INDIAN SHIPPING SECTOR: EMERGING CHALLENGES IN GLOBAL SCENARIO Dr. Richa Srimal
Asst. Professor (BMS Department), SNDT Women‟s University, Mumbai 1 INTRODUCTION
India‟s shipping industry has kept prominence in India‟s logistics sector with ever increasing international trade of India. In India, almost 95% of the international cargo is traded through sea mode and India enjoys a significant position in global shipping due to factors like- long coastline (approximately 7517 kms), strategic location and many international sea routes connected to it. Even Government has recognized shipping as one of the focus areas for economic development.
Last fiscal year has been challenging for Global as well as Indian logistics sector.
The Global maritime trade is estimated to experience a plunge by 4.1% in 2020 due to the outbreak of global pandemic – COVID1. There has been a substantial impact on Indian EXIM sector too, with exports dropping by 35 per cent and imports by 29 per cent2. This has built a tremendous pressure on shipping sector as well.
Shipping Industry is characterized by a network of multiple players including- Ports, Inland Shipping companies, Container Depots, Inland Container Depots (ICDs), Container Freight Stations, Porter/ Handling community, Customs Department, freight forwarders/Custom house agents and the vessel operators (Shipping companies).Though Port authority and the Shipping company have the major role in the smooth functioning of the maritime logistics, the roles of other operators cannot be disregarded.
Fig. 1: Stakeholders of Maritime Logistics System
2 PERFORMANCE OF INDIAN SHIPPING INDUSTRY DURING COVID TIMES
Although there has been a downfall in most of the economic indicators pertaining to business and logistics, there are few positive effects experienced during the pandemic time. The following section discusses in detail the negative, as well as the positive influences of COVID on Shipping sector of India.
2.1 Negative Impacts 1. Ports’ Performance
Traffic at ports: Cargo traffic at 12 major ports that are under the control of the Centre dropped by 6.61% to 600.62 million tonnes (MT) during April-February this fiscal, compared with 643.10 MT in the last fiscal year3.Ports are operating at 30-40 per cent capacity. Cargo volumes have decreased by 5.25 per cent in March 20 vs March of 20194.Container traffic has also reduced by 12.51%.This is mainly due to fall in production capacities of industries amid lockdown and decreased overseas demand of non-essential commodities like Gems and Jewellery. There has been a sharp decrease in
export level to a record low of 60.28 per cent in April‟20 and 8.74% by Nov‟20. Similarly, imports fell by 58.67% during April‟20 and 13.32% by Dec‟205. Containers handled at Jawaharlal Nehru Port Trust (JNPT) dipped to 5.03 million twenty-foot equivalent units (TEUs) in FY20, from 5.133 million TEUs in last year6.Though, lesser impact is seen on the ports in western coastal region as they are handling ore, minerals and break-bulk, which are categorized as essential commodities by the Government.
Turnaround Time: Turnaround time at ports has increased to 12.2 days against 3 days in pre-COVID-19 scenario3. It is due to the fact that ships have to undergo a long period of quarantine as a safety measure before starting loading and loading. Also, the crew change procedure has become stricter and longer. This leads to longer period of ship voyage, thereby increasing the pressure on ports& vessel operators, and congestion of cargo and containers at ports.
2 Shippers Dilemma
Unavailability of containers: As the ships voyage time has become longer, loading- unloading process has become slower, containers are stuck at port for longer time.
Trans-shipment ports like Colombo, Singapore, Rotterdam and Antwerp are experiencing huge container congestion. This is due to safety norms, sudden change in entry protocols at the successive port of calls, ships taking longer time than usual to reach and leave the trans-shipment port. This has led to disturbance in the container cycle, thereby leading to unavailability of containers to the shippers on time.
