Chemical Logistics in India

- Challenges and Opportunities

Ta t a S t r a t e g i c M a n a g e m e n t G r o u p

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 Contents

Overview of Chemical Industry 3

Current modes used for chemical logistics 5

Challenges faced in chemical logistics 10

Regulatory Perspective 14

Opportunities and Way Forward 17

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 Section 1
Overview of the chemical industry
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Overview of Chemical Industry

The Indian chemical industry is overall the 3rd largest in Asia after China and Japan in terms
of volume contribution to the global market. The chemical industry in India has started to
evolve rapidly since the last five years and has grown to an estimated USD 141 billion in
2015. Despite its large size and significant GDP contribution, the industry accounted for
~3.4% of the global chemicals industry (~USD 4 Trillion)
To highlight the criticality of this sector in the Indian economy – it contributes 9% of the
output of the Indian manufacturing sector as well as 13% of the India’s total exports and 9%
of the country’s total imports.

Past Growth of Indian Chemical Industry Market Share of Sub-Segments

(USD Bn)

Considering the past trends of demand and supply of the total major chemicals and
petrochemicals, it is observed that demand has been on high rise and has grown nearly at
6% from ~35 MTPA in FY10 to ~44 MTPA in FY 14, whereas the supply has grown at slightly
slower rate i.e. 5% and reached up to nearly 37 MTPA in FY 14
The chemical industry is tremendously diverse, with a remarkable array of close to 1 lakh
commercial products with myriad applications across a wide range of categories. The
structure of the chemical industry varies as well being highly fragmented in some
segments while highly consolidated in others. With products existing in solid, liquid or
gaseous forms and some being inflammable and hazardous, each product has a separate
and specific handling, storage and transportation requirements.
The western coast of India has been the key hub for chemicals and petrochemicals
industry with Gujarat and Maharashtra alone accounting for 62% of major chemical and
petrochemicals production across India. Since production clusters are concentrated in one
particular region, better infrastructure and logistics are required to supply chemical
products across the country. The lengthening of supply lines makes the distribution of
chemicals more transport intensive. The involvement of a large number of stakeholders
(shipping lines, transport agencies, environmental agencies, etc.) in the transportation of
chemical products increases the logistics and supply chain complexity of the chemicals
industry.

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 Section 2
Current modes used for chemical logistics
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 Current modes used for chemical logistics
India’s freight transport sector is large and diverse. India’s freight traffic relies excessively on roads.
However, the current infrastructure is over-stretched with major congestion in east-west, north-
south road corridors. India is unfavourably places in comparison to some of the key global
economies on parameters of logistics efficiency and cost to transport chemicals through different
modes of transport.
Mode Share (% of ton-km)

Railways
Indian Railways is one of the largest railways under single management. The railways play a
leading role in freight transport across India’s vast territory. However, most of its major corridors
have capacity constraint requiring capacity enhancement plans. Railways have a share of 36% as a
mode of transport in India as compared to 47% in China and 48% in US.
To increase rail share in the commodities like chemicals and petrochemicals where rail co-efficient
is traditionally very low, a scheme namely Special Freight Train Operator Scheme (SFTO) was
launched in 2010 and then revised in 2013 to attract private investment in special purpose wagons
required for transportation of these commodities. Indian wagon productivity is 2.7 Million/wagon
holding as compared to China’s 4.3 Million/wagon holding.

Commodity composition of rail freight

traffic (FY 14)

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Roads
Roads are the dominant mode of transportation in India today. Roads have a share of 57% as a
mode of transport in India as compared to 22% in China and 37% in US. Average truck speed in
India is 30-40 kmph as compared to 60-80 kmph globally. Average distance travelled by a truck
in India is 250 km/day which is almost 55% of global average 450 km/day.
Most highways in India are narrow and congested with poor surface quality. There are plans
being worked upon by National Highway Authority of India (NHAI) to improve transport
infrastructure and connect every corner of the vast nation.

The government has taken initiatives to improve the road infrastructure with 55,000km of
national highway development planned as well as the construction of the Golden Quadrilateral
to connect the 4 major cities in India. Furthermore, 191 road projects, with investments of
over INR 1,000 billion are to be awarded by 2020.

