First Meeting of the Working Group on Dry Ports

Dry ports: Emerging developments trigger new initiatives

RAGHU DAYAL Asian Institute of Transport Development

Bangkok 25-26 November 2015

Growing trends in global trade:

Potential of intermodal transport and challenges of harnessing it

Source: UNCTAD-based on Drewry Shipping Consultants; Container Market Review and Forecast 2006/2007 and 2008/2009 and Clarckson Research Services Ltd; Container Intelligence, September 2009

Global container trade, 1990-2020 (TEUs and percentage change)

− Global container traffic growth rates have been much higher than growth in real GDP.

− Container CAGR of 13.5% during 1970-2007 vis-à-vis world GDP CAGR of 3.2%.

− Over the period 2014-2019 container traffic is estimated to grow @ 7.9% p.a., moderating in the quinquennial 2020-

2025 at about 6% p.a. (price Waterhouse Coopers: Enhancement of Containerisation in Asia)

− Container port handling worldwide estimated at 1b TEU by 2020, doubling the throughput of 506m TEU in 2008

(UNCTAD).

− The intra-Asia container traffic is estimated to rise to 57 m TEU in 2025, from 16 m TEU in 2007.

− Northeast Asia alone to account for more traffic than other sub-regions in Asia taken together.

Product profile changes

− The value of trade growing much faster than its weight.

− This compositional shift happening both across products (shift away from bulks) and within manufacturing products.

− There is supremacy of demand for precision and speed in anticipating customer needs down to the store level.

− Higher income countries import higher quality goods.

− Speed in delivery is itself an important characteristic of product quality.

Challenges of burgeoning volumes

− The intercontinental combined traffic study (ICOMOD) by

UIC reports:

• In 2009, 10.7m TEU transported between Asia and Europe

• Total traffic potential between Asia and Europe would

increase to 17.4m TEU in 2020, 22.7m TEU in 2030.

• By 2030, a rail potential of 1m TEU projected (around 38

trains per day of 100 TEU each).

• The shift potential is highest from western China

− There is considerable scope to improve on the transit time,

including that involving cross border detention as well as

overall cost, which would spur the shift to rail.

Ships getting bigger…

logistics corridors remain smaller

− Freight distribution strategies become a vital factor of competitiveness.

• Improvement in supply chains appears to customers an important area – for cost, quality and efficiency improvements.

• Important efficiency ingredients include:

• Overall reduction in dwell time at terminals

• Time saving through streamlined customs and other mandatory and regulatory interventions (ease of Doing Business)

• EDI

• Single window suite of services.

• All players in the game striving in tandem to minimize overall logistics cost as well as time in procedures and operations.

• Different modes constantly look for scale and the benefits of scale in terms of unit cost.

• There is a strong relationship between the size of the container ship and the cost per TEU of operating container ships.

− As container ships increase in size – with a capacity of over 18,000 TEU and still going bigger, the global supply chains will cast a growing impact on gateway ports as much as inland terminals.

− Distances alone may not be the only factor for intermodal growth; concentrated large volumes, even when involving short hauls, may well be carried optimally by rail.

• One striking example is of containers transported between Laem Chabang port and Lat Krabang ICD in Thailand, a distance of just 118 km.

− Increasing road traffic congestion in and around gateway ports in Australia and large conurbations such as Sydney and Melbourne now compel inland terminals to be moved to suburbs with the diversion of EXIM container traffic from road to rail, signifying that short haul rail movement of containers can be sustained, if volumes are large and regular. (unescap)

Relationship between container ship size and operating costs

Source: AT Kearney

− Dry ports, -ICDs, CFSs, logistics zones or parks, freight villages, distriparks, et al – they all facilitate seamless, integrated transportation of goods, generally in a multimodal format.

− A dry port drives inclusive growth; relieves spatial imbalances; promotes growth in hinterlands, extending developmental impulses, many a time part of an SEZ/EPZ.

− ICDs and CFSs in effect enable and encourage integration of ports, road and rail freight operations.

− A CFS, generally an off-dock facility, close to the port, helps decongest the port, as its virtual extended arm.

− CFSs set up also inland-with road linkage to a regional rail-linked ICDs, facilitating fast formation/disaggregation of unit trains for/from a gateway.

− A network of dry ports as load centres also optimises intermodal transport with significant environmental benefits and energy gains; long haul between a seaport and an ICD done by rail, first-mile from the consignor at origin and last-mile short haul to the consignee by road.

Dry ports – hubs of prosperity

Ports without water

Potential hubs of prosperity

Container freight station

Environment friendly

Dry ports – a key component in supply chain

− A number of dry port provide valuable space for a range of value adding logistics services, enabling some of them to turn into well developed logistics parks or become the nucleus for SEZs, for example.

− It is more than just a means for decongesting or depressurizing congested seaports.

