P3 – The New Mega-Alliance !!!!!

The announcement of setting up of The Mega P3 Alliance  by  Maersk, MSC & CMA CGM literally stirred up the shipping community as a whole. The P3 network is expected to commence from the 2^nd quarter of 2014. Assuming regulatory hurdles are overcome, the P3 network will cover the three trade lanes of Asia-Europe, transpacific and transatlantic, using the existing capacities of each member.  The network is estimated to have a market share of about 42%on the Asia-Europe trade, 24 % on the transpacific and 40% on the transatlantic trade.

An independent operating centre will be set up in London to manage the P3 network, responsible for ensuring that each line's schedule integrity is maintained at a high level. The centre will be headed by former Maersk Trade Manager Lars Michael Jensen. The working style of MSC is different from Maersk & CMACGM and it is to be seen how the mega carriers perform together.

The P3 Alliance will first deploy 255 vessels with a capacity of 2.6 million TEU, operating across 29 separate loops.  Maersk will contribute 42% of the capacity,  MSC with 34%, and CMA CGM with 24%. Vessels provided by the lines will continue to be owned and chartered individually by the carriers. Also, they would be allowed to trim down sailings during the low seasons  and  might add extra loaders at times of high demand.

 

 

 

As per the reports , the P3 Network partners have still not agreed on which port will serve as the key hub in Southeast Asia . According to analysts SeaIntel, choosing a key port in Southeast Asia is very important and one of the major challenges for Alliance, as cargo from countries such as Indonesia, the Philippines, Vietnam, and Thailand is distributed further through the three key ports currently used by each carrier. For Maersk Line this port is Tanjung Pelepas and for CMA CGM it's Port Kelang, also in Malaysia, while MSC is using Singapore.

 The member lines will continue to negotiate with customers separately and also set individual freight rates. Shippers can book container with any of the three carriers, and a ship from one of them will move the goods port to port . "We believe that customer experience is more than just sailing schedules, which is the only thing this alliance shares. Areas such as sales, customer service, IT service, physical conditions, commitments, and prices are some of the many other important criteria that come into play when customers make choices. We will continue to differentiate our products on the basis of the these criteria. On Asia-Europe as well as other routes around the world we'll share our infrastructure with partners while continuing to offer a differentiated Maersk service to our customers," says Vincent Clerc of Maersk Line.

The announcement of the P3 Alliance has been both applauded as the solution to the over-capacity   situation in the global ocean liner trade and despised as a monopoly cartel devised by the world's           three largest container carriers. In reality, it is somewhere in between those two extremes. However, P3 alliance hopes to reverse the downward financial trend by deploying most suitable vessels , avoiding duplicate trips and cutting fuel costs.

Coastal Shipping is a need rather than a desire!!

India with an expansive coastline of about 7517km,  studded with 12 major and 185 Non-Major (Minor / Intermediate) ports ,  should be having  a vibrant and viable shipping industry. The maritime industry should be the cornerstone of India’s transport industry given that more than 95% of India’s  EXIM trade by volume and 77% by value, moves by sea.

 

In recent years coastal shipping have increasingly become the focus of attention in India. Coastal movement of cargo by sea in the country has grown at a CAGR of 3.3% during the period of 2001-10, while overseas cargo movement has registered a CAGR of nearly 12% during the same period. However, at present country’s domestic transport demand is being mainly met by the road (54.4%)and rail (34.4%) transport systems. Coastal shipping carries only 6.84% of domestic freight( Delotte report , 2011). In fact, it should have been the natural transport choice for domestic supply chain logistics!

 

Coastal shipping has many advantages, such as better fuel efficiency, lower unit transportation cost, eco-friendly, free of congestion, etc. over competing modes of transportation such as road and rail.   However the economic viability of a transport mode depends mainly on the actual trade size, distances involved (Origin – Destination) and competitive forces. Unlike road transport, coastal shipping can only be a link in a multimodal transport chain. Hence for coastal shipping to be viable, the multimodal chain as a whole, including the land legs, should be efficient and cost effective. 

