Bernard Soh
managing director,
OOCL (India) Pte. Ltd.
Of the many ocean carriers and logistics companies increasing their stake in India, Hong Kong-based OOCL is a major player. Heading their operations in the subcontinent, Soh has spent five years in Mumbai, a perfect vantage point for the renaissance that's underway. Namaste recently spoke with Soh about Customs issues, competition for the state-run freight rail operator and port development in India.
Namaste: From what I hear from shippers I’ve spoken with in India, Customs is a bit of a nightmare, with long delays for clearance and inconsistent policies. Is this something OOCL finds, and could you provide an example or two?
Soh: Indian customs can indeed be challenging. The Indian Customs Act of 1962 is almost a half-century old, which means it is rather complicated and can be easily misinterpreted. One example is that Customs issued a penalty to lines for cargo short landing, even though it is CY/CY (container yard to container yard, or 'house to house'), shipper load and count. Importers also frequently face difficulties because of inconsistent definitions, which can result in long delays and unsolicited costs. The appeal procedure takes time and is costly.
Namaste: Could you comment on the difficulties of providing logistics services between different states in India (in other words, distributing into a market in a different state from where consolidation and warehousing take place)? I’m hearing that distribution is inefficient because differences in duties between states require that retailers locate distribution centers in every individual state they sell in. Is this problematic for logistics providers like OOCL?
Soh: Central Excise and interstate octroi (taxes) are confusing and they differ from state to state, down to city level. Interstate taxes can be as high as 12.5 percent. Domestic distribution is fragmented and complicated by poor infrastructure, which results in high distribution costs. Most retailers choose to establish their presence at the tier one cities before expanding towards tier two and three. It is estimated that India's domestic costs, for similar comparison against a developed country, is 35 percent against 10 percent for landed costs. Therefore, there is room for efficiency and cost reduction for both retailers and service providers. As a logistics provider, we view it as a challenge to understand and work with our customers for customized solutions.
Namaste: How does OOCL handle the road transportation piece of logistics in India, as the trucking industry here seems remarkably fragmented?
Soh: Rail is by far the fastest and most economical mode for moving large parcels. However, we do engage a few interstate truckers for transportation, both bonded and non-bonded, to serve our customers. Our knowledge of the industry helps inland transportation even though it is fragmented. An example is to deal with truck brokers, who act as a conduit for small truck owners having one to three trucks under their control, to optimize laden movement. They usually have quite a large network and take advantage of cabotage and empty legs for moving goods.
Namaste: What is the state of multimodal transportation in the country? I know that private freight rail services have gotten underway in the last year, but is there enough capacity and options to make it a viable choice right now? And if so, for what products?
Soh: Some 16 licenses have been issued by the Ministry of Railways for private operators. However, participation is limited to the investment in rakes for container carriage, while engines and the right of use of the tracks are still controlled by the ministry. Eight operators have already deployed their own rakes and started private movements on selected corridors.
Major bottlenecks remain on the tracks, and there is high concentration of traffic along major gateways, such as Nhava Sheva to and from New Delhi, which is operating at above the design capacity. Theoretically, Nhava Sheva can handle 20 to 22 trains per day and it is currently handling 16 to 18 rakes a day, with a backlog of two to three days in the terminal.
Private operators have the flexibility to develop products with shippers and lines and divert traffic to other gateway ports whenever it is commercially viable. The domestic multimodal landscape will certainly change in the near future, and cargo may divert to other gateway ports with better connectivity. Innovative ideas, like moving laden to Mumbai via Mundra and using dedicated freight corridors supported by bonded facilities, may become an option in the near future as there is no port capacity expansion in sight at Nhava Sheva in the next three to four years.
Namaste: Concor (the state-run freight rail company), from what I understand, still controls the vast majority of rail container freight. How effectively are they operating and does OOCL have a good relationship with Concor? Alternatively, is it possible right now to run multimodal operations without using Concor and just using the private operators?