Ports
Indian ports sector consists of 13 major and about 200 non-major ports with major ports
comprising almost 55% of country’s trade by volume. Over the last five years, traffic handled
by Indian ports has grown at 6% CAGR from 745 million MT in FY09 to reach 1,005 million MT
in FY14.
Major Ports
Major chemical
handling terminals

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 The cargo traffic at Indian ports can be
Type of berths at major ports broadly classified into liquid bulk, container
cargos, coal and iron ore. Over the years,
Indian ports have transitioned from
handling typical break and bulk type
cargoes to handle specialized cargoes like
liquefied natural gas (LNG) and hazardous
chemicals.
Non-major ports have led the growth in
port volumes and have grown at 16% as
compared to 1% growth at major ports. As
a result, the proportion of traffic at non-
major ports has increased from 29% to 45%
Commodity mix at non-major ports during FY09-FY14 period. The shift in traffic
is creating opportunities for developing
new infrastructure and facilities.
The growth in traffic at Indian ports is
expected to generate a number of
opportunities for the sector. However, a
comparison of Indian ports with respect to
global ports clearly indicates inadequacies
at Indian ports which lead to inefficient
operational performance and poor
resource utilization. Hence, in order to
realize the true potential, Indian ports need
to be competitive and efficient.
Air
Air cargo has not taken off significantly in India and increased volumes of cargo results in
major airports getting congested with long waiting time. The waiting time for exports in
India is 50 hours compared to a global average of 12 hours while imports in India have a
waiting time of 182 hours compared to a global average of 24 hours. While shipping
chemicals by air, it is crucial to take into account the potential adverse effects of
temperature, pressure and humidity variations, as well as the risk of damage due to
vibrations and improper handling.

Multi-Model Transport
Multimodal transportation is the transportation of goods involving two or more modes of
transport on the basis of a single Multimodal Transport Contract. Increasing containerization
has resulted in various chemicals being transported through a combined transportation
model.

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 One of the ways by which multi modal transport is possible is through ISO certified tanks.
An ISO tank container is a cylindrical tank set inside a frame of the standard dry container
so that the machinery used for the dry containers can also handle the entire apparatus.
The tank containers can be loaded one on top of the other on ships, trucks, railway etc.
and hence, eliminates the risks in transferring chemicals from one vessel to another, and
provides for an extremely safe, secure and viable mode of transportation. Apart from
being cost-effective compared to drums (43% more volume); ISO certified tanks minimize
spillage and leakage of chemicals as well as last 20-30 years.
A comparison
A comparisonofofvarious
variouscontainers to transport
containers to transportchemicals
chemicals is given
is given below:
below:

Parameters Drums Parcel Tankers Tank containers

Cost Costly to buy, handle, Transportation, terminal, Cost effective fill, ship
Effectiveness store, dispose storage high costs and unload
Efficiency in Rarely reused or Large minimum cargo size – Minimal handling, flexible
use reusable, costly 200 to 500 tons pipeline
disposal
Safety Susceptible to leakage Risks of contamination from Optimum safety, robust
and damage pipelines, pumps and storage primary package
Convenience Multiple handling and Restricted destination choice Optimum safety, robust
labeling (costly) (not door to door) primary package
Storage Large storage area Compatible tank storage, costly Immediate, low cost,
requirement secure storage

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 Section 3
Challenges faced in chemical logistics
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Challenges faced in chemical logistics

The complexity of the chemical industry makes chemical logistics very challenging:

The complexities in the chemical industry are exacerbated by the challenges faced while
transporting these chemicals across various modes of transportation as well as ensuring
that the chemicals are transported safely without elevating the logistics costs. These
challenges are described in further detail.

Railways
Oversaturated rail network: There has not been much investment in infrastructure of
railways by the government which is emphasized by the fact that route km has grown at a
CAGR of 3% and track km has grown at a low CAGR of 6.6%. Noticing that high density
corridors have become oversaturated, the Rail minister Suresh Prabhu had earmarked 77
projects involving doubling, new line and gauge conversion to be undertaken in 24 over-
saturated corridors in the rail budget for 2015-16.

