CFS seeing a change in business landscape

As the impact of the downturn has begun to trickle down to the container freight stations (CFS), operators are beginning to see the need to bring in a change in their concept of ‘work’ to pass through the subdued environment conditions. Where traditionally CFSs was considered an extension of a port, more and more operators are now beginning to view them as being more productive and important tools in the global logistics / supply chain industry. This means that modernisation and adhering to global standards of operations is a mandatory requirement.

Though the change in the business landscape is considered a strategic move to keep them from getting in the red, various options are being mulled over by CFS owners on how this can be achieved. Many are focused on providing end-to-end logistics solutions. Some find it is time to come up with outsourcing offers to the EXIM trade by providing various facilities at the CFS as a cheaper option to undertake manufacturing activities. Yet others want to start valued added operations or undertake other such allied activities.

With six container freight stations, Gateway Distriparks Ltd has embarked on providing logistics solutions that fulfil the needs of the international trading community as well as the shipping industry. While most other CFSs are set up with the support of shipping lines, Gateway Distriparks has been an independent operator. Being blessed with a holistic vision and expanding network Gateway East India CFS offers effective and customized services in the ever changing market environment.

“Our focus is now on terminal handling, coastal shipping and air cargo because setting up more CFSs now is out of the question since there is no business in this direction,” informs Capt A.K. Bhattacharjee, vice president (Operations) of the company. “With the present downtrend the only way for a container freight station to stay afloat is to look to re-orienting its services to provide end-to-end solutions. This is the best that CFSs can do now as they are completely, wholly and solely dependent on shipping lines’ volumes.

“In keeping with our policy of providing world-class state-of-the-art logistics solutions, we are seriously mulling over investing heavily into terminal handling and coastal shipping. In order to ensure the success of coastal shipping we are planning to acquire our own vessels and set up the required infrastructure so that we are better able to provide cheaper transport and offer reliable end-to-end solutions to our customers.”

Thomas Varghese, sr. vice president (operations), Seaworld Shipping and Logistics Pvt. Ltd., and co-chairman of Indian Merchants’ Chambers subscribes to a similar approach. He says that consistent performance is the most fundamental need for any service related organization to survive, succeed and grow. “In these times of recession CFS owners will have to consider undertaking value added services for goods passing through their facility,” he says. “They could also consider providing empty container storage and damage repair facility, reefer points, electronic weigh bridges, reefer monitoring, chassis stuffing and de-stuffing, haz-mat co-ordination for dangerous goods monitoring, utility space for service providers having communication facilities and a business centre with modern material, and container handling equipment, etc.

Port officials on the other hand feel that everything is hunky-dory. “In fact more CFSs are required in and around JNPT,” contends Anantha Hambarde, sr. manager (Projects & CFS), JNPT. He points out that outside the JNPT as many as 21 CFSs are in operation or due to be commissioned and another 11 are likely to be set up but appear to have gone slow as a result of the downturn. Without these CFSs the port would suffer severe congestion.

“No doubt, having a CFS inside the port will bring down the cost as is the case with JNPT’s own CFS which was earlier operated by Central Warehousing Corporation and is now run by Speedy Multi-modal. Also the charges offered by this CFS are 50% lower than those offered by other CFSs based outside the port.”

According to sources the CFS belonging to the JN port which is 4 km from the port is being handled by CWC but Speedy Multimodal has taken over operations since a few months ago. They are however, according to these sources unable to manage the CFS, being under the jurisdiction of the Tariff Authority of Major Ports (TAMP). Since TAMP is not allowing them to increase their rates by 100% as recorded in their appeal, they have gone to court against TAMP’s decision.

JNPT in fact, strongly opposes any suggestion to have privately operated CFSs inside the port as large areas will be blocked for the stuffing and destuffing operations and for container stacking. Lay manpower and private vehicles will on the other hand, have to be given access making it not only difficult to keep tabs on such traffic, but also leading to serious breeches in security in the port and to its infrastructure as also to the people operating there.

