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Shipping Scenario

Shipping Scenario

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Published by Arindam Datta

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Published by: Arindam Datta on Feb 05, 2010
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INDIA: Shipping Industry
India began its Journey in the field of trade & commerce as far back as 5000 B.C. withshipping being a major industry & was in the forefront of maritime pursuits as Indianships sailed Far & Beyond. Roadways & Railways (introduced in 1853) furtherrevolutionized the Indian Transport system with rapid & safe movement of people &goods that fostered the growth of Indian industry & Economy. In 1980’s, withGlobalization, Market deregulation, removal of trade barriers and containerization,Indian shipping industry has been totally reshaped(India was introduced to oceangoing containers in 1968 & only in 1978 that India seriously adoptedcontainerization). With the evolution of “Multimodal Logistics & management” concept vide enactmentof Multimodal Transportation of goods Act” law in 1993, logistic management hasassumed great importance in India whereby constraints of time & space have beeneffectively overcome. Ports, roads, rail, airports, ICD, CFS, IT, Finance, manpower etcare playing a very important role in the chain of Logistic activity in India.India’s shipping fraternity involves Forwarding & Customs House Brokers, NVOCCoperators, shipping lines, CFS / Ports / ICD / Railways / Terminal Operators and GlobalSupply Chain Multinational Companies such as DHL, Khune & Nagel, Panalpina etc.,.During 1980-90’s, Shipping Lines operating containerized service were hugelydependent on freight Brokers & Customs Clearing Agents for sourcing of cargo tofulfill the available capacity on various trade lanes. The market was mainly controlledby few freight brokers and they commanded over huge volumes which assisted thebrokers to negotiate very competitive freight rates from shipping lines and thereby,making huge profits. Merchant Exporters were also very comfortable with the Brokersservices and had left the freight booking initiatives in the hands of these few brokerstotally.Mid 1990’s with enactment of Multimodal Transportation of goods Act, saw theemergence of new breed of forwarding companies having the status of NVOCC.NVOCC operators started offering various services such as transportation, customsclearance, door-to-door services, freight booking, consolidation, warehousing etc., todirect merchant exporters. Further, late 1990’s saw many Global supply chainmultinational companies entering the Indian market, thereby, offering specializedlogistic solutions with Global Reach vide introduction of 3PL & 4PL solutions. ShippingLines also started to have their own in house logistic companies. With increase incompetition among the Forwarding Agents, NVOCC, and GSC MNC & over capacityintroduction by shipping lines Ex India without corresponding increase in volumes,the race to fill up excess capacities resulted in cut throat competition amongshipping Lines, that resulted in erosion of freight levels and lowering of the overallprofit margins.All above development resulted in formation of Cartels & conferences by shippinglines globally in order to maintain freight levels at acceptable levels. One of theConferences that were formed to monitor India-Europe shipping corridor was IPBCCConference comprising of mainly Maersk, CMA, Hapag Lloyd, Norasia /CSAV, SCI, K Line among other major lines. Economies of scale and eagerness to have greatervertical growth also resulted in Mergers & Take-over by shipping lines during e.g.,Maersk Taking over Sealand, P&0, Safmarine etc., which also effected India’sShipping Industry to a great extent.
Fierce competition and rampant freight erosion saw the emergence of negotiation of freight contracts between export houses & shipping agents on FOB terms, whereby,long term contracts are negotiated with freight levels being kept stable. Globalcontracts between shipping Lines and Global Supply Chain MNC with considerablevolumes started getting finalized outside India on long term basis and thus saw aemergence of shipping lines identifying it’s customers as Tender Accounts, GlobalKey Accounts, Global Development key accounts etc. basis the size, volume,potential of the companies. Cross trade / third country negotiation also started toplay a greater role in today’s overall shipping negotiation wherein export volumes ExIndia are negotiated with the shipping lines in a third country without India & countryof destination being involved in the negotiations.Shipping companies in India & Globally have now started to leverage volumes fromcustomers vide providing shipping solutions with customer service initiatives such asE Com Solutions, Web B/l Facility, 24 x 7 customer service response, pushinformation, which has resulted in overall shipping becoming very service orientedrather than just being a normal freight negotiation. 
India Container Traffic:
