysia, New Zealand do not tax international freight.

Digital GST• India seeks to implement GST through a

massive technology network known as GSTN.• The Central government and the state

governments’ tax platforms would be integrated.• GSTN would be the portal through which the

GST laws of India would be administered and implemented.

• All registrations will have to be through the GSTN portal and only electronic filing is allowed.

• All payments of taxes are through the GSTN portal and only electronic payments are allowed.

• All details and returns have to be filed through the GSTN portal and only electronic filing is permissible.

• All refund applications, acknowledgements and claims through GSTN portal and through electronic filing.

Key Documents in GST• Invoices• Tax invoice containing all relevant particulars

prescribed under GST Rules.• Bill of Supply (supply of exempted goods/services).• Receipt Voucher (advance payment).• Supplementary Tax Invoice (revised invoice).• Credit and Debit Notes.• ISD invoice/ISD Credit Note.• Delivery Challan.

Logistics - The opportunity• Inter-state movement of goods is likely to become

free.• Increase in supply of goods to the customer as

against stock transfer.• Massive changes in procurement pattern.• Key role for warehouses since depots would come

down.• Key role for logistics solution providers.• Possibility of increase in import of some goods

due to cost reduction on account of IGST credit availability.

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AMTOI has once again conducted very successful training courses in collaboration with Maersk Training Centre, Chennai. Over two months – May and June – the St. Xavier’s Institute of Management in Mumbai was again the host for these programmes. All four of them were well attended by industry professionals. The courses were as follows:

• 1/5/2017 – Container Equipment & Asset Management in Shipping

• 12/5/2017- Container Shipping Business & General Landscape

• 22/6/2017 – Project Cargo• 23/6/2017 – Hazmat Awareness

Capt. Sathya Narayan, the visiting faculty from Maersk Training Centre, Chennai, conducted all the four courses.

No Crash Course, This!Continuing with the initiative on training, AMTOI conducted four detailed programmes within two months and intends to begin many more of them.

As before, the insights he imparted were well appreciated by all participants from various segments of the trade.

With the shipping industry undergoing a huge change the world over, and mergers and acquisitions becoming the order of the day, it is necessary for organisations from the shipping industry to prepare their staff for new challenges and tasks. AMTOI has been pitching in with its commitment of conducting such skill development training programmes almost every month. This has immensely benefited the participants from the Industry. AMTOI intends to conduct many more such training courses in the coming months and appeals to all the members of the trade to take advantage of this service – truly a win-win situation for all.

TRAINING


FEATURE

The Indian road space is rapidly scaling the growth super-highway. Various policy measures adopted by the government have brought back cheer to the sector with project awards in FY17 up a whopping 350% compared to FY14 and road construction nearly doubling over the same period. Higher fund availability and continued government support are likely to ensure the robust performance is sustained.

The total length of national highways in the country as on March 31, 2014 was about 91,287 km. This has been enhanced to about 1,15,435 km at present.

Further, in July this year, the Ministry of Road Transport and Highways (MoRTH) approved an in-principle declaration of about 51,300 km length of state roads as new national highways, (subject to the outcome of their detailed project reports (DPR)).

The Right Road

The ministry has also taken up a detailed review of the national highways network to develop road connectivity to border areas, coastal roads including road connectivity for non-major ports, improvement in the efficiency of national corridors, development of economic corridors, inter corridors and feeder routes along with integration with Sagarmala, under the proposed Bharatmala Pariyojana.

Moreover, the other big announcement – that was made earlier this year – of setting up multimodal logistics parks at 35 locations around the country – may also prove to be an enabler for growth, if implemented well. Post the announcement, the ministry conducted a review meeting in July to take stock of the progress thus far. It drew up a priority list and identified and started feasibility studies at six locations. Leena Nanda, joint secretary, MoRTH, told AMTOI, “These locations would

The policy enablers are being put into place. The challenge lies in its implementation.

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be developed from the point of view of external connectivity infrastructure which means they will have rail and road connectivity, and wherever applicable, inland waterway connectivity for ports.”