“Allowing private CFSs to operate will create security problems,” says Mr Hambarde. “JNPT has been designed as a technical-intensive port and is not labour-intensive as are Mumbai and Kolkata ports. We don’t want labour working inside the port. Many other ports such as Mumbai and Chennai port have seen their efficiency going down as a result of labour being allowed inside the port. Chennai has recently decided to have all the CFSs outside the port and have a particular point of delivery for the cargo. Kandla too is undertaking modernisation of its port. The CFSs outside can bring in their private labour but we want to avoid labour becoming part of the port’s liability.”

Cost-wise too a CFS inside the port area could be a better option feels Capt Bhattacharjee. He however confirms that ports such as JNPT do not allow access to port area for setting up CFSs in order to prevent congestion and for security reasons. Besides there are several hassles for the CFS operator, the major ones being that the CFSs inside would be governed by the port and would be allowed to operate on a revenue sharing basis and would also come under the jurisdiction of TAMP.

“But one must not forget that a CFS is an extension of the port,” he states. “It is only when the volume decreases, that such a port would consider allowing parties to open CFSs in the port area. In a port of JNPT’s dimensions, if there were CFSs the large number of vehicles and casual labourers allowed to find employment would add tremendously to the prevalent congestion bringing down the efficiency of the port.”

But Mr Varghese felt that in every case a CFS operating outside the port area is more cost effective. “Operating CFSs from inside the port will be more expensive to the trade even though they will be merely taking away the cargo,” says Mr Varghese. “Several costs including port royalty and complying with TAMP regulations would come into play when these are based inside the port area. the ensuing congestion will result in delays and additional cost to the trade. There is no doubt that the CFS outside the port is more cost effective.”

According to Mr Varghese, there are ways and means to overcome the financial crisis. “The CFS is supposed to be a total logistic centre but being a custom bonded area the CFS operator would face certain limitations which would hamper his activities such as bringing in outside cargo for in-transit storage, labelling and packaging, keeping inventory control and other such activities would also not be permitted. However, manufacturers could avail of such facilities in the CFS by sending the goods meant for export directly to the CFS. However, not everyone has his own warehouse or facility for labelling and packaging or inventory control.”

The CFS being jointly developed by CMA CGM Global (India) Pvt. Ltd and CMA CGM SA of Marseilles and christened Ameya Logistics, is soon to be commissioned according to an official of the company. Designed to handle 50,000 TEU annually in a 21 acre area, the CFS had earmarked twice as much space to accommodate future expansion. The company presently plans to use this unused space for certain diverse activities to overcome the economic crisis.

But this cannot be done in the case of other operators whose entire area of operations has been notified by the customs as bonded areas. Hence CFS operators are restricted from undertaking any business other than that of import and export cargo. “Even to reduce the area under bonded area and use the remaining for storage, ‘pick and pack’ or other activities means having to ‘de-notify’ and then ‘re-notify’ the CFS which is a very difficult and lengthy process and one cannot be sure of achieving the desired results,” says Capt Bhattacharjee.

SICAL Logistics Ltd which has two CFSs jointly operated with PSA, one at Tuticorin with a capacity to handle 0.5 million TEU and another coming up at Chennai with a capacity to handle 1.5 million TEU hope to fare better than others. “Most such projects are on long term and have already had financial closures,” says Mr Sudhir Rangnekar, Managing Director & Group CEO. “Though the shipping throughput has gone down it will not affect our operations.” Opining on their ability to weather the economic downturn he says CFS operators will have to be cost conscious and frugal. “This subdued environment will not last very long here since India’s domestic trade is reasonably good unlike in China which is export-driven and of course, developed countries such as the USA and Europe,” he says. “This lull is only temporary phase since it is manmade.”

According to a report prepared for JNPT by IIM, Ahmedabad, 30% of port traffic is generally directed to the CFS, since it serves as a backup area from the port’s point of view, while the remaining traffic either moves to and from the ICDs situated in upcountry regions or is taken delivery of directly by importers/exporters. The report states that there is scope for setting up more CFSs. It is indeed a time to consolidate if not expand operations.