Indian economy is on a consistent growth trend & India’s EXIM trade increasedsubstantially. Indian economy will be at $1 trillion mark by end 2008 and real GDPgrowth is second highest in the world (Next to China). India’s major development thathas affected Shipping industry:
1] India has become a major source for Auto & Auto Components,Chemicals, textiles, leather goods, refined petroleum products &pharmaceuticals. This promises tremendous increase in overall export tradeex India in coming years.
India’s favorable Forex reserves (approx. $250 Billion by Dec 2007) hasresulted into considerable freedom for imports of raw material & otherproducts.
3] Indian Economy is growing consistently since 2001 with an average GDP growth of 8-9% p.a. Trade turnover has grown by 26% (2002-06) compared to Exports by 23% (2002-06)& imports by 26% (2002-06). To note here,
India’s share in Global trade accountfor less than 1%, thereby, indicating tremendous growth prospects...4] Indian shipping industry is ranked 15
in the world & 95% of volume iscatered by maritime route
5] Indian ports handled more than 500 Million tonnes in 2005-06 & are expected tohandle 920 million tones by 2013-14. Major
ports comprising of JNPT, Mundra,Pipavav, Chennai, Cochin, Kolkatta, and Haldia & Tuticurin handled 75% of the volume
.Important to note is that India’s container traffic grew at 14% p.a. from 2000-05. Fareast, UK & US East Coast comprise 85% of overseas container Trade. India Container Traffic is growing faster than Global traffic during part 5 Years.
 JNPT remains thebiggest port handling approx 56% of the overall container volume followedby Chennai at 14.5% share
. Interestingly,
North & west India generate 60% of the container Traffic in India.
Principal Exports Ex India: Textiles, Leather & Leather goods, Finished Gems & Jewelries, Chemicals, Engineering goods & iron & steel.Major Export destinations: USA, UK, China, Japan & EU apart from MEA & Africa
Major Shipping Lines operating Ex India : Maersk, APL, CMA, Hapag Lloyd, OOCL,Hanjin, Mitsui, NYK, Hyundai, K Line, SCI, Evergreen, Wan Hai, China Shipping, IRISL,ZIM, CSAV, Hamburg Sud, Safmarine Etc.,
Challenges facing Shipping Companies in India
1] Absence of necessary support infrastructure restricts further movement of goods& containers to & from hinterland areas.2] Lack of properly equipped terminals & warehouses to facilitate smooth transit of cargo/3] Economies of scale have lead to surplus space onboard of the vessels that linesare eager to fill. Lines vie for increased market share and capacity tends to be addedby introduction of Large vessels on the India – Europe, India – Americas & India – Far East Trade Lanes,thereby, existing slot overcapacity in trades made freight rates tumble down,neutralizing the achieved cost reductions.4] Capacity management remains very challenging5] In an environment of overcapacity, high fixed costs, lines chase short runcontribution filling containers at a marginal cost only approach, often leading todirect operational losses on the trades considered.
Foresight 10 Years from now:
Indian Govt. has embarked upon an ambitious target of $150 billion for exports by2008-09 to double India’s share in Global Trade from 0.8% to 1.5%. Process of this toachieve has been India’s entry into WTO & signing of Free trade agreement withASEAN, signing of Bi-lateral FTA, clearance of civil nuclear energy deal with USA, willincrease India’s foreign trade considerably. Foreign trade is expected to touch $50Billion with ASEAN Countries by 2010. All above successes will increase the overallvolumes on the imports & export front & we can expect the growth to be “double in 4 Years”.Indian Logistic industry valued at excess of USD 100 Billion will continue witness asignificant growth driven robust manufacturing expansion, rising domesticconsumption & high potential investment in infrastructure. At present logisticservices comprise of only 13% of Indian GDP and out of it only 6% comprise of organized logistic market. However, with the arrival of MNC Global Supply Chainlogistics providers, this scenario is expected to change drastically with growthexpected to witness 20-25% in next 5 years. Freight Forwarders & NVOCC companiesare investing heavily in form of owning assets by setting up of CFS, ICD andContainer Trains.Container traffic at major ports are expected to Grow at 15% p.a. to reach 15 Million Teus by 2013-14 from 4.75 Million TEUs in 2005-6 with Govt. implementing NationalMaritime development Programme (NMDP) in view of infrastructure bottlenecks facedby ports and rapid growth in envisaged in Exports & imports. With clearance of dedicated rail freight corridors, opening of new ICD’s, setting up of SEZ’s, revampingAirport infrastructure for handling Air Traffic, Focus on to improve overallinfrastructure vide plans to identify new ports and expansion of facilities in JNPT videsetting up of 4
terminal, Projects likes Sethu-Sundaram and Inlands waterwaysproject, Shipping & Logistics operations will contribute a great deal in Building of Nation and expansion of volumes.Europe trade is expected to grow at 18% p.a. USA trade 14% & Far East Trade by20%, Africa Trade by 16% in 2007-08

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