Increased Freight rates: There is a steep rise in the freights charged by the shipping companies since last year. The reason behind this trend is the considerable increase in the operating cost of ships amid pandemic.As per the data published by International Maritime research agency Drewry, average daily operating cost of ships has increased by 4.5%, against the normal increase of 2-2.5%.Shipping companies have to bear more cost in name of safety, sanitization and quarantine requirements posed due to the COVID fear. Manning costs increased by 6.2% in 2020 compared to general rate of 1.3%, while hull and machinery (H&M) and protection and indemnity (P&I) cover costs jumped 4.5% on a hardening insurance market. Interruptionof supplies and labor availability caused by the pandemic pushed stores & spares and repair & maintenance cost inflation to around 3%, while dry-docking spend leaped 5%. All these factors have resulted in mounting cost pressures on shipping companies. This increased freight is finally affecting the profitability and bottom-line of exporters and importers in the country.
Compression of Shipping space: In general scenario, only 5-6 companies govern the shipping freight industry. Almost 60-70% of shipping cargo in India is handled by these companies, namely Maersk, CMA CGM, Hapag Lloyd and MSC. Due to pandemic, these companies have reduced the services on various shipping routes, experiencing blank sailings during initial phase of pandemic. This is termed as vessel parking. This has put sudden pressure on availability of shipping space for the shippers. This also is one of the factors contributing towards premium charges paid for shipping spaces by the shippers. If the Automated Identification System (AIS)data is seen closely, it is learnt that there has been a significant drop in the ship calls internationally over quarter 1 and 2 of 2020.
3 Vessel operators, ICDs, Inland Transporters, Maintenance and Stevedoring agencies
affected the maintenance services of the vessels. Ship-owners run the risk of delays and machinery breakdown as the pandemic hinders essential maintenance and servicing. Disruption in supply of spare parts and essential consumables like lube-oil and hydraulic oils can delay scheduled maintenance or result in crews using alternative grades or brands. At the same time, travel restrictions may affect the ability of specialist engineers to access ships to make repairs.
Longer voyage times and sudden changes in port of calls: Ships are now taking longer time to complete voyage due to increased turn-around times and increased formalities to enter in the port of any country. Voyage plans also are affected by sudden change of entry in certain port of calls.
Though the pandemic has posed significant challenges to the shipping industry, there are various positive impacts seen due to the COVID restrictions.
2.2 Positive Impacts
1 Environmental benefits: With reduced ship traffic, issues of environmental concerns seem to have improved. Oil spillage, harmful emissions have reduced and there has been overall increase in the breeding of marine flora and fauna. Various environmental agencies have been actively studying the impact and are giving optimistic feedback about the impact of pandemic on the environmental conditions.
2 Increased profits for Shipping companies: As discussed earlier, though the overall cargo handled has gone down but the profitability of shipping companies has not been affected much. Rather,some companies have registered growth and profits by the ending quarters of FY20. Example, during the third quarter A.P. Moller-Maersk improved profitability across the business and delivered strong free cash flow, despite the negative impact on global economies from the Covid-19 pandemic.
3 Digitalization of Processes: One positive effect of pandemic has been introduction of digital services in various spectrum of logistics function. Though, Indian ports had already adapted Electronic Data Interchange (EDI) before 2020, but there has been implementation of digital platforms in shipping companies and other participants of EXIM community.
According to a research published by The Economic Times, Indian Port Community System (PCS) implemented by Indian Ports Association under the aegis of Ministry of Shipping is a remarkable achievement which has digitized a lot of processes and documentation work. It aims to integrate the documentation for the port authorities, shipping companies and all other parties such as agents, stevedores, customs, banks, ICDs/CFSs, railways, CONCOR, exporters, importers and other concerned parties, if any. Due to lockdown and norms of social distancing, companies have welcomed this digital change.
4 Diversification of services by Service providers: COVID has come as an eye-opener for companies to diversify their portfolios and venture into providing multiple services to survive during any such situation in future. Shipping companies are working not only working as space providers, but also acting as consultants for their exporters/importers.
They provide suitable details about the shipping routes, safety measures and other quarantine related issues involved in the global shipping to concerned parties.