Such plans are what is needed to improve last-mile connectivity which continues to be a challenge. All this bodes well for established road developers, too, as far as business opportunities for them are concerned. Quality contractors and developers with strong financial might are expected to benefit from the road boom and indeed, many of them are already sitting on order books of at least three-four times their revenue.

While the government is looking at a plan for the minor ports, it is significant that the major ports have become proactive in promoting the port-led development programme of Sagarmala. For instance, Jawaharlal Nehru Port Trust (JNPT), which runs India’s biggest container port, near Mumbai, is, in fact, in the middle of its own programme to triple its road connectivity, linking it to national highway 2 and state highway 54, and providing a dedicated freight corridor by road for the exim cargo coming in and going out.

A mega evacuation plan is under progress to cater to the increased volumes of cargo, what with JNPT set to double its capacity in the next six-seven years from 4.5 million TEUs currently to about 10 million TEUs by 2022-23.Hence, the road connectivity is being

FEATURE

expanded significantly from the existing four lanes to six/eight lanes with a number of grid separators so there is no congestion in the port area. In addition, there will also be two service roads on each side. The work is being implemented by NHAI and is expected to be completed by the end of 2018.

Neeraj Bansal, deputy chairman, JNPT, told AMTOI, “We want to be a port that is always ready for the future.” For the project, JNPT raised $400 mln from SBI and Development Bank of Singapore in August last year.

Kamarajar Port, the only Central government-owned port that is run as a company, will raise $100 million from Axis Bank to part-fund a Rs 1,220-crore expansion of the port located at Ennore near Chennai.

On June 30, the board of trustees of Kandla Port Trust cleared a proposal to raise dollar loans to help fund expansion plans. Increasingly, as state-run ports are sizing up up benefits

of low-cost dollar loans to cut financing costs, fund expansion plans and stay competitive.

Such expansion and connectivity projects are critical for developing cargo-handling capacity as the 12 major ports load about 53% of India’s external trade by volumes moved by sea route every year.

The policy enablers are being put into place. If the progress in the roads and highways sector is anything to go by, we may see a revival yet, in ports, shipping and logistics.

We want to be a port that is always ready

for the future.”“

- Neeraj Bansal, deputy chairman, JNPT


Emergence of Alliances in Container Shipping

INSIGHT

Global trade has reduced from 2008 onwards due to the economic downturn. Simultaneously, shipping lines seized the opportunity of the new low building prices to increase the size of vessels and benefit from lower operating slot cost. This, in turn, had an ironic effect; it led to an increase in the capacity beyond the thresholds of demand. The supply and the capacity of the vessels far exceeded the demand of the trade and cargo available.

The global economy and trade failed to pick up to the levels seen prior to 2008. The World Trade Organisation (WTO) is forecasting that global trade will expand by 2.4% in 2017; however, as deep uncertainty about near-term economic and political developments raise the forecast risk, this figure is placed within a range of 1.8% to 3.6%. In 2018, the WTO is forecasting trade growth between 2.1% and 4%, but still well below the 5% average prevalent since 1990.

The competition among shipping lines created a downward spiralling of freight rates leading to unsustainable rates, affecting the survival of certain shipping lines. The bleeding balance sheets led to bankruptcy of large lines such as Hanjin Shipping. This also led to number of mergers and acquisitions. The mergers and acquisitions that shipping lines have seen recently are China Shipping Container Lines (CSCL) with COSCO, Hamburg Sud with Maersk Line, NOL with CMA CGM, United Arab Shipping Company (UASC) with Hapag-Lloyd and Orient Overseas (International) Limited (OOIL) by COSCO, and the merger of Japan's three largest container shipping companies, i.e., Nippon Yusen Kabushiki Kaisha (NYK), Mitsui O.S.K. Lines (MOL) and Kawasaki Kisen Kaisha (K-Line).

Shipping lines also created alliances and vessel sharing agreements to operate. Despite such arrangements for benefitting economies of scale and reducing operation expenses, they continue to suffer losses.

