Sagarmala project a game-changer? Low tide for coastal shipping

Even as Pepsico tests India's river routes, Hyundai is rethinking its plans

Earlier this month, Pepsico became the first private company to use the country's inland waterways when a ship carrying products from its plant in Kolkata set off for Varanasi along the Ganga river.
 

This marked a significant milestone for the government's ambitious Sagarmala scheme to improve the country's logistics and shift the burden of moving cargo from the clogged road and rail networks.    

Shifting to water-based transport could be a game-changer for companies because it is estimated that it can reduce the cost of transportation by nearly half and also drastically cut greenhouse gas emissions from vehicles.

The cost of transportation through waterways works out to 25-30 paise per km/tonne, whereas via rail it is Rs 1-1.2 per km/ tonne and by road Rs 1 per km per tonne.

Yet bulk of the trade via the coastal route currently comprises raw materials such as coal and cement. For manufacturers, moving cargo via the sea continues to be fraught with challenges.

This was well exemplified by Hyundai, the country's second largest car manufacturer, when it decided last week to temporarily stop transporting goods via the sea after conducting trial runs as it didn't find it to be expedient in terms of cost and time saving.
 

Recently, Container Corporation of India, too, scrapped a tender to hire container ships to start coastal shipping business after the lowest bidder pulled out of the bid.

The government has invested nearly Rs 12 trillion to develop 12 coastal economic regions as part of the Sagarmala project, but its impact on coastal shipping is yet to be seen. This, in part, is because the project has concentrated solely on building modern infrastructure, while trade facilitation initiatives including encouragement by way of tax relief for coastal vessel operators have been neglected.

There is no doubt that water-based cargo transport has advantages for business as well as the environment. It can drastically reduce the cost of logistics and decongest the roads, thus reducing harmful carbon emissions from vehicular traffic.

Typically, a coastal vessel of around 4000 DWT (deadweight tonnage) can provide the carrying capacity of about 200 trucks, each carrying five cars. Ballpark estimates show diversion of about five per cent of cargo to coastal shipping could save around Rs 230 billion and result in six per cent reduction in emission of harmful chemicals and pollutants.

The current lack of enthusiasm, the industry says, is because coastal shipping is not lucrative enough in its present model to attract competitive players, even though India’s contiguous coastline of 7,500 km, with 11 major and 168 minor ports, and strategic location along major shipping routes, make it naturally suitable for water transport.

Experts say holding the sector back are procedural complexities and the absence of players providing end-to-end solutions, such as a single player providing point-to-point service from pick-up at origin factory to delivery at the final destination. 

They say unless coastal movement offers two-way freight (even if the return loads are partial), cost-effectiveness will be a challenge and may not attract large-scale investments. 

"Hyundai started sending cars through coastal shipping in 2016, but high port cost and transit time (from the factory to dealers) make it unviable," says V Anand, senior general manager and head of sales logistics at Hyundai Motor India.

Typically, it takes six days for Hyundai to transport cars from Chennai to Gujarat by road, but through water, it takes up to 12 days, he says. Similarly, it takes 7-8 days by road to the National Capital Region, whereas through sea it takes 18-21 days.

In the last 10 months, Anand says, Hyundai has shipped around 12,000 cars and another 3,000 cars have been shipped by other manufacturers to northern markets, but in return only 2,500 cars have come so far.

Currently, poor first and last mile connectivity is one of the big reasons for longer turnaround time by sea. Multiple handling, loading and unloading of vehicles from ship and trucks add another layer of concern as it increases the risk of goods being damaged, say manufacturers.

At the same time, waterways are geared more towards larger manufacturers. Ro-Ro ships, which are designed to carry wheeled cargo, have a capacity of 3,000 to 5,000 cars. While this volume is easy to generate for large manufacturers at one go, smaller manufacturers struggle to fill this capacity.

One way out of this problem is to pool volume and book ships jointly but such an idea is yet to pick up steam.

Mandeep Singh Tiwana, managing director, LFonds India, a commercial ship operator, says,  port tariff, non-availability of return cargoes and finance ( for investment on ships, working capital) are major challenges for shipping lines. “In the Sagarmala project, focus is all about developing infrastructure, but nothing for the liners who use the infrastructure,” he says.

The government has now roped in the Asian Development Bank to suggest remedies to boost coastal shipping and its report is expected to be submitted in December.    

"Multiple handling through water transport increases the cost. So we are looking at ways to create seamless connectivity between the consumer and the producer so that manufacturers don't face problems in moving goods through the coastal route,” Kailash K Aggarwal, joint secretary at the Ministry of Shipping, told reporters during a recent visit to Chennai.