Soh: Concor was and will continue to dominate the domestic landscape, at least in the near term. We do have a very good relationship with Concor as more then 95 percent of current containers on rail are still carried by Concor. They have the most comprehensive coverage of (inland container depots) in India all the way to Nepal. As a general guide, Concor will not move a rake unless there is sufficient utilization (1 rake can carry 90 TEUs) or there is return cargo.
Therefore, frequency and transit to and from smaller locations is unpredictable at times. It is not possible to run multimodal operations without Concor today, as there is no economy of scale except for the National Capital Region in and around New Delhi and a few other ICDs. In addition, the modal concession agreement stipulates that operators must have their own rail side facilities, so quite a few are under construction or working with common user facilities.
Namaste: The development of inland container depots is considered a huge piece of the puzzle for upgrading container movement in the country. How efficiently are the current ICDs operating and what regions need further development of ICDs? Does OOCL have its own ICDs or is it considering developing its own?
Soh: Private players will take some time and most are focusing on the routes between Nhava Sheva/Mundra to and from the NCR region. As part of the modal concession agreement, private operators must have their own or leased inland container depots with rail sidings to deploy a service. As a result, ICDs are mushrooming in and around the North India region, which is the busiest corridor in the proposed industrial belt.
A few other operators also ventured into smaller locations like Bangalore and Ludhiana (north of Delhi in Punjab) with limited frequency. Concor has built up a comprehensive network of facilities, being a state-run monopoly across India. This dominant position will not change — at least in the short term, in my personal opinion — until consolidation takes place among the private players to compete with Concor. The changing landscape is likely to speed up consolidation. We are evaluating the future possibility of operating or owning an ICD.
Namaste: For those new to the India market, what should they expect when it comes to transit times? How do transit times from ports to ICDs, then ICDs to warehouses, compare to India’s competitors?
Soh: For those who wish to enter the India market, it is essential to understand where their targeted market is and what connectivity and options are available before designing a supply chain to meet their needs. They should deal with international logistics companies or reputable local partners. It is prudent to be conservative over any commitments on transit times and costing whenever a few layers of operators are involved. Infrastructure bottleneck, port congestion and bureaucracy may result in cost overrun.
Namaste: Moving to ports, how concerned is OOCL, from a liner perspective, about capacity constraints in Indian ports? From OOCL’s perspective, what can be done to A) improve current operations in the country’s ports, and B) to improve capacity going forward?
Soh: From a liner perspective, capacity constraints in India ports (especially Nhava Sheva) and uneven distribution due to connectivity are major concerns and constraints for the growth of India's exports and imports. Nhava Sheva is the major gateway port of India, handling 60 percent of the total (container volume) with expected growth of 15 percent to 18 percent annually. All three terminals at Nhava Sheva are operating at 100 percent above their designed capacity and container yards are severely congested.
Average waiting time for a berth is 12 hours at Nhava Sheva and any delays in arrival could result in endless waiting. Chennai and Kolkata are also facing similar congestion due to inadequate capacity. This has a profound impact on lines as it results in costs escalation with the high chartering costs.
In my opinion, the following could be done:
' Port authorities should take the lead to improve hinterland connectivity and cost efficiency by using Chennai and Vizag as gateways for westbound cargo to and from the Far East.
' Set up inter-ministerial committees to remove bureaucracy to fast forward container terminal projects.
' Provide a master blueprint to resolve landside infrastructure constraints.
Namaste: Which services is OOCL finding to be the most successful in India, and what potential trades are most likely to become successful?
Soh: From India, our CIX (China India Express) is the most successful. The China/India trade is the most promising so far. China has overtaken the U.S. as India's No. 1 trading partner in 2007 and double-digit growth is expected to continue. The CIX service operates five 2,400- to 2,900-TEU vessels, providing customer with direct, fast and reliable service between China and India. CIX also plays a significant role in providing feeder services between Singapore and India for other Asian markets.