INTEGRATED TRANSPORT MODEL FOR DOMESTIC LCL SHIPMENTS

1. Introduction

One of the challenges Indian coastal shipping faces is the non-availability of return cargo. Cargo consolidation or LCL (Less than Container Load) shipments could be a viable and economic solution for the cargo flow imbalance currently plaguing the sector. Consolidation is the process of combining various small parcels into one unit in order to realize lower transportation rates. This system is effectively utilized by the customers in the international container shipping sector.

The domestic consolidated cargo sector is currently been monopolized by the road traffic.   A combination network of ‘Road-Rail-Coastal Shipping-Road’ could be effectively used to provide an economic and efficient door-to-door transportation solution for domestic LCL traffic. Intermodal logistics has tremendous potential to increase supply chain efficiencies of the country.

2. Suggested procedure for domestic LCL shipment

At the place of origin (eg.Delhi ), the individual parcels of cargo could be collected from the customers by truck/van and brought to a CFS / warehouse for consolidation. The stuffed containers could then move to the gateway port (eg, Mundra, Pipavav) by way of rail /or road and to be shifted to the coastal ship for the long leg haul to the destination port (eg, Cochin ,Tuticorin) . The process could be reversed at the port of destination and at the final place of delivery (eg , Kollam , Thirunelveli). 

 

Fig:1

Integrated Transport Model for LCL Containers

However, an expected bottle neck in this process would be the first/last mile connectivity and consolidation /break bulk of cargo.  And the suggested solution to this issue is a logistics system based on milk-run concept which is explained here under.

2.1  Model for First and Last Mile Connectivity  

A Milk Run in logistics is a round trip that facilitates both distribution and collection at the same time. By making frequent stops, a truck can pick up many types of materials originating from several suppliers and drop off goods destined for various customers, all in the same run. This allows direct pick-ups and drop-offs to be planned more frequently, without having to wait for full truckloads.   This method is successfully implemented in many industries for accelerating the flow of products between various production processes by planning truck routes in such a way that they collect and deliver materials for many different processes at once.  

Fig:2 

The Milk Run Concept in Logistics

 

2.2 Procedure for Milk-Run

The procedure for this concept in logistics consists of fixing

-          Proper route and schedule

-          weight and volume of parcels collected/distributed at both ends

-          delivery frequency, time slots, maximum number of customers included etc.

While setting the procedure, priorities must be given to the customer needs rather than the operator’s comfort. To begin with, the Multimodal Transport Operators (MTO) could work out a joint operation with the locally available distributers such as courier services, newspaper distributors, packaged food distributers etc for the collection and distribution of parcels. This could be advantageous for both the parties.  Once sufficient volume is build up, the MTO can set up his own system.

For the visibility and traceability of the supply chain a one stop-shop, such as a single electronic window, which integrates the administrative processes, timetables and invoices etc covering the whole intermodal chain, should be established to make it more customer friendly.

3. Suggested Pilot Study

Kerala, being a consumer state, depends on other states for meeting with most of its day to day requirements for all kinds of commodities. These commodities are presently moved by road.  A pilot study could be carried out by networking the existing non- major ports which are fairly connected with road, rail and inland waterways.

A short summary of goods moved in to/from Kerala is given here under.

a. Food Items : Kerala consumes large volumes of  rice , wheat, atta, biscuits, chocolates, ground nuts, soft drinks, edible oil, mineral water, liquor and beer, branded food items, milk powder etc and at present it is being moved by road. There is scope for exploring the possibility of these commodities being moved by coastal shipping in LCL mode.

b. White Goods: These products include items such as refrigerators, computers, plastic goods, bicycles, TV/VCD / DVD players, fancy goods, gifts articles, glassware, kitchen products, motor vehicles, telephone, washing machines and related spares / equipment. These goods get moved mainly from Delhi, Noida / Gurgaon, NCR, Maharashtra, Gujarat and Tamilnadu region and are currently being moved by road.

c. Vegetable and Fruits: Vegetables like potato, onion, garlic are mainly procured from Maharashtra. Approximately Kerala consumes onion, potato and garlic together around 1 lakh tons per day. These are also moved by road currently.

d. Industrial Goods: Goods like spares, parts for automobiles, chemicals, polymers and acids, packing cases, bags, etc. are mainly procured from Tamil Nadu, Karnataka and Gujarat and is getting moved by road.

e. Other General Goods: These goods include paints, medicines, polythene, pipes and fittings, books, tins, cables, generators, glass surgical equipment etc are procured from Tamil Nadu, Karnataka, Maharashtra, Goa, and Gujarat. These are being moved by road.

f. Spices, Cashew, Coconut, Coir, And Natural Rubber:  These are the products moving out of Kerala to other states and are also moved mainly by road at present.These products have major domestic markets in Tamil Nadu, Andhra Pradesh, West Bengal, Delhi and NCR. These are also potential cargo for the LCL business.