5 Human safety: The Pandemic has taught that human safety and wellness is of paramount importance for smooth functioning of any sector. Companies are now focusing on these issues and new trends like work from home, using digital platforms for work, taking care of health issues have come to work in Shipping sector as well.
3 REMEDIATION STRATEGIES – THE WAY AHEAD
This pandemic is a lesson for the sector to understand that preparing for worst is an important strategy, not only to survive but also to ensure growth. Companies have to be agile and adaptable in approach to be winners. Few important recommendations for companies to follow in this new COVID Age include the following: -
Focus on Automation: IT and IT enabled servicesare the norm for the post- pandemic era. Though the shipping industry had started the use of internet and IT enabled services years ago, moving towards complete automation & contact- less approach is the need of the hour. Not only shipping sector, but all parties attached with maritime industry, are required to adapt these exponential changes.
Response-based Strategic planning: The focus of the sector should be to plan for the worst-case scenarios. Unpredictable situations and issues can occur any time.
Companies have to re-orient themselves to prepare their people and resources for any contingences.
Dynamic replenishment options: To survive the Pandemic, shipping companies need to be continuously running vessels. For this to happen, multiple replenishment options for resources, crew and materials should be identified by companies, so that crisis doesnot impact their functioning. Evaluation of alternate sourcing options for bunkers(fuel), alternate voyage planning, spare and minimizing external dependency on maintenance is vital.
Understanding International protocols: Understanding International protocols of agencies such as International Maritime Organization (IMO), International Labor Organization (ILO), WTO is necessary to operate smoothly in the evolving international arena.
Risk-based Approach: Applying risk-based approach and implementing rick mitigation strategies in supply chain operations is the need of the hour.
Sanitization systems, health facilities and insurance against biological harm should be accorded priority to minimize operational risks.
Promote Merger & Acquisition: M&A and consortium approach should gain prominence, so as to faceany challenge through co-operation. This provides equal
Table 1: COVID related measures adapted at ports in India and other Asian nations
that the entire shipping industry, globally, works in tandem with each other.
Thus, the occurrences in other countries have a cascading impact on Indian shipping industry. It is important to understand the impact of global happenings on our performance and re-orient our approach accordingly.
Utilising Government policies: Government of India has lately provided number of measures to support the shipping industry. For instance, Government of India has announced the Major Ports Authorities Bill in 2020 to provide regulation, operation and planning for major ports in India and to provide greater autonomy to existing ports. In September 2020, the Ministry of Shipping launched a dispute redressal portal, Society for Affordable Redressal of Disputes – Ports (SAROD-Ports). This portal would help develop confidence in private sector, as ports shift to
„Landlord‟models. Many other programmes have been initiated by Government for betterment of the sector. It is important to understand and harness the benefits attached to these policies.
4 CONCLUSION
Though the year gone by has been tough for the shipping sector, but gradually increasing exports have come up as a silver lining. 2021 seems to create a hope for the shipping sector, with India recording highest ever monthly exports in March at USD 34 billion.
Government has introduced various measures to boost revival and growth of the sector.
Also, coronavirus provides a good opportunity for the shipping sector in India as multinationalcompanies plan to move away from China,creating a new wave of industrialization. India is one of the most promising destinations with abundant and cost- effective resources like labour, resources and hub for emerging technologiesand startups.
Increasing FDI inflows indicate confidence of global investorsin India to emerge as a significant player in global supply chain management. Thus, there are ample opportunities for port and shipping industry to grow and play a significant role in India‟s economic development.
SOURCES
1. UNCTAD report, “Review of Maritime Transport-2020”, Nov 2020.
2. Maritime Gateway, “Impact of COVID on Shipping and Logistics Indian Port Association.
3. Equity Master, “Shipping sector analysis report-2020”, https://www.equitymaster.com/research- it/sector-info/ship/Shipping-Sector-Analysis-Report.asp.
4. Indian Express “COVID Times: Exports Plunge to a record level”, 15 May2020 and 15th Dec‟ 20.
5. The Hindu, Business Line , “Container Traffic dips at JNPT in FY20”, 01 April‟ 20.