It is predicted that in the next two-three years, the top three carriers will control about 60% of the global market share. The future will see fewer but stronger lines, capable of providing the best shipping services. Consortia will

have lesser alliance partners, leading to them becoming stronger and more agile.

The larger carriers will be engaged in long haul routes for economies of scale and better efficiency. These carriers, because of their larger vessel sizes, will end up with higher capacity in most of their strings. Such services will call at fewer ports.

The need for stronger and multiple feeder networks will provide an opportunity to the regional and niche service providers in the feeder space. Infact, the position of niche and feeder lines will be strengthened by this requirement of the larger shipping lines. Therefore, regional lines will look at regional feeder requirements and niche trades (e.g., trades within Africa ports, Mediterranean, Gulf region, Red Sea, South Asia, intra-Europe trades and South America trades, etc.). These feeder and niche players will also supplement volumes at the smaller transshipment ports.

Shippers continue to demand the best service, best transit times, best connections, at the lowest rates. For shippers, the service levels will improve as bigger and stronger lines give better service levels. Freight rates will move upwards. Therefore, shippers will have to do a deeper due diligence to choose their shipping line service provider to secure a stable supply chain. Longer-term contracts, even of two-three years’ tenures will be the trend so as to secure a stable supply chain at predictable rates. Shippers will opt for stability.

E-commerce will become the norm.

This article is authored by Capt. Deepak Tewari, CEO, MSC Agency (India). The views expressed here are his own and do not reflect the views of his company.

The future will see fewer but stronger lines, capable of providing the best shipping services.

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“Advent of private terminals has increased competition”Adani Ports and Special Economic Zone (APSEZ) has been regularly expanding capacities to capture new business opportunities. Captain Sandeep Mehta, President, (APSEZ), talks to AMTOI about the role and impact of private ports in India.

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What role have private ports played in shaping India’s shipping industry?Private ports have played a pivotal role in the development of India’s shipping, ports and logistics industries. Previously, the majority of container traffic was routed through government-run ports, which acted as a landlord, with services offered by private stevedoring companies.

The advent of private players, with their focus on mechanisation and customers, changed the whole scenario. Containerisation has involved carriers and shippers having to reconfigure their entire supply chains and inland transport, which means that private operators, of necessity, had to offer a higher level of service, efficiency and productivity, in order to entice the larger players to their ports.

Besides injecting much needed capital and port capacity (capacity to handle TEUs/year), private port operators were at the forefront in introducing the latest technologies and world class processes, in a bid to provide superior levels of service and customer satisfaction. Overall handling capacity and average productivity levels at ports increased as a consequence, leading to private ports taking a large share of container volumes to and from India.

This, in turn, has forced government-run ports to enhance their own capabilities to compete with private ports, further benefitting the industry and end users.

Do you think the public, private, partnership (PPP) model in private container terminals is better than government - run container terminals?

There is certainly a strong case to be made for the PPP model. Setting up ports on the PPP model can help ensure that ports are developed in strategic locations, are aimed at boosting trade, reduce logistics costs, boost employment opportunities in relatively underdeveloped regions, set up at locations closer to hinterlands and strengthen supply chains.

With the massive land requirements for port projects, set-up costs can be prohibitively expensive, deterring potential investors. Over-reliance on existing government ports will lead to congestion, shortage of capacity, lack of development and job opportunities in other parts of the country and adversely impact industries and trade players.

Do you think we will have too many container terminals by 2020 end, in India, when all projects are completed?In the last five years, India has seen an infusion


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of investments in the ports sector and injection of capacity. Besides private port operators who have set up new terminals, government-run ports have also embarked upon ambitious expansion projects to increase their capacity and capability.

There has been severe congestion in JNPT and other ports. Also in the global context, the capacity at Indian ports is still far below other southeast Asian countries.Global trade is likely to pitch up and we can see this new capacity getting absorbed quickly in India.

Are there any more opportunities in areas of bulk, liquid and LNG terminals?Modernisation of existing bulk facilities, building new liquid storage and establishing gas facilities for new energy ambitions that are key to promoting use of clean energy, and the development of India as a global player – these are where the opportunities lie.