 

 

In developed countries, coastal shipping forms a vital link in the overall transportation infrastructure. European Union perceives coastal shipping as an integral part of its transport policy to develop efficient, multi-modal transport system for meeting existing and future business requirements, achieve modal balance, reduce pollution, congestions, accidents etc. Presently in European Union, 43% of cargo is handled by coastal shipping.

 

In India, though seaborne trade has been growing at a rate of over 11% in the last 10 years, the Indian tonnage is not growing in pace with the fast growing maritime trade. As on 31st March 2011, India had 708 vessels under coastal trade and 347 vessels under overseas trade totalling to a fleet size of 1055 ships (source INSA report) with a 10.36 million gross tonnage. In terms of fleet size, the Indian shipping industry makes only a marginal share of just about 1% of the global fleet.

 

Though coastal vessel number increased from 244 in 2001 to 708 in 2011(as on 01.03.2011, source INSA report), actual number of cargo carrying fleet is very small. The major percentage of fleet comprises of passenger – cum – cargo vessels, passenger vessels, dredgers etc. As per INSA report, around 52%of the Indian shipping fleet are over 20 years of age and overdue for replacement.

 

Government of India has envisaged an ambitious plan to grow the Indian shipping fleet from 10 million GT to 40 million GT by the year 2020. Despite the global downturn, Indian domestic trade is expected to remain strong and coastal shipping would retain its strong potential. It is to be noted that the maritime states with developed infrastructure and favourable environment for business growth, are likely to have larger share in cargo traffic with high pace of growth.

 

Among the maritime States in India,  Gujarat (29%) and Maharashtra (19%) leads in growth of coastal cargo traffic at ports. With the implementation of the Delhi-Mumbai Industrial corridor by the next decade, the maritime environment in the two states will remain bullish. Further, the four states namely, Gujarat, Maharashtra, Andhra Pradesh and Tamil Nadu, clubbed together have more than 75% share of coastal cargo. These states have been forerunners in creation of infrastructure and attracting investments. Also, these states are blessed with thriving industrial hinterlands.

   

The challenges facing the coastal shipping industry may be significant, but a number of opportunities are also emerging.  Booming automobile industry, increasing industrialization, growing project cargo moves for power and construction sector , port development and retail trade reforms are expected to give a thrust to the coastal traffic in India . Following factors are expected to be the growth drivers which would contribute to the sustained growth of coastal shipping in India.

 

ü  Population growth and thereby consumption growth

ü  Growth of economy and trade

ü  Increase in transportation demand thereby requiring the need to explore alternative transportation modes

ü  Increased emphasis on clean development

ü  Fuel scarcity forcing to utilize fuel efficiently

ü  Increase in containerization

ü  Huge investments in maritime infrastructure

 

Shipping connectivity is an important determinant of trade competence. The time has now come for policy makers to rethink their development philosophy to focus on non-major ports, transhipment hubs, inland ports, container freight stations, transport corridors, IWT as well as coastal shipping. A relatively modest investment in coastal sea routes with appropriate policy changes would bring substantial benefits by reducing burden on present transportation system, traffic congestion and pollution.

 

A number of prominent committees have made their suggestions and recommendations to the Ministry of Shipping (Government of India) to revive the fortunes of coastal shipping. These recommendations are still gathering dust in the corridors of the Shipping Ministry. These are compelling times and efforts have to be made to divert cargo from road and rail transport to coastal shipping as it is the most energy efficient and economically viable mode of transportation.

 

The economic progress of India depends on the value addition of its trade, commerce and industry. A comprehensive and strategic transportation plan, national and intermodal in its scope, is the need of the hour.  Therefore, coastal shipping should be put on fast-track development, as it would not only lead to reduced cost of transportation but also reduced social and environmental costs.  

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Freight Forwarders & NVOCs – What is the difference?

Freight Forwarders act as agents of merchants/shippers. Many forwarders act as consolidators too, ie, combining small lots of cargo into big parcels/full container loads. Generally they issue forwarder B/Ls (House B/Ls) to each shipper. Under this B/L they accept responsibility as the agent of the shipper only. Incase of an issue, the holder of the B/L will have to take it up with the actual carrier.
 

