Global Trade - International Business

Global Trade & International Business

Challenges of Maritime Trade for India

Sunil Garg B. Tech. M. Tech. MBA

Industry Consultant & Management Professor (IB, SCM & Strategy)ISCEA Advisory Board Member, USA

E-mail: [email protected]

Global Trade - IB A must to alleviate national poverty

Facts• In the beginning of 1800 century India’s share in

world trade was 20% which is now less than 2%.

• India’s most of the trade was through sea routefrom the ports in Gujarat, Mumbai, Goa, Cochin,Madras, Pondicherry , Calcutta, Dhaka, Karachi ...

• Till the beginning of the 20th Century, "the brightestjewel in the British Crown" was India that wasnamed as ‘Golden Bird’ (Soney Ke Chidia)

Importance of Ports

• Historically: Port cities have been the centers of trade, industry,banking, finance, education, good public administration, food,health and tourism.

• When oil and gas is discovered close to ports, they become ‘EnergyCities’ and have a string of oil companies lining up at the shore.

• Around 95% of India’s external trade by volume and 70% by valuetakes place through see route (Ports).

• India’s present ports handling capacity of around 960 million tonesneed to be tripled to 3 billion tones by 2020 to avoid delays and tomeet the expected growth of traffic and sustenance ofInternational Trade.

Port Cities• London, San Francisco, Rotterdam, Singapore, Hong Kong,

Sharjah: all are centers of global trade and tourism.

• Sharjah ports has established itself as a major gateway within the Arabian Gulf.

Khalid Port in Sharjah has contributed to the unprecedented growth of Sharjah’seconomy, can handle a wide variety of tonnage, has a dedicated Container FreightStation and Trans-Shipment Hub, which are constantly modernized and upgraded forservices and efficient operations by mechanization. Port services ranges fromgeneral, reefer, dry, liquid and bulk cargo to container, oil and offshore supportservices. Including alongside cold stores, customs bonded and transit warehouses,open storage area and competitively priced haulage. Motivation levels of staffsupport the efficiency of work resulting in friendly, prompt and excellent service tocustomers.

• Port of Colombo has set a record by handling 4 million TEUs [Twenty Foot

Equivalent Units] of containers as against less than 7 million TEUs by all major Indianports for fiscal 2009 – 10. (JNPT – 3.2, Chennai – 1.12, Kolkata – 0.39, Tuticorian –0.34, Cochin – 0.21 million TEUs).

Ports of IndiaGateway to Business Opportunity

• Ports are not just for docking, loading and unloading

stations.

• India has taken too long to realize the importance of the

ports.

• Apathy for the ports and not developing and using the

costal line became the biggest bottleneck to maritime

trade with history of inefficiencies in port management

as restricted access for Global Trade from Indian.

Ports of India - Strength

• Extensive Coastline: Surrounded by Arabian Sea inthe west, Bay of Bengal in the east, and IndianOcean in the south, length of total coastline ofIndia is 7000 km long.

• Excellent Geographic Location (a gold mine):geographical proximity to important shippingroutes – manufacturing giant China on the right,surrounded by hyperactive South-Asian economies,India could be a focal point of huge market fortrade and services through see-routes.

Ports of India - Opportunities

• Immense Potential: Costal, export oriented, manufacturingindustries, ship-building, ship-breaking, ship-repairs andother business, generating employment both directly as wellas through ancillary activities. Most of these are labourintensive and especially relevant for India.

• Potential of Costal Shipping: Blessed with a very long coastline India has yet to exploit this cheap mode of transport toremove the bottlenecks in the existing transport network.

• Big potential for transportation of minerals, coal, raw-materials for industry and distribution of agriculture producewith distinct cost advantages of transportation cost and time.

Ports of India - Weakness• Development of port infrastructure in India is way behind with other

ports across the world.

• Lack of mechanization, scar trained operators, over dependence onmanual labour.

• Ports congestion, poor connectivity and accessibility, lack of adequatefacilities.

• Cost-inefficient and non-competitive cargo operations have resulted inhigher logistics costs.

• Series of policy announcements made by the Government in last 20years lacks implementation or slow pace of execution. Earlier there wasnot adequate responsiveness about importance of ports.

Ports of India - Weakness• Capacity of various ports including Mumbai has already been

exhausted and now capacities of other ports like JNPT are onthe verge of exhaustion.

• Turnaround time at ports in India is one of the biggest

handicaps.

• Shipping lines avoid touching ports in India because of the

long waiting time and inefficient port services.

• Efforts for development of inland water ways lack results.

Ports of India - Threats• Past record of delayed planning and slow implementations.

• Lack of qualified and trained technical/commercial staff, and skilledlabour.

• Labour disputes, mafia problems, slow-downs and corruption.

• Lack of clarity in the qualification and bidding criteria for contracts.

• Delays in the actual award of the projects to private partners even afterthe MoU.

• Political interference, bureaucratic delays and erroneous HR policies.

• Increasing pirate attacks in see closer to India from Somali coast. Cargoships transiting the Indian ocean will have to pay higher insurancepremiums of war risk cover.

Mafia Problem – Holding a Ship

Blackmail to MMTC By a Port Mafia

Recent Policy Initiatives

• Process of port reforms has started; Government hasundertaken expansion and modernization of ports on apriority basis in its five-year plan allocations in 2007 and isexpected to invest more than USD 9.7 billion by the year2015.

• Additional capacities expected to come up outside Uniongovernment’s control.