India’s first LNG terminal is coming up at Dhamra. How will it help in bettering India’s energy security?India is reliant on imported sources of gas in meeting a growing share of its energy requirements and LNG is the most efficient mode of import. The east coast has no LNG import or gas production facilities at present and the government is already committed to investing over Rs 20,000 crore in gas transmission infrastructure in the east and northeast. It is therefore clear, that Dhamra LNG has a massive role to play in creating a gas-based economy in east India. The terminal is being designed to handle the world’s largest LNG vessels and accept LNG from virtually all known sources of supply. This onshore terminal will have a nominal capacity of 5mtpa and comprise two full containment

storage tanks of 180,000m3 capacity each.

At Adani, you are developing two large transshipment terminals at Mundra in a joint venture with MSC and CMA. Once these facilities are operational, what size of ships are you expecting?Our deep draught ports/terminals are capable of handling the largest vessels that are being built today.

How exactly do private terminals help to generate better job opportunities for the youth?Modern ports are enormous entities, with operations on a massive scale, involving various ship and land side handling operations and related activities. These naturally will need plenty of manpower, both skilled and unskilled, to ensure that the port operates optimally, leading to the creation of thousands of jobs at all levels. This will also provide an opportunity for unskilled labour to subsequently develop their technical and academic skills and move up the ranks to more value adding/technical roles.

But increased automation in private terminals will result in lesser job opportunity.

Automation is a part and parcel of modern life and business, designed to reduce human effort and increase productivity. Safety is a key consideration to assess in the introduction of automation. Therefore, automation is inevitable and needs to be embraced and accepted. The wiser course of action would be to view it as a factor which facilitates moving of jobs up the value chain and enables upskilling of human resources.

With more and more business being captured by private terminals, do you think that the government will get out of the terminal business and privatise the existing facilities?Ports have traditionally been owned and

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carriers and end users, as opposed to the earlier tendency to view themselves as monopolistic and stand-alone providers of port services.

Private ports have invented and brought in better business practices and increased safety standards. How has it helped India’s foreign trade?The higher productivity and efficiency has reduced the turnaround time for ships and decreased the overall trading cycle, resulting in faster movement of goods, higher turnover, lower supply chain costs and higher margins.

The above, coupled with the increase in port capacity, Indian manufacturers/exporters/importers are now able to trade in greater volumes, enabling them to avail of economies of scale and garner a greater share of global trade.

Any other comments you want to make?The government has undertaken various measures to introduce transparency and accountability, thereby reducing transaction costs and time. These have started to show results now. The logistics sector, to which the port industry belongs, is going through a period of major technological breakthroughs. Disruption in existing models is underway.

Any thing else would you like to say?I am very optimistic about the future. I am sure we are going to have very interesting times in this sector.

operated by government-appointed institutions. Besides their primary role of supporting export/import trade, they are also vital in generating employment and enhancing industries and promoting equitable development across regions. There is also an additional focus nowadays on environmental impact. Until recently, government ports operated on typical landlord model, mired in red tape and afflicted by inefficient equipment and labour troubles. The advent of private players has forced government ports to improve their operations to compete with private ports. Given the massive investment required in developing greenfield sites and having unencumbered land, private players reasonably cannot be expected to create capacity and infrastructure large enough to cater to India’s overall needs, so the government and private players will need to work jointly. To conclude, in view of the strategic, social and economic role played by the ports sector, the best option is for the government to work jointly in PPP mode.

The advent of private terminals will result in cost escalation to the end users. Do you agree?On the contrary, the advent of private terminals has increased competition in the Indian ports sector, which has directly benefitted the end users. Besides offering a greater degree of choice (in selection of ports), the competitive pressure has also forced government-run ports to increase their efficiency and productivity, thereby positively impacting trade and exports/imports.