Uncertain transit times: Freight train can take as much as 6-8 days for a journey of 2000
km. In the chemical industry, due to uncertain transit times, companies end up carrying
excess safety stock on an on-going basis in order to avoid losing sales due to stock-outs.

Less flexibility in carrying chemicals with different specifications: Special wagons are not
easily available to carry chemicals with different specifications or hazardous chemicals
with may require additional protection.
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Roads
While road movement is preferred to rail, road movement has its own fair share of issues.
These include:
Congestion of National Highways: Freight movement in India is dependent on National
Highways. While National Highways constitute only about 1.7% of the road network of
India, they carry more than 40% of the total traffic. As a result most of these highways are
severely congested.
Road quality: As per the Global Competitiveness Index 2015 by World Economic Forum,
India ranks 76th on road quality. India’s rank has risen ten places from 86th in 2013 and
thus, the road quality on the National Highways and other roads is improving but is still
poor in many locations. Poor quality of roads leads to accidents and to a loss in
productivity due to delays.
Fragmentation: The trucking industry in India is largely fragmented and in the hands of
small truck operators. Research indicates that nearly 70% of the truck owners in India own
between 1-5 trucks. Small bulk truck operators who bulk deliver non hazmat don’t need
handling precautions and are highly cost-effective as compared to chemical providers with
standards set for all types of chemicals handling. The latter suffers at times due to the
fragmentation scenario.
Pilferage: Pilferage is a major concern. At times, high quality expensive chemicals are
replaced by low value substance with truck drivers being the major culprits. As a
consequence, raw material quality is compromised.
Multiple check points: Trucks in India have to pass through multiple check points in their
journey as they keep stopping at state borders to pay toll taxes, octroi etc. If a vehicle that
contains hazardous chemicals has to stop numerous times, there is more contact with the
ecosystem and the risk of accidents increases which is detrimental. With the awaited
advent of goods and service tax in India, several of the toll taxes including entry tax and
octroi would get abolished streamlining the transportation of chemicals.

Ports
India is among the fastest-growing economies but ranks 76th on port infrastructure as per
Global Competitiveness Index 2015 by World Economic Forum. This is due to certain
reasons such as:
High turnaround times: Data from Indian Ports Association shows that ports in India suffer
from high turnaround times for ships. JNPT, which is one of the premier ports in India, has
more than 2 times the turnaround time of Colombo and Singapore ports because of
congestion on berths and slow evacuation of cargo which are unloaded at the berths.

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 Inadequate depth at ports: The depth at many ports in India is not enough and dredging
tenders take a long time in getting awarded. As a result with the existing depths many
ports are not able to attract very large vessels.
Costal shipping has not taken off: Costal shipping in India is hampered by inadequate
port and land side infrastructure which hampers large scale use of it for freight
movement.
Connectivity: In addition to inadequate port infrastructure, Indian ports are faced with the
challenge of adequate hinterland connectivity and presence of multimodal transport
options. This creates a challenge in moving the products inland & vice-versa and drives up
the distribution costs. The problem is more challenging for chemical products where
safety and environment norms have to be strictly adhered.
Draft: Draft depth at Indian ports ranges from 9-14 meters as compared to 12-23 meters
at international ports. As a result several Indian ports cannot handle bigger vessels which
are essential to achieve economies of scale.

Indian Ports vs. Global Ports

Parameters Indian Ports Global Ports
Turnaround Time (hrs.) 80‐90 5‐10
Draft depth (mtrs) 9‐14 12‐23
Productivity (Discharge/ship‐berth day) 16,000 MT/day 25,000 MT/day
Pipelines Common pipelines for Dedicated pipelines with
multiple products connection to jetties
Typical distance from waterfront > 3 Km < 1 Km
Hinterland connectivity Poor connectivity with Strong connectivity with multiple
high dependence on transportation modes
road
Electronic Data Interface, ERP system Minimal Mature

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Section 4

Section 4
Regulatory Perspective
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Regulatory Perspective

