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‘Direct Port Delivery At JNPT Poses Threat For CFS Operators’

While the increase in the DPD model’s acceptance is a long-term threat for the CFS business, ICRA research believes that CFS can still be valuable if they tweak their business model

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Indian government’s implementation of direct port delivery (DPD) scheme at Jawaharlal Nehru Port (JNPT), also known as Nhava Sheva, poses long term threat for container freight stations (CFS) operators, said Indian credit ratings agency ICRA.

Under DPD scheme, importers can directly pick-up their consignments from the port after completing the necessary formalities and this would help reduce the overall transit time significantly.

It was first introduced in February 2016 to improve the ease of doing business.

K Ravichandran, Senior Vice-President and Group Head, Corporate Ratings, ICRA, “Nhava Sheva Customs' estimates that with quicker clearance, logistics costs per container at JNPT have decreased to Rs 12,000, down from Rs 50,000 previously. The overall average dwell time in fiscal year ending March 2017 has also been reduced to 2.54 days, down from 3.06 days in the prior year.”

“In May 2017, DPD volume indicates that 28 per cent of the total cargo has started moving through this route. The government has targeted improvement of this ratio to 40 per cent in FY2018. Thus, DPD can now be considered a successful scheme and could see even higher acceptance by importers going forward.”

While the increase in the DPD model’s acceptance is a long-term threat for the CFS business, ICRA research believes that CFS can still be valuable if they tweak their business model to keep the interest of importers at the forefront, and allow traders to choose a CFS based on their convenience.

The logistics sector will also be impacted by the implementation of goods and services tax (GST) in the near term. GST would favorably benefit various facets of logistics including transportation, freight forwarding, warehousing, contract logistics, container services, and express cargo delivery, amongst others.

Post GST, some of the major players in the segment would be able to generate higher incomes from value added activities such as special purpose warehousing, inventory management, etc.

Overall, ICRA research believes GST to be a game changer for the port related logistics industry. However, the benefits would be realized only beyond the medium term.

Ravichandran added “Container Logistics sector is expected to display modest growth in the current fiscal as the international trade volumes are likely to remain subdued. The credit profile of the CFSs which are located near ports witnessing subdued growth and/ or having high competitive intensity would remain impacted unless these players differentiate themselves based on service quality or diversify their operations to other ports.”

“The near term outlook for the container train operators (CTOs) also remains subdued due to high competition from the road freight operators. However, notwithstanding the current slowdown in economic growth, long-term prospects for these segments remain favorable as container traffic volumes grow.”