Apart from this, as I already said, the advent of private terminals has also resulted in more robust supply chains, lower transportation costs, more efficient logistics, world class service levels and adequate container handling capacity at ports. An intangible benefit has been the paradigm shift in the mindset of port operators, where they now view themselves as enablers of trade and look for opportunities to collaborate with


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What is the role Indian Customs plays in cross-border trade?Indian Customs is the only border-controlling agency. The Customs Act is a complete Act which covers all aspects of movement across borders. It is also mandated to control all other agencies with regards to such movement. This has made the single-window concept very easy to configure and implement.

Over the years, we have seen Customs going from regulator to facilitator. What prompted this change?The need to be a global leader has driven every aspect of trade and industry in India. A good implementation by the industry of the existing regulation, prompts the government to undertake less regulatory action and more facilitating actions. We must remember that the origin of the Customs Act is still criminal law and regulatory functions are very important to manage the safety, security and sovereignty of the country.

How important is Customs statistics of cross-border trade for policy making?The recent initiatives of the Government of India like Risk Management Solutions (RMS), etc., are driven by performances of the users. Statistics become very important to calculate performance and other metrics to decide on further courses of action. Additionally, all decisions pertaining to facilitation and revenue, will be driven only by data.

Our trade with our neighbouring countries are not impressive despite agreements of overland trade when compared with China. What is your take?Trade between countries is driven by market forces and the need for respective

“Role of the customs broker will be more knowledge and capability-driven”

commodities. Additionally, such a mode of transport takes time to develop. India joining the Transports Internationaux Routiers (TIR), or International Road Transports convention on transportation recently should enable more movement of this type.

The role of the customs broker is diminishing in a liberalised environment and transparent policy regime. How can they remain relevant?It is incorrect to assume that the role is diminishing. Actually, the processes are being streamlined and there is a trust on the EXIM community that is being proposed. The processes are driven by accuracy and compliance. The role of the Customs broker will be more knowledge and capability-driven against the present multiplicity of processes and importance of relationship management. The future Customs brokers must be tech-savvy: maintain the ability to constantly up-skill and be very fast in all execution. He

With over three decades spent in logistics and forwarding, Sameer Shah, Partner, JBS Group of Companies, believes the time has come for the industry to effect a change in mindset. He speaks to AMTOI on the role of Customs and Custom brokers in cross-border trade.

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will also have to take on more responsibility, especially with regard to other stakeholders and government bodies involved in EXIM movement.

Do you think Indian forwarders should look at domestic logistics in the GST era?The mindset; financial capability; execution models are very different domestically compared with EXIM. It would be an individual decision for companies to take.

We have seen international forwarders opening shop in India. What is stopping Indian forwarders from setting up international operations?Indian forwarders regretfully lay more stress on profitability and incomes rather than setting up organisations. The business climate also has been conducive for such growth only over the past few years. In the times to come, I am sure we will see a change in the mindset of Indian forwarders and we will have a large number of regional and global Indian forwarders.

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With the changing landscape, what new opportunities are available today to Indian forwarders?We often talk about door-to-door and end-to-end solutions. In effect, most of us follow an outsourced model rather than execute processes in-house. Just this shift gives immense possibilities to Indian forwarders. We can also make a proper shift from being logistics services providers to being logistics solutions providers. We would also be very good to offer consultancy and advisory solutions to our clients.

Any thing else would you like to say?I am very optimistic about the future. I am sure we are going to have very interesting times in this sector.


China started container train services to Madrid, the Spanish capital as well as to the UK and Iran – the latter on an experimental basis. Now, though, the country has a regular container train from Yiwu (Zhejiang province) to London. This China-Europe is the longest railway freight route in the world, covering 12,000kmand passing through Kazakhstan, the European part of Russia, Belarus, Poland, Germany, Belgium, and France, before reaching the UK.

This mode of transport was created as an alternative to shipping, subsequently changing the logistics and supply change management (SCM) scenario between China and Europe.

For the return leg, the freight train departs from DP World London Gateway’s state-of-the-art rail terminal, laden with containers full of UK goods. China is one of Britain’s largest trading partners and considered one of the top destinations for British goods. Therefore, this train provides direct connectivity to importers and exporters of both countries.