NVOCCs (Non Vessel Operating Common/Container Carrier) –  When a forwarder acts as a carrier he is termed as a NVOCC. Though NVOCC is not the actual ship operator, his role is same as that of a principal and accepts the carrier’s responsibilities.
 

Both freight forwarders and NVOCCs are important customers of the lines. Their profit is the difference of freight rate received from shipping line and that charged to the shipper, plus the margins from pre/on carriage, documentation and other value added services.

Through Bill of Lading & Combined Transport Bill of Lading – Are they same ??

No, there is a significant difference between the Through B/L and Combined Transport B/L.

Through B/L -  Under a Through B/L the ocean carrier acts only as an agent for the shipper in arranging the pre and on carriage. The pre/ on carrier may be a feeder vessel or land transport (road/rail). The  ocean carrier will arrange the pre/on carriage and will charge merchant for the service. But, will not have any direct liability for any loss or damage to the cargo during those part (pre/on carriage) of the journey. The responsibility of the carrier is limited.  

Combined Transport B/L – Here the carrier accepts liability from beginning to end. This B/L is the requirement of container trade to facilitate door-to-door movement. In the case of a door-to-door movement of containers  there is carrier haulage at both ends, which combines various modes of transport, and it is logical that the carrier accepts liability from the shipper’s premises to the consignees’ premises.

New Gen Containers

Here is good news for shipping companies, congestion-hit container freight stations (CFSs), box terminals and the end users. Something interesting is happening in the box shipping world ! These new gen containers hopefully would address many of the current industry problems  and enable unimaginable cost benefits .

 

The Tworty Box

 

Two 20 ft containers that can be linked together to form a single 40 ft unit ! An innovative new ISO container design that allows a unit to be used either as a 40 ft or 20 ft box . It has doors at each end,  the second door opens to the inside and can only be locked from the inside. This door can be fixed to the container ceiling and, with the use of its special bonding elements, another Tworty Box can be joined up, thereby creating a 40 ft unit of full value and standard doors at both ends . According to the developer , Tworty Box  was designed to reduce the cost of repositioning empties caused by imbalances between supply and demand.

 

The first tworty box completed its maiden voyage from Hamburg to Montreal on the containership OOCL Montreal. Two containers joined together as a single unit were stuffed with 20 tonnes of breakbulk cargo, mainly car parts and granulate, for Canadian consignees. 

Also, Tworty Box prototypes have received full International Convention for Safe Containers certification for single and for coupled operation.

 

 Collapsible Plastic Shipping Container – The CargoShell
 

Mr Rene Giesbers, a heating-systems engineer from the Netherlands, has invented a collapsible plastic shipping container named as Cargoshell.
This is made of a fibreglass composite which weighs only three-quarters of a standard container and more importantly, when it is empty, it can be folded down to a quarter of its size. It is now reportedly undergoing tests to see whether it is strong enough to meet the requirements set by the International Organisation for Standardisation (ISO).

 

 

                                   

A collapsible shipping container has its uses.

-       The folding containers could create  more room for full containers on the carriers.

-        The port time of ships could be reduced by bundling together the boxes in groups of four

-       They would also take up less space on land, allowing depots to operate more efficiently.

According to Mr Giesbers, Cargoshell can be collapsed or opened in 30 seconds by a single person using a forklift truck. He has the ambitious aim of having a million Cargoshells plying the seas, rails and roads by 2020.

Summary of recommendations and suggestions formulated by various groups/committees to promote coastal shipping in India

India's coastal shipping has been a problem area for at least the last 3-4 decades. Lokpur Committee 1957 ( Rail Sea coordination committee) was the first to point out the issues , which even exist today. All other groups / committees formed ever since to carry out studies on coastal shipping and its issues repeated the same problems with slight variations.

 

Below given are few  recommendations and suggestions given by about half a dozen of  study groups/committees formulated for the promotion of coastal shipping in India for the past 2 decades. From the literature review it is evident that

1.  All the committees / groups / institutions are of high calibre and repute and the reports are of good quality .
2. High degree of understanding of the difficulties / issues and problems of coastal shipping and reported in detail in their reports.
3. Also, though Government has formally accepted a number of recommendations given by them, adequate implementation did not happen. 

