INDIA: Shipping Industry

India began its Journey in the field of trade & commerce as far back as 5000 B.C. with
shipping being a major industry & was in the forefront of maritime pursuits as Indian
ships sailed Far & Beyond. Roadways & Railways (introduced in 1853) further
revolutionized the Indian Transport system with rapid & safe movement of people &
goods that fostered the growth of Indian industry & Economy. In 1980’s, with
Globalization, Market deregulation, removal of trade barriers and containerization,
Indian shipping industry has been totally reshaped (India was introduced to ocean
going containers in 1968 & only in 1978 that India seriously adopted
containerization).

With the evolution of “Multimodal Logistics & management” concept vide enactment
of Multimodal Transportation of goods Act” law in 1993, logistic management has
assumed great importance in India whereby constraints of time & space have been
effectively overcome. Ports, roads, rail, airports, ICD, CFS, IT, Finance, manpower etc
are playing a very important role in the chain of Logistic activity in India.

India’s shipping fraternity involves Forwarding & Customs House Brokers, NVOCC
operators, shipping lines, CFS / Ports / ICD / Railways / Terminal Operators and Global
Supply Chain Multinational Companies such as DHL, Khune & Nagel, Panalpina etc.,.

During 1980-90’s, Shipping Lines operating containerized service were hugely

dependent on freight Brokers & Customs Clearing Agents for sourcing of cargo to
fulfill the available capacity on various trade lanes. The market was mainly controlled
by few freight brokers and they commanded over huge volumes which assisted the
brokers to negotiate very competitive freight rates from shipping lines and thereby,
making huge profits. Merchant Exporters were also very comfortable with the Brokers
services and had left the freight booking initiatives in the hands of these few brokers
totally.

Mid 1990’s with enactment of Multimodal Transportation of goods Act, saw the
emergence of new breed of forwarding companies having the status of NVOCC.
NVOCC operators started offering various services such as transportation, customs
clearance, door-to-door services, freight booking, consolidation, warehousing etc., to
direct merchant exporters. Further, late 1990’s saw many Global supply chain
multinational companies entering the Indian market, thereby, offering specialized
logistic solutions with Global Reach vide introduction of 3PL & 4PL solutions. Shipping
Lines also started to have their own in house logistic companies. With increase in
competition among the Forwarding Agents, NVOCC, and GSC MNC & over capacity
introduction by shipping lines Ex India without corresponding increase in volumes,
the race to fill up excess capacities resulted in cut throat competition among
shipping Lines, that resulted in erosion of freight levels and lowering of the overall
profit margins.

All above development resulted in formation of Cartels & conferences by shipping

lines globally in order to maintain freight levels at acceptable levels. One of the
Conferences that were formed to monitor India-Europe shipping corridor was IPBCC
Conference comprising of mainly Maersk, CMA, Hapag Lloyd, Norasia /CSAV, SCI, K
Line among other major lines. Economies of scale and eagerness to have greater
vertical 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’s
Shipping 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. Global
contracts between shipping Lines and Global Supply Chain MNC with considerable
volumes started getting finalized outside India on long term basis and thus saw a
emergence of shipping lines identifying it’s customers as Tender Accounts, Global
Key Accounts, Global Development key accounts etc. basis the size, volume,
potential of the companies. Cross trade / third country negotiation also started to
play a greater role in today’s overall shipping negotiation wherein export volumes Ex
India are negotiated with the shipping lines in a third country without India & country
of destination being involved in the negotiations.

Shipping companies in India & Globally have now started to leverage volumes from
customers vide providing shipping solutions with customer service initiatives such as
E Com Solutions, Web B/l Facility, 24 x 7 customer service response, push
information, which has resulted in overall shipping becoming very service oriented
rather than just being a normal freight negotiation.

India Container Traffic:

Indian economy is on a consistent growth trend & India’s EXIM trade increased
substantially. Indian economy will be at $1 trillion mark by end 2008 and real GDP
growth is second highest in the world (Next to China). India’s major development that
has 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 trade
ex India in coming years.
2] India’s favorable Forex reserves (approx. $250 Billion by Dec 2007) has
resulted into considerable freedom for imports of raw material & other
products.
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 account
for less than 1%, thereby, indicating tremendous growth prospects...
4] Indian shipping industry is ranked 15th in the world & 95% of volume is
catered by maritime route
5] Indian ports handled more than 500 Million tonnes in 2005-06 & are expected to
handle 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. Far
east, 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 the
biggest port handling approx 56% of the overall container volume followed
by 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 lines
are eager to fill. Lines vie for increased market share and capacity tends to be added
by 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 challenging
5] In an environment of overcapacity, high fixed costs, lines chase short run
contribution filling containers at a marginal cost only approach, often leading to
direct operational losses on the trades considered.

Foresight 10 Years from now:

Indian Govt. has embarked upon an ambitious target of $150 billion for exports by
2008-09 to double India’s share in Global Trade from 0.8% to 1.5%. Process of this to
achieve has been India’s entry into WTO & signing of Free trade agreement with
ASEAN, signing of Bi-lateral FTA, clearance of civil nuclear energy deal with USA, will
increase India’s foreign trade considerably. Foreign trade is expected to touch $50
Billion with ASEAN Countries by 2010. All above successes will increase the overall
volumes 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 a
significant growth driven robust manufacturing expansion, rising domestic
consumption & high potential investment in infrastructure. At present logistic
services 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 Chain
logistics providers, this scenario is expected to change drastically with growth
expected to witness 20-25% in next 5 years. Freight Forwarders & NVOCC companies
are investing heavily in form of owning assets by setting up of CFS, ICD and
Container 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 National
Maritime development Programme (NMDP) in view of infrastructure bottlenecks faced
by 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, revamping
Airport infrastructure for handling Air Traffic, Focus on to improve overall
infrastructure vide plans to identify new ports and expansion of facilities in JNPT vide
setting up of 4th terminal, Projects likes Sethu-Sundaram and Inlands waterways
project, 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 by
20%, Africa Trade by 16% in 2007-08
Indian Govt. has realized the potential for future growth of the economy and
therefore, many development initiatives has been taken on priority with Private
participation, which includes development & modernization of country’s
infrastructure facilities, rapid implementation of investment plans for improvement of
power, road, rail, port & air port facilities.

Closing Notes:
With all above developments, at this juncture, I feel proud to be a part of the shipping
fraternity in India contributing towards expansion & growth of overall shipping
industry in the country and to observe India emerging as a dominant & leading force
in the Global shipping & Logistic Commerce.

-------------------------------------------------Thank You-----------------------------------------------------