Coastal Shipping in India – Opportunities galore

Coastal shipping in India need to be promoted for cost savings

India's economy has grown by leaps and bounds in recent years and this growth has pushed its transport system to full capacity. The movement of bulk commodities is one of the major responsibilities of India's transportation system. Thermal coal alone accounts for around 61 percent of the freight volume on the Indian Railways and 24 percent of the seaport freight mix.

Water based transport currently contributes less than 10 percent to India's modal mix.

Coal can be moved through coastal ships thereby decongesting rail networks 

China uses its inland waterways to transport raw material and finished goods between Eastern and Western provinces; water contributes 24 percent to China's freight modal mix. Australia carries 17 percent of goods through coastal shipping. In Germany, 11 percent of goods are moved through inland waterways and coastal shipping. A strong economic case for coastal movement can be made for most of the key commodities in our study.

In 2013–14, nearly 740 MMTPA of coal moved through the country predominantly through rail. Only 23 MMTPA moved through coastal shipping even though this mode costs one-sixth that of rail cost (INR 0.2 per tonne km vs. INR 1.2 to 1.4 per tonne km). More than 90 percent of the rail routes relevant to coal are running at over 100 percent utilization. With the expected ramp-up in coal production by Coal India Limited, India may need to move 1,000 to 1,200 MMTPA coal across the country by 2025, creating tremendous pressure on the already congested railways.

There are significant cost savings if Coastal shipping is used to transport Coal instead of Rail

It is estimated that using the right infrastructure and institutional support, India can move 155 to 160 MMTPA of coal by coastal shipping mode, and save around INR 6,500 Crores per annum, by 2020. This will help to save 1 lakh rail-rake days that can be used for other commodities. Since logistics contribute 30 to 35 percent of the cost of power generation, this initiative will also directly cut power costs by 50 paisa per unit for coastal power plants fed coal coastally.

A similar comparison of logistics cost for plant to demand centre for five other key commodities—POL, steel, cement, fertilizers, and food grains reveals a total potential of 70 to 80 MMTPA coastal movement, with potential savings of INR 4,500-5,600 Crores per annum.

It is estimated that coastal shipping of about 180-200 MMTPA can be achieved from current and planned capacities across coal, cement, iron and steel, food grains, fertilizers, POL by 2025. This would translate into estimated INR 10,000-15,000 Crores saving annually.

How can coastal shipping's share be increased in modal mix of India

Creation of supporting infrastructure can increase the share of coastal shipping in modal mix

Dedicated infrastructure for coastal shipping is a prerequisite for its growth 

One major reason that coastal shipping has been unable to pick up in the country is due to the lack of suitable infrastructure that enables movement through coast. Hence availability of dedicated infrastructure will go a long way in promoting coastal shipping as a mode of freight transportation. Hence infrastructure at ports and supporting infrastructure using rail/road to facilitate coastal movement should be created.

1 Dedicated coastal shipping berths, bunkering, storage at relevant ports

2 Creation of supporting transport infrastructure (e.g., Talcher-Paradip railway line), slurry pipelines etc

3 Last mile connectivity projects with industrial areas

4 Appropriate ship-repairing/ship-building facilities on key ports; currently most of the ship repairs happen outside the country

5 Dedicated capacity fleet under shipping companies

6 Management of dedicated coastal berths(if any) and their operations

Efforts of Shipping Ministry keen to encourage Coastal Shipping to reduce Logistics costs

The Government has relaxed a law allowing only Indian ships to be hired for carrying cargo within the Country’s ports, in special categories where the local players do not have a presence.

The so-called Cabotage law protects Indian shipping companies from the big international players. But the Indian fleet owners do not operate in the categories that have been opened up, such as roll-on, roll-off in movement of passengers, cars and trucks; and LNG vessels.

The Shipping Ministry is keen to encourage Coastal Shipping to reduce the logistics cost and also bring down the Country’s carbon footprint.

The new rule, notified on September 2, says that the provisions of Section 4O7 (1) of the Merchant Shipping Act, 1958, will not apply to above ‘special’ vessels for a period of five years.