In the Indian context, this sector has a set of very complicated issues for the policy makers to deal with, especially in the rail / road competition area.

 

A. Afzalpurkar Committee (1993) and Pinto Committee (1997)

 

ü  Implementation of cabotage law, which reserves the movement of coastal trade of the country for its own flag vessels

ü  Enactment of a separate law for coastal shipping

ü  Development of specialized wings in financial institutions to fund coastal shipping

ü  Tax concession for fuel and spares

ü  Building a separate cadre of seafarers with qualifications , who are different from those who are operating for ocean-going vessel, to ensure an adequate talent pool for the latter.

ü  The need to make suitable amendments to the Merchant shipping Act or enact separate legislation for Coastal shipping , which have different specifications for coastal vessels as well as lower manning scales

ü  The need to design vessels such as RORO and silo vessels, which are suitable for transporting cement and food grains, to facilitate the movement of trucks across long distances.

B. Kakkar Committee (1999)

ü  Customs duty excemption for bunkers/fuel and spare parts

ü  Exclusive port area and hinterland connectivity

ü  Lowering of handling costs

ü  Fiscal incentives

ü  According of infrastructure status

ü  Review of coastal shipping legislation

ü  Cabotage law changes

ü  Development of minor ports

                C. Tenth plan Sub Group (2002)

ü  Establishment of coastal vessel traffic service (CVTS)

ü  Continuation of cabotage law, supported by suitable fiscal and financial incentives

ü  Earmarking of exclusive ports for coastal shipping on Indian coasts

ü  Exclusive berths earmarked for coastal ships at all major ports

ü  Laying down of less stringent construction, survey, load line and safety requirements for coastal vessels

ü  Review of minimum manning scales for coastal vessels, keeping in mind the need to encourage coastal traffic on a commercial basis

ü  Grant of customs duty exemption to ship owners and users at par with ship repair units, to enable them to import spare parts/equipment for coastal vessels

                  D. Tata Communication System Study (2003)

ü  An independent body such as the Tariff Authority of Major Ports to regulate ports

ü  Need for implementing an incentive plan based on budgetary support, linked to the quantum of cargo routed by the railways to sea transport, to be proposed.

ü   Setting up of  a special cell under the Dg of the shipping to guide and monitor the progress of the coastal industry and co-ordinate its activities with external agencies

ü  Need for the central Govt to finance the development of basic infrastructure for the 9 minor ports (Gopalpur, Cudddalore, Vizhinjam, Azhikal, Malpe,Karwar,Ratnagiri, Dharamtar and Magdalla), which would include capital dredging, breakwater, berths, back-up areas and wharves

ü  Setting up of an autonomous body at the state level to ensure that funds are only used for the development of minor ports

ü  Need for iport duty on bunkers and capital equipment and spares required for  vessels to be waived to encourage the growth of coastal shipping.

ü  Demand side incentives: Need for registered multimodal operators and shippers to be allowed  a deduction from their taxable income, based on traffic volumes, if they transport cargo through coastal shipping

ü  Integration of coastal shipping and Inland Water way transport to be promoted at Haldia and Cochin, where basic infrastructure is available, infrastructure to be created at Neendakara and TT shed at Kolkatta for such integration.  

E. Eleventh plan Sub-Group, 2007

ü  Coastal shipping development fund(CSDF)to be established for soft lending for the acquisition of coastal vessels

ü  Centrally sponsored scheme (CSS) proposed for the development of coastal shipping infrastructure.

