Monday, February 15, 2016

CASE STUDY: - INTERMODAL MOVEMENT OF FOOD GRAINS BY FOOD CORPORATION OF INDIA WITH LONGEST LEG SERVICED BY COASTAL SHIPPING.


1.                                Case Context

Food Corporation of India (FCI) was incorporated with the function of undertaking purchase, storage, movement, transportation, distribution and sale of food grains on behalf of the Government of India (GOI).A national food security system of the GOI is operated under an operational framework involving procurement of food grains through price support operations by fixing Minimum Support Price (MSP), maintenance of buffer stocks, food subsidy regime, and allocation and distribution of food grains to weaker and vulnerable sections of society through Targeted Public Distribution system (TPDS).

Timely and efficient procurement and building up of adequate buffer stocks in the Central Pool through efficient storage and movement of food grains are important functions of the food security strategy of the GOI. Storage management and movement of food grains, therefore, are important links in the whole system from procurement to distribution of food grains to the consumers.

Procurement of food grains for the Central Pool is carried out by agencies such as FCI, State Government Agencies (SGAs) and private rice millers. In addition, 10 states and UTs, which are presently under Decentralized Procurement (DCP) scheme, also procure food grains for the Central Pool. The procured food grains are taken over into the Central Pool by FCI, are stored in both its owned capacity and hired godowns in different parts of the country. The function of distribution of food grains to the consumers is carried out by the State Governments through TPDS and OWS (Other Welfare Schemes). The food grains are also disposed of by the FCI and State Governments based on allocation of the GOI through sale under the Open Market Sales Scheme (OMSS).

FCI is the only agency entrusted with the movement of the Central Pool food grains from procuring and surplus states to deficit and consuming states. The movement of food grains from the Central Pool is carried out by FCI through rail and road transportation system across the country. The Table:1 given below shows a comparison of movement of food grains by rail, road and water for the period from 2006-7 to 2011-12. The movement of food grains by water mode in nil.

Table.1
(Govt. of India, Ministry of Consumer Affairs, Food and Public Distribution, Report No.7 of 2013(Performance Audit), Report of the Comptroller and Auditor General of India on Storage Management and Movement of Food grains in Food Corporation of India, for the year ended March 2012.)

During the above mentioned six year period, the rail movement constituted about 92% and the remaining 8% was moved by road for short distances and between places which are not connected by rail. Considering the present status of the heavily congested rail/road transport network, a more effective, efficient and economic transportation network, such as a road – sea – road combination with the longest leg being serviced by coastal shipping is desirable. This case study deals with the multimodal transportation of bagged food grains in marine containers from designated depots of Kakinada (Andhra Pradesh) to designated depots in Kerala through coastal movement via Kakinada and Cochin Ports.
  

2                 Approach for Analysis

A comparative assessment regarding the cost differential for moving rice in containers from the FCI depots in Kakinada to the FCI depots in Cochin will bring out the following facts :-

1.    Approximate cost for transportation of  25MT rice from Kakinada depot to Cochin Depot by Rail .
2.    Approximate cost for transportation of 25MT rice from Kakinada depot to Cochin Depot by road.

3.     Approximate cost for transportation of 1 x 20’ container carrying 25MT rice from Kakinada depot to Cochin Depot by Coastal Shipping.

Apart from providing an insight into the cost factor, the study also throws light on other benefits the FCI would avail itself of by the containerized movement of food grains.

3                Case Text

FCI in Kerala Region receives on an average 15 lakh metric tonne of food grains from central pool (wheat& row rice from Northern Region and Boiled rice from Andhra Pradesh) per annum by rail, which is stocked in depots close to the rail lines at various destinations and use road movement for further distribution.

As per the performance audit report by the Comptroller and Auditor General of India (report no.7 of 2013 on storage, management and movement of food grains in FCI) ,the FCI sustains huge monetary loss due to the shortfall in supply of rakes by railways ,  inefficiencies in the movement of food grain and other operational losses. Hence, the FCI has initiated a pilot movement of 20,000 MT of bagged rice in containers on a monthly basis through coastal shipping from Kakinada Port to Cochin Port to check the feasibility of an alternative cost effective transportation mode to improve the food grain movements and to reduce the losses.

Based on the available data, a cost analysis has been done and it reveals that FCI could save Rs.15,451.50 per MT , i.e. , Rs 1,23,612,00 per monthly allocation of 20,000 MT (800x20’containers) on transportation cost by shifting the traffic to coastal shipping.


Table.2

 From Cochin, as shown in the Table 3 given below, further distribution of rice could be done by road to other nearby locations, wherever the FCI has its depots.

