Surging share of direct port delivery (DPD), especially at the Jawaharlal Nehru Port Trust (JNPT), means growth in the container freight station (CFS) industry in India would be facing an existential crisis sooner than later, starting with flatlining of revenues this fiscal.
The industry, with ~Rs 4,500 crore revenue in fiscal 2018, had grown at 6-8% annually over the past five years.
As of July 2017, there are 169 CFSs in India, and 67 inland container depots (ICDs). Both are extensions of port infrastructure. CFS is used for customs clearance and other regulatory procedures outside the port premises, while ICDs are located in hinterland. ICDs remain a key port logistics link given their rail connectivity to hinterland and provision for handling containers from multiple ports, while a CFS is linked to one port.
JNPT, which houses the largest CFS cluster in India, saw a 428% on-year surge in DPD volume (545,000 containers) last fiscal, compared with 53% (~103,000 containers) in fiscal 2017 – the first full fiscal after DPD was allowed in February 2016.
The share of DPD in total containers transported by road rocketed to ~39% in March 2018. For fiscal 2018, the share of DPD was 32% compared with 4-6% in fiscal 2017. The number of importers opting for DPD was 1,346 in March 2018 compared with just 11 in February 2016.
However, more than half of the DPD containers are resent to a CFS either because of non-clearance within 48 hours or voluntarily by importers for storage and onward transportation to hinterland.
Says Prasad Koparkar, Senior Director, CRISIL Research, “As more importers opt for DPD, the regulatory revenue of CFSs, comprising handling, storage and inspection charges, would dip further this fiscal. To offset this, CFS operators are expected to focus on alternative revenue sources from allied logistics and transportation services.”
While the government pushes for DPD across major ports starting with JNPT, the use of CFS as a transport and storage solution would remain worthwhile for some importers.
They use CFS as a transportation and storage service provider after DPD clearance, because of their own inventory management and infrastructure constraints. However, of the 34 operational CFSs at JNPT, only 22 are allowed to provide these services by the Jawaharlal Nehru Customs House.
Earlier, non-cleared and damaged containers were, by default, moved to a JNPT-owned CFS. But since April 20, 2018, Customs has allowed all CFSs to handle these containers. This is expected to provide some volume, given that such containers accounted for 10-20% of all DPD containers.
However, the move by JNPT to provide transportation services to importers across five geographical corridors at pre-decided tariffs starting May 2018 is expected to increase pressure on CFS operators, which were banking on transportation of DPD containers to offset loss in revenue.
Says Binaifer Jehani, Director, CRISIL Research, “Smaller, non-integrated CFS players in the JNPT cluster are expected to suffer the most as handling and storage rentals are their primary revenue source. Larger integrated players, which offer value-added services such as warehousing, rail transportation, and other logistics related services, are expected to fare marginally better as the2industry evolves towards integrated logistics. As a result, we may see some consolidation in the industry at an overall level.”
Overall realisation per container is expected to be on the lower side in fiscal 2019 for CFS players, as even their transportation revenue comes under threat. However, this setback is expected to be limited to CFS operators, and spares inland container depot (ICD) operators. The ICD segment is expected to continue growing in line with the trends in container traffic at Indian ports to Rs 1,100 crore.