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Globally, the maritime and logistics industry is undergoing a huge transformation on account of changing economies, technology and more cost-effective methods of moving cargo. This is being reflected in the Indian sector too, its growth propelled by the government’s positive policies and increasing investments in infrastructure development.
It is fair to say that maritime transportation has been and still remains the backbone of global trade and has been so since the Egyptians, Greeks, Romans, Arabs, Indians, Chinese, Europeans all started sailing and improvising the sailing methods from sailboats, dhows, long boats, dragon boats, steamships to the current ULCVs, VLOCs, VLCCs, etc. Maritime transportation is a derived demand whose main purpose is to support trade, business and commerce — whether global or domestic, whether cargo or people. An estimated 89.5% of global trade is carried by sea. As per UNCTAD figures, in 2017, world seaborne trade reached a volume of 10.7 billion tons with a predicted expansion of 3.2% between 2017 and 2022.
The growth, numbers and the volume involved makes the maritime industry one of the most globalised industries in the world in terms of ownership and operations. Not just in terms of ownership, the maritime industry also provides employment for an estimated 1.65 million seafarers working in the global merchant fleet across the world. As briefly defined above, shipping is the act of carriage of cargo from point A to point B and is therefore clubbed with the logistics sector. Cargoes are carried by various types of ships all around the world such as oil tankers, dry bulk carriers, general cargo carriers, container carriers, gas carriers, chemical tankers, offshore vessels, ro-ro ships, and ferries or passenger ships.
All these ships are operated by shipping lines for commercial gain. A lot of these ships are owned by the shipping lines operating them and a lot of them are chartered by the shipping lines from ship owners. These shipping lines may be operating a liner service or a tramp service. On the liner service the majority of the business is handled by container shipping lines. There are many container shipping lines operating ‘shipping services’ around the various trade lanes in the world. Further, in simple terms, freight refers to cargo that is carried by a carrier, in this case a ship. There are various types of cargoes that are shipped around the world. Primarily, there is dry bulk which covers five major commodities, namely, iron ore, coal, grain, bauxite and alumina, phosphate rock and minor bulks such as forest products and the like. Then there is wet bulk that includes crude oil, petroleum products and gas which accounts for the balance.
The term logistics is said to have originated from the military and is said to have been initially used to define troop and equipment movement in various areas of military operations. It is the process involved in getting the cargo from the manufacturer’s warehouse, point of origin, mine site, farm, etc to the receiver’s warehouse, door, store, etc. The process of logistics actually begins way before the actual shipment takes place as it involves discussing and deciding on the delivery schedules suitable to both the buyer and the seller. Once these are decided, then the logistics services provider needs to decide on the best method of moving the cargo from the seller’s door to the receiver’s door. It is here that the maritime sector plays a crucial role given the fact that a bulk of the dry and wet cargo is moved between countries through the sea route.
According to the Ministry of Shipping, around 95% of India’s trading by volume and 70% by value is done through maritime transport. India has 12 major and 200 notified minor and intermediate ports. Under the National Perspective Plan for SagarMala, six new mega ports will be developed in the country. The Indian ports and shipping industry plays a vital role in sustaining growth in the country’s trade and commerce. India is the 16th largest maritime country in the world, with a coastline of about 7,517 km. The Indian government plays an important role in supporting the ports sector. It has allowed foreign direct investment (FDI) of up to 100% under the automatic route for port and harbour construction and maintenance projects. It has also facilitated a 10-year tax holiday to enterprises that develop, maintain and operate ports, inland waterways and inland ports.
Since ports handle almost 95% of trade volumes in India, the rising trade has contributed significantly to the country’s cargo traffic. Capacity at major Indian ports reached 1,477 million tonnes by 2019. Capacity at non-major ports is expected to reach 968 MMT in 2019 from 750 MMT in 2016. Given the positive outlook, proposed investments in major ports are expected to total USD 18.6 billion by 2020, while those in non-major ports would be USD 28.5 billion. India’s total external trade grew to USD 838.46 billion in 2019, implying a CAGR of 5.53% since 2009. Merchandise exports during the year were USD 331.02 billion while imports reached USD 507.44 billion.
The shipping and logistics industry is in a mature phase of its lifecycle, and will continue growing in the coming years as the economy continues to expand. According to IBIS World, the industry is expected to increase at an annualised rate of 2.6% until 2022. As a whole, the industry has displayed a concerted effort to improve operating efficiencies — to flexibly and quickly deliver goods and services to customers; growth, therefore, is the result of larger firms acquiring and consolidating smaller players. In recent years, the trend of consolidation has increased due in large part to increasing external competition. Customer expectations are on the rise. As businesses and individuals grow accustomed to today’s on-demand culture, shipping and logistics companies face ever growing pressure to deliver goods and better service at lower costs.
While the industry currently faces increased competition from new market entrants using similar business models, the sector has and will experience even greater pressure from the very firms that supply its demand: the manufacturing, wholesale, retail and warehousing segments. Increasingly, many customers are asking suppliers and manufacturers to deliver products only when needed — reducing inventory on hand and freeing up capital to invest elsewhere. For both 3PL and vertically integrated operations, technology has played a crucial role in developing competitive business strategies. Surges in e-commerce sales have caused an increase in demand for items that must be warehoused, packed, and delivered efficiently.
As such, larger firms within the industry have sought to acquire technology start-ups to increase their technological advantage in the marketplace. Suppliers and manufacturers must create or implement logistics software tools to optimise daily activities and handle the routing and storage of inventory to meet each customer’s delivery requirements. Meanwhile, there are certain risks that need to be addressed by this industry. According to major shipping and logistics firms, the main industry-specific risks are general economic conditions, changing commodity prices, the capital-intensive nature of existing business models, increasing competition, changes in relationships with customers, and changes in technology.
The unfortunate fact is that even though India is one of the major shipping and logistics players in the world, such is the low level of awareness about this industry’s opportunities and scope that it continues to be plagued by manpower shortage. India is not able to provide an adequate number of seafarers to man Indian flag vessels. This is mainly because not enough young people seem to find seafaring an attractive and appealing career with many of the officers preferring to sail onboard foreign flag vessels owing to favourable taxation policies. The ‘Make in India’ initiative offers tremendous opportunities in the maritime sector, particularly in the shipbuilding and ship repair industry. The government’s shipbuilding policy provides a boost by encouraging Indian shipyards to bag foreign orders in a more aggressive manner and meet the requirements of Indian ship owners.
A cost-effective and skilled manpower base, established steel industry, technology know-how and an increased demand in domestic shipbuilding could enhance India’s global shipbuilding share from 1% to 5% by 2020. A plan to manufacture LNG vessels at the Cochin Shipyard has also been approved. Other Indian shipyards have developed investment plans and accessed capital markets to play an increasing role under the ‘Make in India’ programme. Given the present scenario, India appears to be among the major economies in the world and will therefore require a vibrant and strong maritime industry for economic and strategic reasons. There are many factors conducive to the development of a robust and sustainable maritime sector. Therefore, it can be convincingly concluded that India is on the cusp of major maritime revolution which will play out over the next couple of years.
Authored by Nishit Doshi