− It has also become a pole of attraction for the clustering of industrial activities and triggers economic development of specific areas.

− Existing container yards could evolve into dry ports

− With the location of value added services as a first possible step towards further expansion into full import/export processing zones or special economic zones.

• Not only to serve traffic to and from gateway ports, but for domestic intermodal transport.

Dry port development in the region:

Salient aspects of an example First infant steps :

− As early as in the 1960s, IR realised the potential and benefits of high value cargo multimodally transported

door-to-door .

− To stem steady decline of LWL general goods traffic, IR introduced 4.5/5.0 t containers of its own design for

domestic cargo.

− Nurtured container culture in country’s trade and industry.

Birth of CONCOR- a seminal step − Managing change in country's logistics architecture

− Building and operating infrastructure with linkages for accelerated inland penetration of containerised cargo

− Promoting containerisation of intra-country domestic general cargo, aggregating them for unit train operation

− Promoting institutional mechanisms for PPP conducive to sustainable growth of multimodal transportation.

Synergising public-private strengths − Participation of operators and agencies in central and state (federal and provincial) domains as well as private

sector.

− Outsourcing of road transport and material handling equipment provisioning, but within CONCOR's own overall

responsibility, service package, and tariffs

− Active involvement of stakeholders-trade and industry, customs, ports, airports, shipping lines, airlines, railways,

roads, customs brokers, transport operators.

Most of the CONCOR-owned CFSs and ICDs provided with rail/road linkages enable it to offer a

complete service package - unlike what obtained in UK or Germany, for example, where Freightliner

and Transfracht respectively operated intermodal services between ports and inland centres owned

and operated by others.

Liability and facilitation Trade facilitation the very raison 'd' etre of containerisation in India

– A composite contract between shipper and forwarder

– A through, unified liability regime

– Customs clearance at all ICDs/CFSs

Legal Framework

– Government enacted the Multimodal Transport of Goods Act (MTGA)

– Earlier, FEDAI evolved its own rules

– Liability cover for MTOs could be extended by TT (Through Transport) Club

Comprehensive suite of services

– A whole panoply of customs and other procedures and rules

– single window

– multimodal transit door-to-door

– IWB (inland way bill) indicative of simplified tariff system - a composite charge for different services

– factory /warehouse - stuffing/destuffing

– mini-bridging of import containers from port to port by rail

– bonded warehousing

– LCL containers allowed movement from one CFS to another for further consolidation

– Customs duty payment through banks and via e-banking

– EDI

Air cargo – an integral component of supply chain

– Port-side container terminal optimising port capacity utilisation

– Facilitating rail and land-bridge development

– Serving also as an empty stack facility

The bicycle wheel

– Concept of hub-and-spoke operations through all-rail as well as rail-and-road with road-chassis operation.

– Satellite CFSs, e.g., Panipat (100 km from TKD), Gwalior (300 km from TKD), Moradabad (200 km from TKD) as spokes linked to the hub at TKD ICD.

Step by step

– Improving and building in stages

– To conserve resources, optimise capital spending and managing operating costs

– To build speedily and engender multimodal milieu in the industry

Concomitant institutional framework

– Attention to “software” part of multimodalism

– Facilitation, systems, procedures, documentation, service concepts

Inter Ministerial Committee (IMC)

– With representatives from Ministries/Departments of Revenue (Customs), Railways, Highways , Shipping, and Commerce

which steers it.

– Applications in prescribed format analysed and approved by IMC for ICDs/CFSs considered economically viable.

Four prerequisites identified:

− appropriate location confirmed by an assessment of business potential

− coordination by and support of state government, wherever needed

− legal, financial and regulatory framework

− integrated transport infrastructure

Private sector- a major player

− Of a total of about 250 ICDs and CFSs effectively approved by IMC until June, 2015, two-thirds in private sector.

Assessing traffic potential and flows

– RITES carried out a countryside survey of existing and future container cargo flows with their O-D streams

• An indicative norm prescribed –a minimum two-way annual throughput of 6,000 TEU for an ICD and 1,000 TEU for

CFS.

Demand appraisal

– RITES observed demand elasticity of container traffic vis-a-vis GDP duing 1995-96 to 2000-01 to be almost 1:2 (GDP at a

CAGR of 6%, container traffic over 11%)

– Based on the premise of a minimum of 40,000 tonne of containerised export-import cargo, equivalent of about 6,000 TEU per

aanum, RITES identified (in mid 980s) 197 locations for the establishment of ICDs.

Some tenets that helped

India’s intermodal development, including of dry ports has been, in effect, a PPP testimony.

Recent container terminals at ports heralded PPP concept, e.g., at JNP, port, Chennai, Tuticorin,

Visakhapatnam, Cochin.

New large CFSs developed by CONCOR in PPP mode in collaboration with shipping lines and MTOs.