The new relaxation is a welcome move that could encourage transport of automobiles, large project cargo and boost tourism. However, many issues need to be sorted out. There should be dedicated facilities at Major Ports and Non-Major Ports with different rates for coastal ships.

Advantages of Coastal Shipping

Advantage  Coastal Shipping

The Shipping Ministry in a report published last January said that fuel consumption by Coastal Shipping at 4.83gm/km is just I5 per cent of the consumption by road and 54 per cent of that by rail. .

Rail and road transport because of their limited capacity and infrastructure cannot handle large quantities of coal, iron ore. The cost of carriage of goods, from coast to coast, by Coastal Shipping (about 2I per cent of cost by road and 42 per cent of cost by rail) works out to be much lower than that by road and rail.

Despite a vast coastline of nearly 7,500 km, 12 Major Ports and nearly 200 Non-Major Ports from Kolkata to Kandla, domestic shipping traffic is miniscule.

The Shipping Ministry’s ‘Vision for Coastal Shipping, Tourism and Regional Development’ prepared in June has a vision to increase the share of coastal and inland water transport to 10 per cent in the next five years.

Success stories in Indian Coastal Shipping

1. RORO: In February 2016, Hyundai Motor India Ltd had sent 800 made-in-Chennai cars from its Sriperumbudur plant through MV IDM Symex, a roll-on-roll-off (RoRo) vessel, from Chennai port to Pipavav port in Gujarat.

Success stories - RO/RO coastal movement of cars in India

Following this, now Automobile makers are ready to follow HMIL in using the coastal shipping route to move vehicles from their factories to other cities — an initiative that could de-congest highways and reduce pollution. However, the companies say using this route is not viable at the moment and that the government should give financial assistance to promote coastal shipping.

2. Other cargoes: In January 2015, the Food Corporation of India decided for the first time to move a parcel of 20,000 tonnes of foodgrain from Kakinada Port on the Andhra Pradesh coast to Kochi in the West by sea instead of the usual land route. Weeks later, the company announced that it would move at least one consignment of 20,000 tonnes every month using this mode for a year, as it was cheaper than road and rail movement.


Steelmakers such as the Tatas and Jindals are exploring ways to ship their finished products from Kolkata to Mongla in Bangladesh, avoiding the circuitous land route. Rashtriya Ispat Nigam, the corporate entity of Vizag Steel, is toying with the idea of buying barges to shift part of its movement from road and rail to coastal shipping.

Slowly, but surely, India’s congested highways are pushing companies to opt for coastal shipping to transport foodgrain, industrial raw materials and commodities such as steel, cement and fertilisers.

3.  Coastal Shipping between India - Bangladesh   : For the first time in their history as nations, neighbors Bangladesh and India launched direct cargo services in March 2016 that enabled goods shipped by sea to reach each other’s ports in a maximum of four days. Previously, goods sent from India took more than three weeks to reach Bangladesh’s Chittagong or Mongla ports because shipments first had to pass through Colombo or Singapore. The coastal shipping is the best option to increase trade in the sub-region comprising Bangladesh, landlocked northeastern states of India, Nepal and Bhutan.

Coastal vessel M V Harbor - launching ceremony in Krishnapatnam on 28 March 2016. Neepa Paribahan Ltd. (NPL) is Owner and Operator of the MV HARBOUR-1 which operates between India & Bangladesh 

Bangladesh and India signed an agreement during Indian Prime Minister Narendra Modi’s visit to Dhaka on June 6, 2015, followed by the signing of a protocol in November, which cleared the way for direct maritime cargo services. The countries’ bilateral annual trade volume is worth more than U.S. $6.6 billion. Cargo ships from Bangladesh’s Chittagong, Narayanganj, Ashuganj, Paira, Khulna, Mongla and Pangaon (near Dhaka) ports can carry goods to seven Indian eastern coastal ports in Kolkata, Haldia, Paradip, Vishakhapatnam, Kakinada, Krishnapatnam and Chennai and vice versa, according to the agreement papers. The text of the bilateral deal stipulated that the maritime shipping services between India and Bangladesh would enable the movement of cargo to the Northeastern states through Chittagong, and thereafter by road or river routes.

