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‘We are about to witness a paradigm shift in sea transportation'

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"The need of the hour is to quickly implement the policies and create benchmarks in terms of cost competitiveness. I think that the Ministry of Shipping's initiative of launching Maritime Agenda 2010-20 is a step in the right direction," avers AR Ramakrishnan; MD, Essar Shipping. During a conversation with Prerna Sharma, Ramakrishnan provides insights into coastal shipping – the mode of transportation that deserves significant attention. Excerpts...

August 23, 2011 | Smart Logistics Bookmark and Share  
Evolution of the Indian sea transportation segment
a_r_ramakrishnan.jpgShipping is a global industry. Therefore, there is a need to make sure that we are truly competitive. While Indian ship owners have proven their ability to perform shipping effectively, efficiently and in a very safe manner, there is a need to grow the volume of tonnage under the Indian flag. There is also a need to take certain policy measures, which will help augment the tonnage. It is our strong belief that India has a huge amount of EXIM trade opportunities, which currently stands at about a billion tonne. This figure is set to double very soon.

Nonetheless, the share of Indian ships carrying Indian cargo is a miniscule eight per cent. This implies that there is not only an opportunity for greater participation by Indian flags in cargo related to India, but also in global trade, wherein we can play a major role. However, investing in tonnage and acquiring ships will call for certain policies, which could be in terms of fiscal incentives, cargo support-related matters or tax benefits. It is pertinent to note that a vast majority of the global shipping fleet operates from zero-tax regimes.

Indian shipping companies have been continuously making suggestions to the government on various aspects that will help India build global competitiveness in the shipping arena. There are countries, which have clear-cut shipping policies and those countries are really doing well in global trade. We also need to work on such crucial factors to make this industry globally competitive. Launching Maritime Agenda 20I0-20 is a welcome step taken by the government. It shows their commitment towards this segment. We are about to witness a paradigm shift in sea transportation. Therefore, the need of the hour is to quickly implement the policies and create benchmarks in terms of cost competitiveness, volume of tonnage handled and so on & so forth.

What prompted you to set up a separate logistics wing?
Essar Group has been growing by leaps & bounds and such growth demands a streamlined flow of movement of raw materials and products. We are dealing with commodities such as iron ore, steel, coal, crude oil and petroleum products etc, which demand specialised handling and transportation methods. With the volumes rising, we thought of bringing a specific focus on one of the most critical cost factors – logistics. If we are able to achieve cost optimisation in this segment, we can help enhance the bottom line. We also had the advantage of expertise and know-how to handle such a complex supply chain. The new setup was not only a strategic move to enhance the growth prospects of the organisation, but we also wanted our companies to avail of our services and build competitiveness at their own end. Essar is also making significant investments in ports and there are tremendous opportunities that one can capitalise on. I strongly believe that you need to be able to chase the market opportunities as they come. You need to be able to develop your own resources as you grow your business.
For any company, cost determines your bottom line. If a company is able to provide logistics services, which can enable clients to reduce cost and bring in efficiency, then that company will become a service provider of choice.

Essar Shipping's operations span across sea transportation, logistics and oilfield services businesses. The sea transportation business provides crude oil and dry bulk transportation services to leading Indian and global oil majors, core sector industries and commodity traders. It has a diversified fleet of 26 vessels including VLCCs, Capsizes, Supramaxes, Mini-bilk carriers and tugs. The company has on order 12 new ships, including 6 Minicapes and 6 Supramax dry bulk carriers, expected to join the fleet in a phased manner by FY13.

The logistics business provides end-to-end intermodal logistics services from ships to ports, lighterage services & intraplant logistics and dispatching finished products to the final customer. It manages a fleet of 5,000 trucks for inland transportation of steel & petroleum products and has a strong presence across road, rail & coastal sea movements.

The oilfield services business provides contract drilling and related services to oil and gas companies worldwide, operating both offshore and onshore. It owns a fleet of 13 rigs, which includes one Semi-Submersible rig and 12 onshore rigs. The company has on order two new jack up rigs that are expected to be delivered during FY13.

Critical enablers to building a strong logistics company
There are tremendous amounts of intricacies involved in planning the smooth movement of goods. One must have the expertise and skill set to achieve this goal. One must also have a team of people, who are equipped to handle the specific type of cargo and commodities that one wishes to transport. Each team member should be well-versed with the nitty-gritty of handling complex cargo, be it bulk or unitised. Apart from this, one must also have to invest in certain amount of assets – be it owned assets or leased assets.

Additionally, one must understand that e-enabling is also a very important aspect of any business today especially when you are handling large volumes, tracking the consignment and getting the delivery at the expected time. Once you have all these critical enablers in place, you will be able to build a strong logistics company.

Green measures implemented
There is a lot of material which has been traditionally moved by road. It is a known fact that road transportation has certain disadvantages when it comes to carbon emissions. In order to preserve the environment, we are chalking out plans to transport via intermodal routes by using coastal shipping wherever feasible. Subsequently, to attain last mile connectivity, we will be using roads. This implies that we will minimise the use of roads as far as possible and would harness coastal capabilities, which has not yet been utilised in India. This would certainly help us reduce our carbon footprint to a great extent.

In instances where utilising coastal shipping is not possible, we would plan out road movement in the most optimal manner. We also utilise the concept of hub & spoke model to harness efficiencies. It will also significantly reduce per tonne cost, which will offer the dual benefits of cost optimisation and reducing carbon footprint.

Harnessing coastal modes
We have been involved with various governing bodies on finding ways to harness this mode of transportation to the fullest. For a country like India, if we can achieve that, I think, we would be able to dramatically reduce logistics costs. The government is actively working on the Coastal Shipping Policy, which should address various critical issues; the foremost is to bring down the capital cost to lower levels in terms of regulations being applied on those particular ships. Also, there should be a simplified tax structure.

Additionally, the procedures and formalities in deploying coastal shipping – whether it is related to inward & outward movement of ships or in terms of creating specific berths for cargo ships – should also be reviewed so that cumbersome and time-consuming procedures, which ultimately hinder efficiency, can be avoided. These would ease out coastal shipping to a great extent. Coastal shipping is one of the best alternatives for the movement of goods.

Retaining fresh talent
I think the scenario is changing with the logistics industry witnessing the most promising phase and the approach of fresh talent would also change in the time to come. Logistics is bound to grow and therefore, the demand for people would also grow manifold.

Trends that the industry can witness in the years to come
India will be playing a crucial role in global trade activity. In this continuous improvement process, we would see the following trends emerging:
  • Presently, we are witnessing a lull in economic activity because of international factors. India is definitely seen as a high-growth market globally, which calls for a greater demand for logistics activities.
  • There will be greater e-enabling of functions and IT will become a crucial factor.
  • People will need to focus on infrastructure development. In fact, we can already see certain amounts of consolidation happening.
  • Bigger unitised commodities will emerge as key opportunity areas.
  • There would be a thrust on skill enhancement and continuous improvement of employees.

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