India must add services and new port infrastructure to keep up with growing exports
Although the Indian market has seen domestic sales decline this year, growth has remained stronger for passenger vehicle exports. In the 2012-2013 financial year, passenger car exports grew by 9% to more than 550,000 vehicles, according to the Society of Indian Automobile Manufacturers (SIAM), and have continued to grow so far this year, with exports up around 7% through May.
India’s export growth has been sharp over the last decade, more than trebling since 2005. Srinath Manda, program manager for transportation and Logistics at Frost & Sullivan, says India offers both cost and quality advantages for export. “Economic downturn or not, at any point of time, India-built vehicles will be cheaper than [many markets’] home-built ones,” he says. “That does not mean the cheaper cost is the ultimate decider. For importers, quality matters a lot and Indian auto OEMs have successfully met those tough parameters continuously.”
But improving the competitiveness of vehicle exports would be helped by better infrastructure, says Manda. “Not just inside the port but also the plant-to-port or inland transportation facilities and smoother and efficient customs procedures.”
India’s ro-ro infrastructure has not matched the growth in exports, and lags behind that found in other Asian markets including China, Thailand and Indonesia. Although there are ro-ro facilities and vehicle storage at both Mundhra port, in the western state of Gujarat, and on the east coast at Ennore port, 20km from Chennai in the southern state of Tamil Nadu, no ports have dedicated terminals offering a full range of services for exports. Executives say that both ports have storage and traffic constraints.
The other three ro-ro ports include crowded Mumbai, Kolkata in the northeast and Chennai in the south. All three lack dedicated ro-ro facilities and have many infrastructure constraints. Containerised exports often go from Jawaharlal Nehru Port Trust (JNPT) near Mumbai. The port of Chennai is India’s largest vehicle export hub thanks to Hyundai’s using it, however it also has space issues.
Indian carmakers go the distance to switch ports
Manufacturers choose ports to match a combination of requirements, including inland transport links, proximity to plants, shipping line routes and port services. While it is not uncommon for exports to move long distances to reach a port of exit as a geographic necessity – such as German exports moving 800km from the south of country to the port of Bremerhaven, or vehicles built in the US Midwest being shipped a similar distance to the port of Baltimore – carmakers will usually do everything they can to limit the inland time and cost between plants and ports.
However, in India, despite a long coastline, dissatisfaction at some ports has led carmakers to move even further distances. Honda Car India, based at Greater Noida near Delhi, was exporting via the western port of Mumbai, some 1,400km away, before switching in March to Ennore port more than 2,200km away. “The provocation [to shift out of Mumbai] came when grain was dumped near Gamadiya parking yard inside the port and our representation went unattended,” explains head of logistics and exports Achal Paliwal.
The grain dump could lead to contamination, with the wind carrying grain particles into the grooves of tyres and the innards of waiting vehicles. Countries like Australia and Europe have even quarantined Indian imports to penalise and at times reject exports. “It is a nightmare,” says Paliwal.
Paliwal and other exporters have similar complaints about Mumbai and India’s other outdated ports, including the lack of paved yards and PDI facilities, as well as there being unregulated vehicle movements and excessive bureaucracy.
There have been some important developments for Indian ports in recent years, however. The port of Mundhra has emerged as a major player for Maruti Suzuki. More recently, the port of Ennore built a ro-ro facility, with Nissan and Indian government support, to handle exports from the Renault Nissan Oragadam manufacturing site, 70km away. Ennore is a clean and green port with a dedicated ro-ro terminal for vehicle exports and a 10,000-car capacity storage yard. The port also has 24-hour accessibility, unlike Chennai.
The Ennore port terminal exported around 145,000 passenger vehicles last year, with Nissan and Renault accounting for about 100,000 units, Toyota notching up 27,000 and Ford 18,000, according to Shri V. Nagarajan, senior manager, projects, at Ennore port. Although Renault Nissan recently decided to move production for Europe-bound Nissan Micras to a Renault factory in France starting in 2016, a new model is expected to be built at the Indian plant. Export numbers from Ennore are likely to rise in the coming years as more carmakers, including Honda, turn to the port.
Honda’s Paliwal found Ennore the best alternative to Mumbai despite the extra inland logistics costs of Rs.12,000-15,000 ($208-260) per vehicle. Honda thinks it is worth the price for hassle-free and quicker export. “It’s clean. It’s green and above all, there is an efficient administration,” Paliwal says.
Industry sources say that Volkswagen and Daimler India Commercial Vehicles are exploring the Ennore option, notwithstanding its stiffer tariff compared to Mumbai.