“The deep draft ports on the eastern coast of India can be ‘hub ports’ for the onward transportation of cargo to Bangladesh via the coastal mode. The Indian ports will attract enhanced cargo and also the overall transportation cost to Bangladesh will get reduced,” the document said. The rapid growth of India-Bangladesh trade has resulted in congestion at the main Petrople-Benapole land port. The traffic congestion at the Bangladesh side of the land port has emerged as one of the biggest impediments to export-import trade, it said.



Role of The Indian Coastal Conference - ICC Shipping Association (Formerly known as "The Indian Coastal Conference")

The ICCSA was formed in 1951 by 13 leading Indian shipping companies as a platform to facilitate and grow the Indian coastal shipping trade. For almost 6 decades now, the ICC Shipping Association (ICCSA) continues to be the representative body for the Indian coastal shipping industry. With 82 member companies, ICCSA today represents the interests of the coastal shipping industry at- various forums including the Ministry of Shipping, Directorate General of Shipping, the National Shipping Board, Tariff Authority for Major Ports, etc. ICCSA's prime focus is the development of sea-borne trade along the Indian coast and in line with that focus, ICCSA welcomes all stakeholders in the Indian coastal trade as members. This includes ship-owners, ship-managers, freight and logistic companies , shipping agents, etc.

The way forward for Coastal Shipping in India..

Coastal Shipping has bright prospects in India

There is a need to promote other types of cargo and this is the most critical step; containerized cargo has been growing at a steady rate both in the Exim as well as domestic. Ro-Ro movements to meet the demands across the country along with other general cargo could provide the increment volumes needed to make coastal movement viable. Change in the merchant shipping rules by permitting cabotage, simplification in the administrative requirement for enabling foreign flag vessels to operate on coastal routes. This would ensure higher availability of ships and more tonnage for coastal movement as against the current 100 plus (apart from tugs, dredgers, OSVs) with a DWT of about .7 million.

The future of the port sector in India, especially for the minor ports hinges a lot on coastal movement and inland waterways. Minor private ports have to play an extremely critical role in the development of coastal shipping. The government needs to encourage PPP models for development of infrastructure at ports and rivers to develop connectivity and promote coastal movement. While the debate on cargo vs infrastructure has been ongoing, the port developers need to build capacity for attracting domestic cargo and by doing so reduce waiting time and improve operating efficiencies.

Info courtesy: TSMG, ICCSA

Safety of Life at Sea (SOLAS) - Verified Gross Mass (VGM)

About SOLAS - Safety of Life at Sea (SOLAS) Convention

The SOLAS Convention in its successive forms is generally regarded as the most important of all international treaties concerning the safety of merchant ships. The first version was adopted in 1914, in response to the Titanic disaster, the second in 1929, the third in 1948, and the fourth in 1960.

The 1974 version includes the tacit acceptance procedure - which provides that an amendment shall enter into force on a specified date unless, before that date, objections to the amendment are received from an agreed number of Parties.

As a result the 1974 Convention has been updated and amended on numerous occasions. The Convention in force today is sometimes referred to as SOLAS, 1974, as amended.

Overweight containers can lead to accidents and huge costs

Consequences of mis-declaring the gross mass of a packed container 

The consequences of misdeclaring the gross mass of a packed container can be far-reaching.  Should a discrepancy between the declared gross mass and the actual gross mass of a packed container go unnoticed, it could have an adverse impact on the safety of the ship, seafarers and shore-side workers, by leading to incorrect vessel stowage decisions and potentially collapsed container stacks or loss of containers overboard.With effect from 1 July 2016, the International Maritime Organization (IMO) will implement a new regulation under the Safety of Life at Sea Convention (SOLAS) that requires shippers to provide a Verified Gross Mass (VGM) for every packed containers as a condition for vessel loading.