Legal Instruments
There are various acts & rules related to management of chemicals. Some of these are:
Chemical Safety & Emergency:
Manufacture, Storage and Import of Hazardous Chemicals Rules, 2000
Chemical Accidents Rules, 1996
Public Liability Insurance Act & Rules
Specific Chemical Category/Container:
Petroleum Act & Rules
Explosives Act & Rules
Gas Cylinder Rules
Insecticides Act & Rules
The Essential Commodities Act
Specific Chemical Category/Container:
Factories Act, 1948
Motor Vehicles Act & Rules
The Customs Act, 1962
Merchant Shipping Act & Rules
The Indian Ports Act, 1908

Hazchem Regulations
With nearly 20% of chemical accidents happening during transportation, hazchem
legislations in India are critical and need to be evolved to the level comparable to the
levels of European regulations such as REACH. Hazardous materials training is required
by law as per 9 of CMV Rule.
Things such as Transport Emergency card (Trem Card) informs the driver and cleaner
about the nature of dangerous goods, and steps to be taken during emergency.
Production factory should provide Trem Card pertaining to the goods in the vehicle and
the Trem Card should be in the vehicle.

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Regulatory Perspective

Furthermore, emergency information panel describes the nature of the goods in the
vehicle, showing status, quality and during emergencies it informs some steps to be
taken by other road users and fire engine office. It is exhibited on both sides of the
vehicle and at its front & rear.
Recurrent training must occur every year for one day. Hazmat employers are responsible
for certifying that each hazmat employee has received the required training and for
keeping detailed records of when and what training was given.
Various documents are required to be carried during transportation of hazardous
chemicals specific to the consignment such as hazard class label, emergency information
panel, proper trem card with written instructions, consignment receipt etc.

CRZ Norms
Coastal stretches of India and the water area up to its territorial water limit are declared
as Coastal Regulation Zones by the Central Government to restrict the setting up and
expansion of any industry, operations or processes and manufacture or handling or
storage or disposal of hazardous substances.
Prohibited activities within the CRZ include storage or disposal of hazardous chemicals
except transfer of hazardous chemicals from ships to ports, terminals and refineries and
vice versa. A company wanting to work within the permissible norms of the CRZ need to
take prior approval from the government (Ministry of Environment and Forests). Revising
regulations of storage and disposal of chemicals need to be stepped up with appropriate
arrangements for co-ordination across multiple agencies involved, and make them
effective in meeting new and emerging challenges.

Goods and Services Tax (GST)

Implementation of GST would standardize tax rates on a pan-India basis and the key
advantage would be the consolidation of logistics and warehousing units at central
locations. Chemical companies will then have to determine their supply chain network
on the basis of productive and logistical considerations rather than taxation. This could
imply changes like a shift to-wards larger vehicles for transportation. For example, there
could be a transition from road to rail as rail is better suited and more economical for
bulk volumes and longer distances.

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 Section 5
Opportunities and Way Forward
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Opportunities and Way Forward

Growing population, rising middle class & disposable income, changing economic landscape
and Government’s focus on domestic manufacturing would lead to higher growth in certain
end use sectors resulting in increase in bulk chemical flows. This would drive a wider
portfolio of products to be imported/exported, thereby creating opportunities for the
chemical industry.
The Central Government is taking a number of progressive steps which would promote the
growth of the chemical industry. As a first step, it has deregulated the diesel prices. This
would encourage private players to explore downstream distribution creating opportunities
for storage providers. The Government plans to set up three new petrochemical investment
regions in the coastal areas of Karnataka, Maharashtra and West Bengal. These PCPIRs will
create opportunities for independent storage providers and develop new models and
solutions for terminal handling operations.
In order to realize the potential of future opportunities, following steps need to be taken to
overcome the challenges faced in chemical logistics:
Port capacity expansion and infrastructure up-gradation: High capacity berths must be
created for handling chemical liquid cargoes with specialized handling equipment. This
would reduce turnaround time & pre-berthing delays and increase hourly throughput. Draft
depth at ports need to be increased to enable them to handle bigger vessels whose
proportion would increase with increase in liquid volumes. With Government impetus on
infrastructure development, capacity additions are expected to be commissioned over next
few years as depicted below:

Capacity additions at Indian Ports

Port Capacity Addition Capacity Expected commissioning date
Liquid Bulk Terminal 15 MTPA (Phase-I) 2017-18 (Phase-I)
JNPT
11.6 MTPA (Phase-II) 2025-26 (Phase-II)
Multi-user liquid bulk 4.1 MTPA 2015-16
Cochin
terminal
Ennore LNG Import Terminal 5 MTPA 2016-17