                      F. ICC report 2010 & Draft Coastal Policy, DG Shipping, 2011

ü  Promoting River-Sea Vessels

ü  Infrastructural facilities

ü  Financial incentives including subsidies

ü  Manning relaxation without compromising on the safety

ü  Cabotage policy support

ü  Declaration of IV limits in different states

ü  Modal shift in cargo from rail and road

ü  Data-base and communication infrastructure

ü  Legal issues

                        G. XII^th five year plan sub-group report, 2011

ü  Winning over road/rail traffic

-       promote multimodal transport

-       Strengthen existing non-major ports along the coast

-       Promote Ro-Ro based coastal traffic

-       Set up dedicated warehouses for coastal cargoes

ü  Waive service tax on coastal/inland sea-freight as well as charter hire of coastal/inland vessels

ü  Exemption on  service tax for ship building

ü  Infrastructure status for coastal shipping under section 80IA of the Income Tax Act

ü  Simplify customs procedures for coastal movement

ü  Giving carbon credit benefits to the shipping companies

ü  Enhancing competitiveness of Indian-flagged ships via-a-vis foreign flagged ships

ü  Waive Duties and VAT on Bunker sales to coastal ships

ü  Promotion of River-Sea vessels

ü  Declaration of Inland Vessel (IV) limits for different states

ü  Manpower issues including manning scales

ü  De-link port tariff for coastal vessels from FG vessels and reducing it further by 30%

ü  Brining Non-Major Ports on par with Major Ports in the matter of extending lower tariffs to coastal shipping

ü  Establishing a Coastal Development Fund for coastal ships

ü  SRU status to individual ships

ü  Exception of customs duty on import of certain categories of vessels (Tugs, pusher crafts, dredgers and floating docks/cranes/production platforms etc)

ü  Cabotage policy support

                        H. Joint report of INSA, CII & Ernst & Young, 2011

ü  Tax incentives

 

Direct – Review of the taxability of capital gains on the sale of qualifying ships and applicability of Minimum Alternate Tax (MAT) on profit on sale of qualifying ships

 -       Review of the taxability of income from funds parked in short-term instruments pending its utilization for the acquisition of new ships.

Indirect – Review of duty on spares and bunker fuels

-       Waiver of customs and excise on marine fuels(IFO& HFHSD) for a period of seven years

-       Conferring the “Declared Goods” status on marine fuels, capping VAT at 4%

 

ü  Infrastructure Support

 

-       Development of several minor and intermediate ports along the Indian coast at regular intervals of 150-200 miles with the following

Ø  Ability to handle vessels with a draft of upto 5m

Ø  Adequate facility for a vessel turn around of 15-18hrs

Ø  Adequate connectivity to roads/highways for efficient first and last mile connectivity

Ø  Reduction of port tariffs applicable to coastal vessels to the bare minimum

Ø  Waiver of wharfage for coastal/domestic cargo

Ø  Investment in improving the first and last mile connectivity to facilitate coastal shipping movement and reduce the effect of double handling

 

ü  Funding Incentives

-       Setting up a fund to finance deserving investment plans

-       Soft loan and interest rate schemes(similar to those for the small and medium enterprise sector) to purchase coastal ships

-       Loan structure and interest rates for coastal ships/river-sea vessels in line with established global norms for ship financing:

Ø  Margin: 10%-15%

Ø  Interest rate : 5% per annum

Ø  Loan tenure : 15 years

-       Relaxation of external commercial borrowing (ECB) guidelines to enable the acquisition of used vessels

 

ü  Regulatory support

 

-       Reviewing outdated provisions; emphasizing the need for a separate coastal shipping directorate and moving ports out of the state list

-       Including various coastal shipping trades in the amendments to the Merchant Shipping Act

-       Integrating river-sea vessels operating within 12 miles of India’s territorial waters outside the UNCTAD, UN and UNCLOS

-       Reviewing the river-sea vessel notification to further reduce operating expenditure to the bare minimum

-       Widening the net of the river-sea vessel notification to bring more classes and sizes of vessels under its purview

-       Extending RSV trading limits to include India’s EEZ

-       Relaxing the minimum technical and manning specifications for coastal vessels

-       Extending access to the insurance schemes of overseas insurers

-       According coastal vessels an “infrastructure status”

-       Setting up a coastal shipping central monitoring centre to monitor all coastal vessels from the perspective of customs ,immigration, health, pollution (including ballast water), safety and security.

-       Introducing accelerated learning and performing systems that will ensure manpower availability for coastal shipping both ashore and on board.