SOLAS is to ensure the safety of a container carrying ship at sea. Under SOLAS, the gross mass of a container must be weighed, verified and correctly declared by the shipper or their appointed consolidator. This will guide ship stowage decisions to ensure vessel stability and safety. This will also ensure that safety of personnel and equipment that will load, unload or transport the containers.

Overweight containers can lead to fatal accidents

How will SOLAS affect the end customer - the shipper & consignee ?

SOLAS requires the shipper of a packed container to provide and verify the container's gross weight to the ocean carrier and port terminal representative in advance of loading. The carrier can refuse to load the container onto the vessel if the shipper fails to submit the Verified Gross Mass (VGM) information in full compliance of the format and within the cut-off time requirement of the carrier.

The aforementioned SOLAS amendments introduce two main new requirements:

1 The shipper is responsible for providing the verified weight by stating it in the shipping document and submitting it to the master or his representative and to the terminal representative sufficiently in advance to be used in the preparation of the ship stowage plan; and

2 The verified gross mass is a condition for loading a packed container onto a ship.

Verification of Gross Mass is compulsory as per SOLAS

The verification of the gross mass - VGM can be achieved by either of two methods:

1 weighing the packed container; or

2 weighing all packages and cargo items, including the mass of pallets, dunnage and other securing material to be packed in the container and adding the tare mass of the container to the sum of the single masses, using a certified method approved by the competent authority of the State in which packing of the container was completed.


5 Things you need to know about SOLAS - Weight Verification Changes:

5 Things you need to know about SOLAS - Weight Verification Changes

SOLAS FAQs

What will change as of the July 1, 2016 (SOLAS VGM Enforcement Date)? 
Shipper named on the Bill of Lading is obligated to provide accurate and verified cargo weight to the carrier prior to vessel loading. This applies to all packed containers which are to be loaded onto a vessel under SOLAS regime in international maritime traffic.

More FAQs can be downloaded from any of the following links:

http://www.worldshipping.org/industry-issues/safety/faqs
http://www.ttclub.com/loss-prevention/publications/container-weighing/

http://ichca.com/container-weighing

Top 10 Trends to watch out in Shipping, SCM, Logistics in 2016

We will look at top 10 trends in Shipping, SCM , Logistics for the year 2016

1. USA will drive the global economy in 2016 :

It means that American logistics companies will continue to do well and prosper both at home and abroad. The stronger dollar will absorb imports from around the world, and will give Asian and European exporters a welcome boost and strengthen transpacific shipping volumes.

However, emerging markets have been forced to increase their interest rates which will have a detrimental effect on struggling economies. China is experiencing tough times in terms of falling economic growth, but it will be supported by the growth of the American economy for exports and its e-commerce market has seen staggering growth despite the economic situation. Also helping the global logistics industry will be a recovery in Europe.

2. Oil price gradually climbs in second half: It is difficult to forecast the price of oil. However, analysts expect the present levels to continue for the next six months and then for the price to increase in the second half of the year.  Any oil price rises will impact on the profits of carriers – particularly shipping lines – where these increases cannot be passed on to the customer due to over-capacity in the market. 

Road freight companies should enjoy the low costs whilst they can as they won’t last forever. The rate of the dollar will also be a key influence on oil prices around the world.

3. More Mega-Mergers and Acquisitions on the anvil : 2015 saw a number of M&A deals as the market continued to consolidate. The same market dynamics (e.g. cheap and available money, fragmented markets, ambitious management teams) exist in 2016, and will result in further consolidation.  Few companies are too big for acquisition, as evidenced by the acquisitions (or pending acquisitions) of Norbert Dentressangle and TNT.  

Sustainability pressures in the shipping market will create a need for further consolidation amongst shipping lines.

4. Frequent natural disasters and calamities: Natural disasters are impossible to predict. However these will become frequent due to a changing climate. Therefore global manufacturers and retailers will need to implement measures to make their supply chains more resilient in such situations.