Hironori Togano, deputy managing director and chief quality management officer of Ennore Automotive Logistics, is pleased with the performance of the port. He and his general manager, Captain Anand Jayaraman, say that the company, a joint venture between Japan’s MOL and India’s Sical Logistics that performs stevedoring and yard management, have implemented best practices brought from Japan without changing most of them. “We have had to tweak 5% to suit Indian conditions,” says Jayaraman.
Wallenius Wilhelmsen Logistics India’s country head, Captain Gur-Prasad Kohli, rates Ennore port as the “best thing to happen to India,” despite the fact that the Caterpillar high-and-heavy cargo his company ships still uses the port of Chennai because of height restrictions en route to Ennore.
Höegh Autoliners rates Mundhra on the west and Ennore in the east as its preferred ports in terms of infrastructure and OEM requirements. However, Olso-based spokesperson Gabriela Stojicevic says ports should develop dedicated parking bays and staging areas adjacent to the ro-ro berth, with sufficient lighting, paved land area, security and fencing, along with more parking. “Dedicated ro-ro berths and construction of multi-level car parking in congested ports are the need of the hour,” she says.
Japan’s NYK Group operates 14 ro-ro terminals around the world. Executive director of NYK Auto Logistics India, Captain Sandeep Chawla tells Finished Vehicle Logistics he would like to see increased global expertise and standards at India’s gateways.
Ramesh Kumar: Which companies and ports are you are servicing in India for vehicle exports?
Sandeep Chawla: Automotive exports in India are currently carried out from Mumbai, Chennai, Ennore, Kolkata and Mundra ports. NYK Line provides ro-ro ocean transportation services from all these ports for Maruti Suzuki, Tata Motors, Ford, Nissan, Toyota, BMW, Isuzu, Mitsubishi and various other commercial vehicle manufacturers. Of all the customers exporting from India, NYK’s partnership with Maruti Suzuki goes back more than 20 years.
Kumar: What are your expectations in terms of services offered at ports to enable smooth and efficient operations? Of the ports you are dealing with, which one is better off than others and why?
Chawla: The ideal ro-ro terminal should be an all-weather facility, operating 24 hours per day and 365 days a year. It should have one or two dedicated berths for ro-ro vessels with enviro-friendly, contamination-free, on-dock storage space for to 10,000 vehicles. The terminal should also have additional land available for providing value-added services such as vehicle processing and PDI, and for expansion of storage areas as per industry growth requirements.
High-speed, multimodal connectivity for rail and road to OEM plants in the hinterland is a critical requirement for optimisation of physical flows to the terminal. The terminal should implement advanced IT software such as RFID for track-and-trace of vehicles and CCTV cameras for security. It should also offer simplified customs, documentation and other administrative procedures to support exports.
The infrastructure, facilities and connectivity to all five Indian ro-ro ports is far from global benchmarks and industry expectations. None of these ports offer dedicated ro-ro terminals. Ennore and Mundra are the only ports which stand out to some extent. Ennore has enviromentally-friendly, clean storage for 9,000 vehicles, but the road connectivity is extremely congested. Mundra provides a multi-user berth facility and has good road and rail connectivity, however the on-dock storage space is limited to only 2,000 vehicles.
"The ideal ro-ro terminal should be an all-weather facility, operating 24 hours per day and 365 days a year" – Captain Sandeep Chawla, NYK Autologistics India
Kumar: Given India’s ambitious plans to become the Asian hub for small cars, does it need dedicated ports to handle auto exports?
If yes, which locations would you prefer?
Chawla: The major export gateways from Asia, such as Japan and Korea, have several dedicated ro-ro terminals to support the growth of exports. China has four dedicated ro-ro terminals, Thailand has two and Indonesia has one with a multi-storey car park.
Dedicated ro-ro terminals on the east and west coasts are a key requirement for the long-term growth of automotive exports from India. The terminal on the west coast should be at a strategic geographical location in the state of Gujarat or Maharashtra where cargoes from the northern, Gujarat and western automotive clusters can be consolidated.
Kumar: On the human resources side, what skill sets are required to be an efficient port-side service provider for auto exports?
Chawla: Automobiles are categorised as sensitive cargo and require a very high level of damage prevention measures from the terminal service providers. The terminal service provider should have global expertise, technical know-how and should be able to implement global best practices in terminal operations. Its staff should be technically qualified and trained in implementing best practices by expert trainers from overseas global ro-ro terminals. The top management of the service provider should have a strong focus on quality. The learning curve for providing best quality terminal services is very long and requires a cultural change and commitment at all levels in the service provider organisation.
RK: What should OEMs do to help terminal operator?
SC: The terminal service provider is required to make substantial investment in time, resources and capital to provide quality services to the OEM. They must also invest in terminal infrastructure to support OEM export requirements. The land needs for ro-ro terminals are quite large compared to container and bulk terminals and the gestation period for return on investment in a ro-ro terminal is long. The traditional role of OEM and service provider is required to transform into long-term partnerships through mutual trust and cooperation. This would instil confidence in service providers to make long-term commitments and investments to meet the requirements of global carmakers.