• 100% FDI has been permitted for port development projectsand 100% income tax exemption is provided for a period of10 years for port development projects.

States Initiatives • Costal states now involved in setting up of new ports and

capacities, Gujarat, Maharashtra and Tamil Nadu already

have maritime boards and state cabinets of Kerala, Karnataka

and Orissa have cleared the formation of maritime boards.

• De-centralized maritime boards will be able to take decision

faster, streamlining port activities and will be better

equipped to implement development projects connected

with ports.

• State governments will try to create investment friendly

environments for public-private partnership projects in port

development.

Greenfield Port Ventures

Challenges• Already a number of corporate like Reliance, Ambuja Cements, Narmada

Cements, Magdaila Shipbuilding Yard, Vipul Ship Yard, Larson & Toubro,

Hindalco, Essar Spong, Kribcho, NTPC, etc have come up with their own

Jetties for their own cargo movement. Also a few more expected to join the

fray.

• Efficient functioning, capacity utilization and maintenance of services.

• Road / Rail connectivity a big issue for these private ports.

• Inability to obtain the requisite clearances on time and financial constraints

of the promoters, delays on account of problems faced in land acquisition;

issues of local protest and resistance.

Administrative Challenges• Swift clearances, empathetic administration and speedy implementation.

• Standardization of bidding documents to ensure uniformity andtransparency in award of projects.

• Rate of proposal-to-implementation conversion is low.

• Delays in the development and implementation phase.

• Land acquisitions and environmental concerns.

• Up-scaling of cargo may be affected by delays in connectivity projects viz.road and rail network.

• Tariff setting mechanism.

Technology - ChallengesMechanization & Efficiency is the key

• Single Window Clearance: Electronically networked with end-to-end services from birth allotment, stevedoring to customdocumentation, no multiple interfaces of CHA and industryfriendly custom and port procedures.

• Mechanization: conveyors, stackers, reclaimers, ship loaders,wagon tipplers; tugs and dredgers all are meant to run theport at peak efficiency.

• Transit Storage, warehousing, material tracking, road and railconnectivity.

• Surveillance and Security systems of high level

Operation - Challenges

• Container Freight Station (CFS) within port limits for consolidating,stuffing, de-stuffing cargos moving to and from hinterland.

• Communication: Port Community System – for interaction, datasharing and avoiding duplication among terminal operators, shipagents, transporters, cargo agents, freight forwarders, etc.

• Dock Aid System: for avoiding accidents while berthing vessels, OilSpill Detection with need for avoiding human intervention.

• Trained and Skilled Operators / manpower.

Maritime Developments in Gujarat

• Gujarat Maritime Board has succeeded to bring private investment ofaround Rs. 25,000 crore till now.

• In 2010 – 11, total private investment Rs. 2,035 crore.

• Plan to develop a port base city at Mundra for urbanized developmentof coastal region.

• Adani Hazira Port for development of bulk/general cargo terminal atan estimated cost of Rs. 2,250 crore.

• Essar Bulk Terminal for deepwater captive jetty at Rs. 1,700 crore.

• Reliance Ports & Terminals to invest Rs. 2,500 crore.

Strategies for India's Foreign Trade

• Globalization has changed the rules and character ofinternational business.

• More and more MNCs would launch operations from India.

• Low labor cost advantage of India will diminish in 7-10 yearsperiod from now.

• Indian firms therefore would have to think in terms of laborproductivity rather than merely low cost of labor and evolveas World-Class Organizations (WCO).

Criterion for a WCO• Concept of labor productivity rather than cost.

• Collaborations – integrating suppliers and customers as partners.

• Brand India marketing approach – Internet, Social Media and SearchEngine Marketing for global branding.

• Need for innovation - add new products/features to at least1/3rd of existing product portfolio, every year.

• Investment in technology and domestic R&D from 5-20% ofturnover or projected turnover.

• Acquisitions and strategic alliances needed abroad

• High turnover ratio of inventory.

Criterion for a WCO• Spend at least 50 % of total time in value addition component of

manufacturing or service activities.

• Be a slim organization – Lean Management (TPS).

• Delivery commitments - at least 95% on time every time.

• Development of human resources for appropriately trained and skilled staff.

• Global managers have to work with Japanese, French, Chinese, German andall sorts of other nationalities. Knowledge of English is not sufficient –knowledge of Spanish, French, German, Mandarin, Russian and their cultureawareness would also require.

• Special focus for SME exporters to sustain themselves in globalised market.

• Try to be among top 5 competitors in your product/activity area globally.

Supply Chain & Logistics Management

• Seamless flow of inbound and outbound cargos –

essence of efficiency and productivity.

• Information flow, coordination between port

administration, customs, document processing, CHA,

shipping company agents, stevedores, transporters,

security, warehousing, cargo tracking, etc

• Electronic networking of agencies working at the port,

EDI, dissemination of information to customers and all

stack holders.

Global Business ProcessFunctioning of three macro processes and communicate with each other through TMF

SRM ISCM CRM

Design Collaboration Strategic Planning Market

Source Demand Planning Sell

Negotate Supply Planning Call Center

Buy Fulfillment Order Management

Supply Collaboration Field Service

TMF Transaction Management Foundation

Lean Management (TPS)

Optimization of:

• Costs

• Quality

• Lead Time

• Resources

• Customer Requirements

Elimination of Wasteful Activities:

Waste Volume

Reduction in Cost

Enterprise Systems

Collaboration

Learning Management Systems (LMS)

Cloud Computing

Technologies for Managers