In terms of the contribution of private players, the Adani owned Mundra port (the largest
commercial port of India in terms of volume handled) will expect their new container
terminal, with a capacity to handle 1.3 million TEUs, to be operational by 2017.
All these developments would help reduce port congestion and ease operational load at
ports

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Alternate transport modes: Conscious efforts should be made to shift the chemicals
transport load from roads to safer and economical modes like rail and water. Policies
should be developed to avoid procedural delays in setting up rail infrastructure for
chemical transport. Reforms in private rail car leasing business would enhance the
competitiveness and would encourage more investments. This should be coupled with
easier approvals for private rail siding to ease the stress on public rail infrastructure.
Dedicated wagons can be introduced to transport chemicals across the country over rail.
Steps should be taken to promote the use of coastal shipping and inland waterways.

Indicative Comparison of various transport modes

Parameters Water Rail Road

Energy Efficiency (cargo moved
4,000 500 150
(Kg/Horse Power)
Fuel Efficiency (ton-km/ltr of fuel) 105 85 25
Equivalent single unit carrying
1 barge 15 rail wagons 60 trucks
capacity (1,500 tonnes)
Air Pollution Low Medium High
Land Requirement Low High High

Financial incentives should be provided by the Government for using alternate

transportation modes Some of the recent measures taken by the government is to focus on
‘Sagar Mala’ to integrate port development, industrial clusters and hinterland connectivity.
A INR 4,200 crore ‘Jal Marg Vikas’ Project was announced in Union Budget 2014-15 to
develop inland waterways between Allahabad and Haldia over the next six years. The
Government is planning to introduce Inland Waterways Bill in forthcoming parliament
session. This would convert 110 rivers into inland waterways and promote water as a
means for cargo transport.

Integrated Logistics: wherein a single service provider, provides end-to-end logistics

services not only covering India, but also through international network. This enhances the
efficiency and productivity of logistics as function as a whole and directly contributes to
saving all around. The logistics firms are moving from a traditional setup to the integration
of IT and technology to their operations to reduce the costs incurred as well as to meet the
service demands. The industry as a whole has moved from being just service provider to
the position where they provide end to end supply chain solutions to their customers.
Chemical companies can stay ahead by establishing an integrated transportation
management program that is a cohesive strategy aligned with the company’s overall
business objectives.

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Additional Steps: Following additional steps can be taken by independent chemical
providers to promote industry growth
 Industry Platforms: Chemical industry should come together and highlight their
cause and importance to Government bodies and concerned authorities.
 Focus on SHE Practices: A strong focus is required on SHE practices in handling and
storage operations. Regular trainings should be undertaken to build awareness and
inculcate discipline towards compliance of SHE practices. Implementation and
adherence to SHE practices would help chemical providers assuage environmental
concerns.
 Outsourcing Opportunities: Chemical companies should be encouraged to
outsource their storage and handling operations to independent third party
operators. This would not only propel the chemical industry growth but also help
chemical companies to focus on their core operations, achieve operational
efficiency, improved asset management and resource optimization.

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References

1. Chemicals and Petrochemicals Statistics at a glance: 2015, Ministry of Chemicals &

Fertilizers, Govt. of India

2. Indian Railways Annual Report, 2014

3. Global Competitiveness Report by World Economic Forum, 2015

4. India Chem report on Chemicals –A way of life, 2015 by Tata Strategic Management
Group

5. Liquid Bulk Handling and Storage report by Tata Strategic Management Group

6. Chemical Industry Digest by TCI, September 2015

7. National Manufacturing Chemical Council (NMCC) report on India’s competitiveness on

logistics cost

8. Crisil Research

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Tata Strategic Contacts

Manish Panchal

Practice Head – Chemicals, Energy & SCM

E-mail: manish.panchal@tsmg.com
Phone: +91 22 6637 6713

S.R.K.Dattu

Consultant – Logistics & SCM

E-mail: dattu.saripalli@tsmg.com
Phone: +91 22 6637 6785

Report co-authored by Pooja Sharoff (pooja.sharoff@tsmg.com)

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