Chennai’s attractions
What the port of Mundhra is for Maruti Suzuki, the port of Chennai is for Hyundai Motors, India’s largest vehicle exporter. The carmaker has a 20-year agreement with the port that will expire in 2017-18. “All our exports have been through this port for years and we are not looking at any alternative option,” confirms Sajith Sivan, senior manager of Glovis India, Hyundai Motors’ logistics subsidiary.
The port of Chennai lacks a dedicated ro-ro bay and shares space with project cargo. Nevertheless, exports are substantial with Hyundai Motors sending more than 200,000 vehicles per year, as well as Caterpillar heavy cargo using it for exports.
General Motors ships around 1,000 cars per year in containers from Chennai to Sri Lanka. According to GM India’s Piyush Bharatiya, deputy general manager for global purchasing and supply chain, the carmaker recently switched from Mumbai’s JNPT to Chennai to avoid congestion and longer turnaround times. Frequent container vessel service between Chennai and Sri Lankan ports was a big plus, too. As GM’s plants are in Halol, in the western state of Gujarat, and Talegaon, in Maharastra, the company, like Honda, has chosen to add inland logistics cost for the sake of a better port option. “There is always a bit of give and take,” admits Bharatiya.
However, a port’s proximity to a plant is still a major determining factor for carmakers in India. Aman Arora, deputy general manager for international business at Volvo Eicher Commercial Vehicles, prefers Mumbai over Chennai as it is the closest to his Pithampur plant in central India. Likewise, Chennai-based truckmaker Ashok Leyland, like Hyundai, makes the obvious choice for Chennai. “Vessels for the Middle East, Sri Lanka and South Africa always come to Chennai. If so, why go to Mumbai?” says G Sundaresan, deputy general manager for international operations.
Chennai and Ennore also have a new neighbour in the form of Kattupalli port, belonging to Larsen and Toubro, one of India’s reputed business conglomerates. This port began operations in June following some trial imports of automotive spare parts and other goods. Gandhi Rajan, chief operating officer, says the port is positioning itself as a container-handling terminal, though he adds that its bays could “easily handle ro-ro facilities”. Officials at the Ennore port ro-ro terminal though, are confident Kattupalli will be no threat.
Hoegh Autoliners’ Stojicevic says that it is best to have dedicated ro-ro terminals at ports centrally located to plants. “A number of developing ports in the Asian region have recently been transformed into international transhipment hubs with very low port call costs,” she says. “We need to have Indian ports with similar infrastructure and low port call costs to assist the OEMs for hassle-free and cost-effective exports.”
WWL’s Captain Kohli says ports should ideally be located closer to automotive clusters in Pune, Bangalore or Chennai. “There should be good rail and road access to the port from these clusters as well as from the Delhi cluster,” he says.
Kohli adds that port charges in India are five times that of Singapore. Private players can also only sign 11-month leases rather than long-term agreements, and they cannot set tariffs. “[Logistics providers] must push for lower prices and be willing to sign three-to-five year contracts,” he says.
All stakeholders agree that recruitment and training is an issue. Stojicevic says that ro-ro terminals require highly skilled yard managers, as high volumes and limited yard space mean that monitoring of the vessels’ arrivals and vehicle positioning in the yard is critical for a terminal to operate smoothly. “Trained and experienced drivers and parkers are most important for smooth and efficient loading operations to ensure quick turnaround of the vessels in port,” she says. “Personnel with technical expertise in electronic tracking need to be employed by the port to ensure that the cargo can be tracked from gate-in to load and from discharge to gate-out.”
"Personnel with technical expertise in electronic tracking need to be employed by the port to ensure that the cargo can be tracked from gate-in to load and from discharge to gate-out" – Gabriela Stojicevic, Höegh Autoliners
More dedicated terminals and value-added
A common refrain among logistics providers is that India should build a privately operated, export-orientated port on the western coast. NYK Auto Logistics’ Captain Sandeep Chawla believes the ideal location would be Gujarat. However, in the absence of adequate or critical volume, a dedicated terminal may be left with no other operation but bulk cargo.
Frost & Sullivan’s Manda believes that there is currently opportunity for more value-added services at ports, including vehicle modification and accessories. Chawla, meanwhile, dreams of multi-level, multi-user port side parking yards offering many value-added services.
Such dreams may not come true overnight as companies struggle to gain concessions and develop space at Indian ports. The declining market might also slow investments, however the strength of Indian exports looks set to continue, opening up opportunity across the nation’s port gateways.