Intermodal rail networks developed as PPP projects, linking Gujarat coast ports by Pipavav Rail Corporation

and Kutch Railway Co.

Dry port development in India itself a good blend of private sector and state sector.

Public sector Central Warehousing Corporation generated an ingenious model for its CFSs being managed

and operated by private sector enterprises.

Several inland CFSs uniquely managed as public-public partnership – CONCOR as a Central sector PSU

joined hands with many state warehousing corporations to optimally manage and operate them.

Wherever its own handling equipment provisioning was not justified in view of low volumes of business, it

was outsourced/leased by CONCOR as was done for private sector trucking for first-mile and last-mile

movements.

Involving shipping lines and sea-port systems brought about natural synergies in forging cooperation at port

container terminals as well as in establishing CFSs as integral components of large ICDs.

GoI formally liberalized the investment and operational regime of the intermodal sector a decade ago –

enabled private sector, indigenous as well as foreign, to fully compete and operate.

Private sector companies registered with Government for owning wagons, operating container trains,

building intermodal infrastructure, marketing and operating for growth of international as well as domestic

cargo transported intermodally.

Public-Private Partnership: Indian intermodal industry a testimony

Distortions need redressal

– Overwhelming reliance of JNP on north-west hinterland

– Mushrooming CFSs around ports - 35 around JNP, 30 around Chennai port, 20 close to Kolkata/Haldia ports, 15 in Tuticorin, 12 in Mundra

Skewed dry port distribution

– Western and north-western hinterlands together account for almost 70% of total international containerised cargo trade

– Southern region 25%

– Eastern region 7%

– Eastern region has a paltry 5% share of containerised EXIM trade

Case for large common user ICDs

– The size of some ICDs will need scaling up

– Excessive fragmentation of traffic handling inimical to efficient and economical operations

– A hub-and-spoke model: large multipurpose hubs facilitate aggregation of containers from smaller satellite facilities, for quick materialisation of container trains to operate between gateways and large nodes

Tackling chokepoints

– Substantial enhancement of terminal capacity and infrastructure at gateway ports as well as dry ports in hinterlands

– urgent exponential increase in rail transport capacity along busy corridors

– there remains vast potential to containerise substantial volumes of india's general goods traffic that currently moves piecemeal mostly by road.

Hinterlands…a compelling factor

– Performance of a seaport is closely entwined with the development of associated inland networks

– Overstretched seaport capacities will compel more and more inland container terminals to develop.

“The weakest link in the transport chain is often at the port's own back door” (US Department of Transportation, 1993)

Pricing and puncuality

– Pragmatic rail transport pricing

– Paramount imperative of two factors to govern rail-preferred logistics development:

• avoiding cascading effect for players across logistics chain for pricing of services, and

• insistence on quality of service, including full reliability of scheduled transit.

Reduction in transaction costs remains paramount necessity:

– simplify pre-carriage, post-carriage documentation and procedures – implement EDI among different stakeholders, service providers, and regulatory authorities on a common platform.

Cater for vast potential of containerisation of domestic cargo. Also optimize the use of IR’s freight depots and private sidings for intermodal traffic.

Matters for constant watch...

A sea-change to comprehend − The growing focus on inland ports is indicative of transport development strategies shifting inland.

• Inland ports drive intermodal integration between ports and their hinterlands through long distance

rail corridors or barge corridors.

− The freight transport industry shifts from the traditional concept towards a total system approach,

stimulating the growth of multimodal transport.

− Dry ports have thus extended seaport activities inland, thereby becoming an integral part of logistics.

− A tendency us visible in the container sector to move away from the sea-shore terminal. The main drivers

are:

− High land prices, congestion problems, inland concentration of industrial/economic activity, besides severe

environmental restrictions.

− For example, Maersk Line has evolved strategies to push containers into the hinterland supported by its

terminal arm – APM Terminals and its rail links.

− HPH-owned ECT in Rotterdam has been acquiring key inland terminals to function as extended gates to its

deep-sea terminals such as the rail terminals at Venlo in the Netherlands, DeCete terminal in Duisburg

(Germany) and TCT Belgium at Willebroek in Belgium.

− DP World partners with CMA CGM for intermodal operations on the Seine and Rhone axes.

− The terminals of Antwerp Gateway and London Gatewway provide linkages to inland centres in the

hinterland.

− Rotterdam has planned to develop a series of ‘container transferia’ in its vicinity, near the main transport

corridors to the hinterland service areas.

• For connectivity with the port’s container terminals, providing space for value adding services d.

− The large load centres enable a number of rail operators together to make up the supply of hub-based

network.

• Smaller container ports tend to seek connectivity with the hunterland networks of the large load

centres by means of shuttle services either to rail platforms in the big container ports or to master rail

hubs in the hinterland.

Thank you