Logistics companies will have a very important role in such situations and will need to implement strategies that can be enhanced by ‘sense and respond’ technology.  Supply chains must become flexible and adaptable if they are to continue to provide competitive advantage in an uncertain 2016.

5. Innovative / Disruptive technologies:  The global logistics industry will continue to be impacted by new technologies and business models in 2016. Autonomous vehicles, drone technology, 3D printing, sensor technology etc. will continue to influence the way in which the industry evolves. 

Leading logistics companies are still trying to assess impact of disruptive innovations on their businesses.

6. Refugees and security impact on European supply chains: The huge influx of migrants, transiting South East Europe from origins in Syria, East Africa and even Afghanistan, caused many European countries to question the Schengen Agreement (the treaty which allows the free movement of people across mainland European countries).

The security situation in Europe (specifically the terrorist atrocities in Paris) also led administrators to questions whether more border controls should be implemented. If politicians believe it is in their national interests to re-impose border checks, on a temporary or even permanent basis, supply chains across the region will be heavily impacted by delays and inventory strategies re-assessed.

7. E-Commerce continues to transform retail supply chains: The e-retail phenomenon shows no sign of losing momentum, though making money out of it is a different matter.

Retailers will have to adopt omni-channel strategies to survive, but they will have to do so in a way that allows them to make money. This will increasingly involve charging customers for deliveries, whilst at the same time providing a wider range of delivery options. Retailers in 2016 will increasingly push customers towards cheaper click-and-collect or locker delivery options.

8. Forwarders and shippers face more regulation : Regulatory issues could have a major impact on the movement of international freight in 2016 if confusion over the implementation of the International Maritime Organization’s SOLAS (Safety of Life at Sea) measures are not addressed. This new regulation requires the verification of gross mass of containers prior to loading; and although in theory this is the responsibility of shippers, according to one survey by Inttra Inc, 60% of respondents do not think that they will be ready by the time it is implemented in July 2016. 

Other changes will impact forwarders in 2016 such as the EU’s Union Customs Code – an initiative to replace and harmonize existing Customs regimes in Europe. Without the proper implementation and awareness of shippers, carriers and freight forwarders, 2016 could be a confusing and difficult year.

9. Sea freight /air cargo rates remain static:  

Shipping lines have proved that they were unable to reverse the downturn seen in 2015, despite concerted efforts. A combination of over-capacity and stagnating volumes has meant that revenues and profits plunged in the second half of 2015. The increased economies of scale that 18,000+ TEU vessels brought did not make up for their under-utilization. 

It is hard to see the economic upturn in 2016 providing sufficient volumes to address this problem on their own – capacity needs to be taken out of the system before there can be a sustained improvement in rates and profitability.

Air cargo rates also look set to remain static. The uncertain economic environment and the glut of capacity on the market brought about mainly by the introduction of wide bodied passenger aircraft will depress rates.

10. ‘Ethical’ & a green supply chains on the Board Room agenda:  The issue of ethical & green supply chains will increasingly force itself onto the boardroom agenda in the coming year. Thanks to  far more awareness and interest now amongst Western consumers about the conditions in which the goods they purchase are manufactured. 

In order to minimize damage to their brands, global manufacturers and retailers will have to dig deeper into their own supply chains in order to root out unethical practices, either societal or environmental. This exercise might create additional costs, however the benefits will be far-reaching, as it will create a more resilient, sustainable and green yet profitable supply chains.


Info source - Logistics.about.com  , koganpage.com

The world's biggest tanker traffic jams!

The world's biggest tanker traffic jams are now a common feature at the ports and also at the seas !

Various ports across world are now struggling to cope with a global oil glut and excess supply, huge queues of supertankers have formed in some of the world's busiest sea lanes, where some 200 million barrels of crude lies waiting to be loaded or delivered. The vessels, filled with oil worth around $7.5 billion at current market prices, would stretch for almost 40 km (25 miles) if formed up in one straight line.

What are the reasons for traffic jams in oceans?

At the heart of the congestion is an unprecedented rise in global oil production (2014 onwards to 2016) coupled with rising consumption.