Table.3


Similarly, by utilizing other minor ports of Kerala FCI could divert a sizable amount of the grains movement to coastal shipping which is clean, green and cost effective. If the current facility or shipment volume doesn’t justify direct call of a coastal vessel to the non-major ports, the IWT mode (IV or RSV) could be deployed from Cochin Port. A map, Fig. 2, showing the possible network options are given below.
Source: Port Department, Kerala

Fig:1

Networking - FCI Depos with Cochin Port and other
 Non-Major Ports of Kerala

4.             Other benefits by diverting FCI cargo to Coastal mode

As per the performance audit report No.7 of 2013, by the Comptroller and Auditor General of India on storage, management and movement of food grains in FCI for the period 2006-’07 to 2011-‘12, the FCI loses heavily on transportation due to the shortfall in supply of rakes by railways, inefficiencies in the movement of food grain and other operational issues related to the movement. The FCI could successfully overcome a number of issues enumerated below by shifting to the containerized movement of food grains by coastal shipping.

i.                                  To overcome losses due to shortfall in supply of rakes by Railways :

Due to operational constraints, Railways could not supply rakes as per planned requirements of FCI and did not adhere to the date-wise and destination-wise movement plan. As per the Table 4.4 given below, supply of rakes by the railway shows variation ranging from 6% to 17%, which is of major concern.

Table.4

Source :Govt of India, Ministry of consumer Affairs, Food & Public distribution

ii.                                To minimize inefficiencies in movement of food grains.

According to the audit report, various inefficiencies in movement of food grains by railways resulted in avoidable expenditure, losses and delays in settlement of claims on account of the following reasons:

Rebooking and diversion of railway rakesRebooking takes place when consignment is booked to any other station after it reaches its original destination,  while diversion of consignment to other station is effected before it reaches its destination station. In 2011-12 the expenditure was Rs.28.85 crore.This was mainly due to non-availability of storage space at the original destinations and unplanned diversions of rakes.  

Demurrage payment to railways – Delay in loading and unloading of wagons attracts demurrage payment by FCI to Railways.While in respect of operations carried out on contract basis, demurrage for delays is recoverable from contractors, FCI is responsible for demurrage relating to operations carried out through its departmental labour. Average expenditure due to demurrage was Rs.59.52 crore per year. Payment of demurrage charges showed an increasing trend over the period from  22.73crore (2006-07) to 132.51 crore (2011-12).

Delay in reconciliation of missing and unconnected wagons– Diversion of food grains wagons occurred both at the instance of FCI and due to certain operational exigencies of the Railways. Diversion of wagons at times resulted in unconnected or missing wagons for the receiving depots. According to the reconciliation system followed in FCI, claims are lodged with the Railways in case of non-delivery of the wagon, the liability of which lies upon the Railways. Thereafter, a reconciliation of missing and unconnected wagons is done by the Zonal Claim Cell (ZCC) of FCI with the respective Zonal Railways. The un-reconciled missing and unconnected wagons are then taken up by FCI headquarters with the Railway Board for match adjustment. In 2011-12 the value of missing wagon accounted to Rs.11.24 crore and value of unconnected wagons was Rs.6.82 crore.

Non-settlement of refund claims of freight- Claims of refund arise when the FCI has paid the Railways in excess of what was actually due and claims should be lodged with the Railways for refund. Excess payment of freight by FCI to Railways could be due to various reasons such as erroneous calculation of freight, double payment of freight, diversion of wagons /rakes, etc. In March 2012 the pendency of refund claims of freight is accounted for Rs.58.11 crores and the audit also observed that the claims lodged with Railways were pending for settlement for 1 year to 32 years.

Excess payment of railway freight–As per the audit report, a test check of cases for the period 2006-07 to 2010-11 revealed that the FCI continued to pay at higher slabs and this had resulted in payment of excess freight to an extent of  Rs 3.47 crore for dispatches from Andhra Pradesh to various destinations.

iii.                              To eliminate operational issues such as transit losses :-

Transit loss is the difference between the weight dispatched by the consignor and the weight received by the consignee which may occur during transit due to pilferage, short loading of wagons, spillages, multiple handlings of bags, driage, etc.Audit observed that during the six year period from 2006-07 to 2011-12 the financial impact of transit losses over and above the target limit was Rs. 97.91 crore.

iv.                              Incentives for Coastal Shipping by Govt. of Kerala :-

                   Government of Kerala is providing incentives for coastal cargo movement at the rate of  Rs.1 /ton/km vide GO (Rt) No 24/2013/F&PD dated 16-01-2013 (Annexure No:13 ). An additional incentive in the form of rebate in port charges is also proposed for coastal cargo movement along the Kerala Coast.


v.                                Bunker Rebate for Coastal Ships by Govt. of Kerala:-

                   Government of Kerala reduced the tax (VAT) to 5% for the sale of furnace oil to coastal ships as fuel vide notification no: GO (P) No 100/2014 dated 21-06-2014 .  In the event of recent rail freight hike by 6.5%, this rebate would be a relief and expected to further reduce the transportation cost of the grain movement by coastal shipping.  



REFERENCES
 

1.                  Deloitte Touche Tohmatsu India Pvt. Ltd (2011),  Preparation of strategy road map cum action plan for development of coastal shipping in Kerala , Final Report, prepared for The Directorate of Ports, Govt Kerala, June 2011.

2.                  Directorate of Ports, Govt. of Kerala and Food Corporation of India (2013), Report on Reverine movement of food grains to Kerala Region, December 2013.

3.                  Govt. of India, Ministry of Consumer Affairs, Food and Public Distribution, Report No.7 of 2013(Performance Audit), Report of the Comptroller and Auditor General of India on Storage Management and Movement of Food grains in Food Corporation of India, for the year ended March 2012.

4.                  Food Corporation of India Website - http://www.fci.gov.in/