Indian logistics cost is thrice that of China

Indian logistics cost is thrice that of China

Indian Shipping Minister Nitin Gadkari said the government plans to spend roughly Rs. 70,000 crore (approximately $ 10.7 billion) on upgrades for major public ports under the ‘Sagar Mala’ project over the next five years. Our logistics cost is thrice that of China. If we want to compete in the global market, logistics costs need to be reduced. Sagar Mala will address all these issues by developing ports and waterways in the country, Gadkari said in New Delhi, after a maritime stakeholder meeting to review the program’s progress. 

The minister said the Sagar Mala grogram intends to focus on four key areas: port modernisation, port connectivity improvement, port led industrial development and coastal community development. Gadkari said as part of the port modernisation scheme, the shipping ministry awarded 14 concession contracts in the current fiscal year totalling Rs. 8,714 crore and adding an estimated capacity of 33.15 million tons a year. 

The ministry is also looking to award 30 new port development projects during the year, involving an investment of Rs. 14,226 crore and additional capacity of 162.2 million tons per year. We have identified 104 port efficiency improvement initiatives based on the report of an international consultant. The projects would be taken up in a phased manner, he said.

Cargo losses due to theft exceeds $ 55 billion

BSI’s 2015 Global Supply Chain Intelligence Report identified $ 22.6 billion worth of losses due to cargo theft in 2015 and $ 33 billion impact from last year’s top five natural disasters alone, while also noting a number of cross-border issues that threatened supply chains across the world. In addition to the damages caused by cargo theft, it highlighted an increased number of terrorism incidents contributed to billions of dollars in losses to global shipping companies; an influx of migrants in Europe that harmed supply chain integrity across the continent; economic downturns in Argentina, Brazil and China and issues of political transparency that drove social unrest in Africa and Central America. 

Extreme weather events, including many attributed to the El Nino phenomenon, caused supply chain disruptions and threatened business continuity in multiple regions. There were also several industries that were plagued by poor enforcement of labour regulations, allowing for significant rates of child or forced labour in Argentina and India, among other nations BSI noted. It said nearly $ 23 billion was lost due to cargo theft worldwide in 2015 from a variety of supply chain threats, predominantly driven by security concerns. 

South Africa has seen a 30% increase in cargo truck hijackings over the last year, with thieves using high levels of violence and switching from targeting only high value goods to also targeting lower value items. Daring vehicle shipment thefts have become increasingly commonplace in China, with a recent series of in-transit vehicle thefts occurring along the busy G45 highway. More sophisticated attacks were observed in India throughout 2015, where criminal gangs masterminded new techniques to steal goods without breaking customers seals in order to avoid detection, a major risk for companies participating in international supply chain security programs.

Asia-Europe April rate hike fails

Attempts by carriers to implement 1 April general rate increases (GRIs) have met with only limited success, with average spot prices between China and Northern Europe rising just $ 92 to $ 339 per TEU, according to the Shanghai Containerised Freight Index, despite carriers’ hopes for GRIs ranging from $ 400 to $ 800 per TEU. This was on the back of a $ 42 per TEU increase the previous week in the lead up to the GRIs. For Asia-Mediterranean carriers, the news was slightly better, as freight rates on the SCFI climbed 104.4%, or $ 259 to $ 507 per TEU, but way short of their expectations for increases of between $ 500 and $ 800 per TEU. 

The partial success of GRIs on the Asia-Europe trade was repeated on the transpacific, where freight rates to the US West Coast from Asia climbed by just $ 174 to $ 922 per FEU, while those to the US East Coast could only muster a $ 136 increase over last week to $ 1,787 per FEU. 

Box carrier margins sink

A survey of the 16 main carriers that have published full year financial results for 2015 shows that, in spite of challenging market conditions, half of the shipping lines recorded operating profits last year but average operating margin was only 0.3%. Analysis by Alphaliner found that despite positive earnings in the first half of the year, results deteriorated during the year, with many lines falling into the red during the final quarter. While the fall in bunker prices initially boosted the carriers’ financial performance, this effect was eroded rapidly when lines forcibly passed all these cost savings on to shippers through lower freight rates. 

In the second half of 2015, weak cargo volume growth and muted peak season demand drove carriers to slash freight rates to non-compensatory levels. Freight rates in early 2016 hit historic lows, with the China Containerised Freight Index 30% lower during the first quarter of 2016 than it was in the corresponding quarter last year. Among the carriers that reported positive operating results, four continued to outperform the rest of the market: namely Wan Hai, Maersk, CMA CGM and OOCL. 

Since 2010, these four shipping lines have consistently posted core earning margins that clocked in at about six percentage points above industry average. The differing scale of these lines, Maersk’s revenues were $ 23.7 billion, while Wan Hai’s were $ 2 billion, indicated that size alone did not explain performance. At the other end of the spectrum, several Asian carriers have continued to post dismal results. CSCL and Cosco Container Lines both suffered from weak operating results, $ 335 million and $ 227 million respectively and were propped up largely by government subsidies for scrapping older vessels, Alphaliner said.

Global box trade forecast to grow 4.1% in 2016

Following a disappointing year for global containerised trade last year when growth fell to its lowest level since 2009, the latest estimates from analysts is for a 4.1% increase in box volumes for 2016, although this is subject to a number of downside risks in the world economy. In its latest shipping review and outlook, Clarksons Research says that it expects container traffic to increase from 175.4 million TEU to 182.5 million TEU in 2016, with fragmented growth anticipated on both the mainline and non-mainline trades. 

On the head-haul Asia-Europe trade following the negative impact of inventory level adjustments, weak European import demand and reduced Russian imports last year, in which volumes fell by an estimated 3.7%, trade growth on the route is projected to return to positive territory in 2016. Clarksons says that it expects peak leg Asia-Europe traffic to climb 3.8% to 15.4 million TEU this year, but growth on the route will once again be subject to the fate and indeed weakness of European economies. 

Westbound transpacific trade is also expected to rebound in 2016, with volume growth of 1.4% projected for the 12 month period, having fallen by 3.4% in 2015. In the opposite direction trade growth is expected to slow from the 6% recorded last year but will remain healthy at around 4.6%. Growth in intra-Asia traffic meanwhile is anticipated to accelerate to 4.4% in 2016 against the previous year, when trade grew 3.1%, representing its slowest pace since 2009, as turbulence in the Chinese economy and the impact of this trend upon other part of Asia took hold. 

(The writer a Maritime Economist is a Chartered Fellow (Logistics Transport), Chartered Shipbroker (UK), Chartered Marketer (UK) and a University of Oxford Business Alumni. He is also a Fellow of NORAD/JICA and Harvard Business School (EEP).)