We will look at the reasons for this supertanker traffic jam

1.      A massive oil supply glut has caused global oil prices to crash from 2014 onwards. Ferocious production from OPEC and near-record U.S. output, higher outputs from Canada, Brazil are adding to sky-high oil inventories around the world.

2.      Not enough buyers  - Maritime congestion had occurred towards end of 2015 in Singapore off China and Arabian Gulf. There appears to be more oil floating in ships with not enough buyers

3.      High inventories - There are massive massive  inventories of crude oil around the world, with global stockpiles sitting at a record 3 billion barrels, according to the International Energy Agency.

a.      A stunning 487 million barrels of crude is sitting in U.S. inventories, levels unseen at this time of the year in the last 80 years, according to the U.S. Energy Information Administration.

4.      Red-hot demand from new entrant refineries in China : Soaring output has pulled down oil prices by as much as 70 percent since 2014. 
   That has helped spur demand from China's independent refiners, freed from government restrictions on imports just last year and gorging on plentiful crude, putting extra pressure on ports.

5.    Port infrastructure in the Middle East and Latin America that is unable to cope with current supply and demand requirements.

6.      Renewable energy & other alternate sources of energy - Customers are turning to renewable sources like wind and solar energy and alternate fuels like gas leading to reduced demand for oil.  

The worst congestion is in the Middle East, as ports struggle to cope with soaring output available for export, and in Asia, where many ports have not been upgraded in time to deal with ravenous demand as consumers take advantage of cheap fuel.

As per Bloomberg's report in March 2016, the queue of ships waiting outside Europe’s biggest port and oil-trading hub of Rotterdam has grown to the longest in seven years as a global supply glut fills storage capacity.  As many as 50 oil tankers, twice as many as normal, are waiting outside Rotterdam because storage sites are almost full, the port’s spokesman Tie Schellekens . 

Consequences of tanker traffic jams?

1.      Missed and messed up Schedules:  Shipping Schedules are going awry. Ship tracking data shows 125 supertankers, with the capacity to carry oil to supply energy-hungry China for three weeks, waiting in line at ports. The combined daily cost is $6.25 million, based on current ship hire rates of around $50,000-a-day. While daily tanker fees are typically borne by the fuel buyer, the port delays have a knock-on affect across the shipping industry. It messes up

port schedules, catering schedules, crew schedules and the schedules of delivering the transported goods," said one shipping logistics manager in Singapore. It also raises the cost for pretty much everyone involved.

2.      Losses for dealers: A month-long delay can turn a profitable trade into a painful loss for the dealers."If you've bought 100,000 barrels of crude at $40 (a barrel) that'll cost you $4 million," said one oil trader. "And if you've calculated another 1.5 million bucks for a month's worth of shipping, but you end up paying double that because your ship is stuck in port congestion, then that can seriously mess up everything from your schedule to your arbitrage profitability."

3.      Bored crews - The oil glut is also causing congestion between the main producer and consumer hubs. Almost all supertankers heading to Asia pass by Singapore or adjacent facilities in southern Malaysia, the world's fuel station for tankers and also a global refinery and ship maintenance hub.  Shipping data shows that some 50 supertankers are currently anchored in or close to Singaporean waters for refueling, maintenance or waiting to deliver crude to refineries or be used as floating storage.

For sailors stuck in a queue of anchored tankers, one of the biggest problems is simply wiling away the time. "Some of the ships are well-equipped for their crews, but many aren't," said a Filipino sailor who left a very large crude carrier (VLCC) in March after a voyage to China.

"On my last one, we had no regular internet ... only an old TV with a couple of old DVD movies. The food is terrible and while waiting to offload we did pretty hard maintenance work. The sort of stuff you can't do when the engine is running."

To summarize.. The excess oil supply might be great for end users/customers who will be smiling as they can fill up their cars with cheaper fuel. However it leads to unsettled and chaotic global markets creating excess supply and consequences like super tanker traffic jams , losses for oil companies and related industries and possibly job cuts. 


Source: CNN , Reuters, Bloomberg