As per estimates, around 20,000 trucks bring goods into and another 2000 are carrying goods from Kerala every day.  These commodities which are presently moved by road could be consolidated and stuffed in containers and moved by coastal shipping wherever possible.  

4.  Create awareness to promote mode shift

There is absolutely no doubt that an automatic shift from road to water transport system will not be possible. Generally, the shippers’ transport mode choice depends mainly on benefits of transport services such as cost, frequency, reliability, flexibility etc . The reasons for shippers to switch modes/operations have not been effectively demonstrated or communicated to them.  Coastal shipping could be considered by shippers as a viable option only if it is proven through high-visibility demonstration projects and studies.

Awareness needs to be created among users on the benefits of coastal shipping as well as integrated multi-modal service models.  Customer Support centres should be opened at all ports, ICD/CFS and at economic clusters jointly by state maritime boards / IWAI/ INSA etc to create awareness among the shipping community and also to clarify their doubts and support them with required information.

Awareness programmes should be organised to promote coastal shipping sector and also to familiarize with the latest customs /port procedures with an overall objective of promoting intermodal solutions. The facilities of local Steamer Agents and Custom House Agents’ Associations should be utilised for organizing periodical trainings /conferences and troubleshooting workshops. Also, success stories in this sector should be advertised. 

Intermodal logistics has tremendous potential to increase supply chain efficiencies of the country. The right policy incentives from the government and business interests from the private sector should work hand in hand to spur growth in this sector. The Central and State Governments’ innovative initiatives to promote coastal shipping also expected to promote inter-modality into a competitive and economically viable reality.

 

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“Cabotage” – What does it mean ?

  

The word “cabotage” is supposed to be evolved from the French word “ Caboter” meaning  ‘sail along a coast’.  As per records the word cabotage has been in use  related to coastal trade from mid-19^th century onwards. In a coastal transport system, the travel of a passenger or cargo begins and ends in the same country.

Few popular definitions of cabotage are as under:

-         the English language dictionary defines cabotage as ‘transport of passengers and goods within the same national territory’.

-       Another definition is that ‘ the right to operate sea, air, or other transport services within a particular territory.

-         Or, ‘restrictions  of the operation of sea air or other transport services within or into a particular country to that country’s own transport services .

In simple words, “Cabotage”  is a principle regulating shipping activities, which takes place within a country's waters, and recognises that a country is entitled to restrict the activities of foreign vessels operating within its waters. This principle has an important bearing on a country’s coastal shipping trade and is expected to protect and promote the domestic shipping sector of the country.

Most of the maritime nations placed restrictions on movement of cargo or passengers along coastal ports of their country by their own flag vessels. Countries like USA practices an absolute cabotage (Jones Act) ,  which requires  all goods shipped among US sea ports be carried by US built, flagged, operated and crewed vessels. Where as many other nations, including India,  relaxed the cabotage principle to promote the EXIM trade.

In India the Cabotage, which is provisioned in section 406 & 407 part XIV of Merchant Shipping Act,1958, is not absolute . According to this law, only Indian flag vessels can carry cargo from one Indian port to another Indian port . However , permission can be granted to foreign flag vessels to carry cargo between Indian ports , in case Indian flag ships are not available. The notification of Govt of India with regard to cabotage relaxation for transhipment port is attached here under:

Hub – and- Spoke Transshipment Model

Hub and Spoke is a system of distribution of goods, passengers and data, in which  the items to be distributed are routed in to / out  through a center point. This system is widely used in transportation (air & sea) and also in supply chains. The Hub & spoke model is named for the bicycle wheel, which has a stable centre part connecting to multiple spokes which holds the wheel.

In maritime industry the hub and spoke model is used for transhipment of containers. Transhipment is a process of moving containers from one ship to another keeping a port as a temporary buffer storage area. So, the hub and spoke maritime network has a  fixed centre point called HUB (transhipment) PORT , which connects short distance cargo ports called feeder ports by spokes namely feeder ships. The hub port generally will be geographically a central location, which has an easy access to the region. Colombo is a popular hub port for Indian Sub-Continent region.

Hub & Spoke Transshipment Port - Colombo 

The Shipping lines chose hub ports in strategic regions to achieve economy of scale and to optimise services.

How shipping lines do chose hub ports? The choice depends on the line’s overall logistics strategy and the seaport’s geographical, strategical, economical, physical, political, environmental and inter-modal advantages.  

The hub and spoke system also is used in intersection transhipments where in the hub port act as a point for changing containers from one long distance ship to another long distance one , continent to continent transhipments. Example of Rotterdam port is given below.

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 rakes – Rebooking 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/