There are many private container train operators who use the Chinese railway network and provide logistics solutions. Container operator

One, Two Three Logistics, is overseeing the transport and booking of cargo for the UK-China rail freight trains, in conjunction with Yiwu Timex Industrial Investment Co., which is running the service with China Railway Container.

This rail route connects 16 cities in China with 15 cities in Europe. Now, forwarders regularly offer their services on the Asia-Europe trade lanes. The trains of more than 40 wagons follow either the trans-Kazakh western corridor or the trans-Siberian northern corridor, connecting with the dense network of rail hubs in China.

Global Freight Forwarders Venturing into New ServicesKerry Logistics has launched a weekly scheduled, less than container load (LCL) rail freight service between Duisburg, Germany, and Shanghai via the Yiwu terminal in the Yangtze River Delta, using its consolidation containers. This additional service option for eastbound and westbound shipments offer a transit time of 16 days for westbound cargo, and 21 days eastbound. Shipments have already been successfully moved using the new service.

CEVA Logistics has also announced a new service, linking Shilong in Guangdong to

Intermodal Transport Replaces Sea Route

FEATURE

The transit time via sea from China to Europe is 35-36 days, but for a container train, it is just 18-19 days

People take pictures as a train carrying containers from London arrives at the freight railway station in Yiwu, Zhejiang

province, in China. Photo: Reuters

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Hamburg, in a 17-19 day trip. CEVA operates both FCL and LCL services out of China.

German rail and logistics giant DB Cargo has begun shipping cars in containers from China to Zeebrugge in partnership with Chinese automotive specialist Changjiu Logistics and rail operator HAO Logistics that is expected to bring significant Asia-Europe rail freight growth.

The Volvo company also uses this new railway network. The first rail transport of finished goods from the Volvo plant in the northeastern Chinese province of Heilongjiang reached the Belgian port of Zeebrugge on June 30, from where they were shipped onwards throughout northern Europe.

Cargo consolidation Panalpinais to open a second consolidation point in Shenzhen this July. The forwarder currently consolidates cargo in Shanghai for a weekly train service.

DHL Global Forwarding has further expanded its rail freight services from Asia to Europe with a new link between China and Belarus. The latest addition to its portfolio is a regular service connecting Shenzhen in southern China to Minsk in Belarus with transit times promised of less than 12 days for both LCL and Full Container Load (FCL) services. The new route, which DHL will manage with Chinese logistics specialist China Brilliant - with which DHL signed an MOU last year - takes in overland connections to several major cities along China's Belt and Road network.

Nippon Express introduced new westbound FCL services originating in Chengdu, Yiwu, Suzhou, Shenyang, Changchun, and Xi'an. The eastbound service routes originates in Munich, Nuremberg, and Hamburg, Germany; Brest, Belarus; Budapest, Hungary; Lodz, Poland; Madrid, Spain; and Tilburg, Netherlands.

As for LCL services, Nippon Express opened new westbound routes originating in Ningbo,

Zhengzhou, Chongqing, Chengdu, Changsha, Hefei, Tianjin, Qingdao, Jinan, Shenzhen, Guangzhou, Dongguan, Zhongshan, Foshan, Fuzhou, Xiamen, Shanghai, and Wuxi.

DB Schenker Intermodal Transport has launched a new product connecting southeast Asia to Europe that it claims uniquely brings together the best aspects of international road and rail freight services. In a pilot shipment made in last autumn, the company transported two 45’ high-cube containers of dental-care raw material from Chonburi, Thailand, to Swidnice, Poland. This group transports container between Germany's Duisburg and China's Chongqing. Nippon Express' eastbound LCL services now also cover transportation between Hamburg and 17 Chinese destinations.

Future Trend The Volumes on the route are growing, and services are expected to nearly triple by 2020, when some 5,000 trains a year, or 96 a week, will easily surpass last year's 35 a week. Taiwan, Japan, and South Korea are also mulling use of the Chinese railway network to reach Europe.

The article is authored by Prof. Sham Choughule who recently attended “Intermodal Asia 2017” and visited Shanghai Port.

FEATURE