Singapore Desk -(11)

The Big Opportunity To Coastal Shipping: (4)

A Critical Look At The Ports: Part – 2 (Bureaucracy)

 

Our bureaucratic system that manages our ports has smothered not only coastal shipping, but also our international trade. I have personally come across brilliant & dynamic bureaucrats in the ports who passionately wanted to right the wrongs, but in vain. The TAMP validates the wrongs as the rights – helplessly though. The demonic red tapes do not allow them. The Unions strangle them.

 

Port administrations have a huge staff with many departments, many of them redundant and disused, but act as a force to slow things down.  Let me try to cover a few departments and their deterrent acts. The traffic department allocates berths, internal logistics, & storage.  It is badly done. Ships are stuck inside due to slow operations. Ships wait outside to get a place. When there is congestion, you need to grease palms to get a berth. This is not the case with private ports. The marine departments are headed & manned by Master Mariners, who have adapted themselves to the new system quickly. They control the pilotage and ship movements with unmatched ineptitude and arrogance. They too need their hands greased. They work totally out of synch with the traffic department. Ships, both inbound and outbound are made to wait with the drop of a hat. Berth utilizations are never optimized with the vacant berths left unoccupied by the next vessel in line for many dead hours and dead days. I reiterate the fact that this stems from systemic fault lines and there is absolutely nothing to blame the people in the system. You need to push papers through a maze of departments to get a simple thing done. Even, the CISF have their own fiefdom to slow things down as much as they can as per the laid out standards of red tape. ISPS (though useful when used wisely) is followed up like God's gospel with little regard to home truths. The recent Mumbai terrorists coming into the heart of the city in Mumbai to hold the nation to ransom, tells us that our security concerns have no answer in the ISPS alone. Customs department acts as an all-pervading ugly monster to crush any signs of efficiency that might survive the incessant badgering by the above-mentioned departments. Their systems and controls are archaic & arcane, that can stamp out logic & rationality, on any sunny day. Without going into specifics, we can conclude safely that the system pushes cost to the sky, pushing domestic prices high, much to the little Indian's misery and rendering international trade uncompetitive against the likes of China or even Bangladesh. The Indian port tariffs for a vessel is four to fives times higher than that of Malaysia or Singapore, while the quality of service provided could be as low as one-fifth. For some strange reason, the pilotage cost is inexplicably high.

 

Solution: The port trusts need to outsource the entire management & operations of ports, including navigation & pilotage to private companies. An open on-line bidding process (Similar to the 3G spectrum auction in UK, where the government made money in billions) can be used. Subsequently the Trust can act as a regulator and collector of revenue-share. One common e-platform should be used by the Customs, Port, Banks, RBI, DGFT, DG shipping, Shipping line and all other government departments for coastal movement, exports and imports. This automation can cut on duplications and red tapes. Parts of the port should be declared as national free zones for coastal cargo to exclude the legitimacy of the Unions. Gradually the free zone should be extended to push the Unions out. Once the management is successfully outsourced and Unions are edged out, the tariffs could be rationalized, based on fair costs. In addition to these measures, national ship owning can be accelerated using the principles of 'Smart Flag' as enunciated earlier. This can be a composite solution to the menace of 'Unions' & 'red tapes'.

The Big Opportunity To Coastal Shipping: (3)

A Critical Look At The Ports: Part - 1

 

Ports in India are the invisible rotten hands of the Unions & the government to suck away any thing it lays its hands on with diabolic impunity. It is an orgy of different government departments and officials to revel in this mayhem. Even the private ports, though many times more productive and progressive, cannot but mime & indulge in this plunder. This may sound harsh, considering its lower contribution to kill coastal shipping in comparison to high cost of ship owning, as discussed earlier – but can be justified because of its insidious effect on our international trade.

 

Let us analyze a simple partial-operation of loading one 20' container by ship's gear, containing 20 MT or CBM of cargo on a coastal vessel. The current tariff stands around Rs 2000/ to Rs 5000/. You need one Crane-Operator, two people ashore to hook the spreader, two people aboard to position & unhook – five men & five minutes to load one box. We shall ignore horizontal movements & cell guides.

 

**Assuming a team of five men needs to do a minimum 120 moves per day (8 Hours) and with an average salary of Rs 10,000/ per month. Informatively, in Chittagong Port in Bangladesh productivity is equal and often higher than 15 moves an hour averaged over 24 hours, using ship's gears.

 

Assumed Salary Per Head Per Month	INR 10,000
Men Involved	5
Manpower Cost per month	INR 50,000
Manpower cost per day	INR 1,667
Manpower cost per move	INR 14

**Actual stevedorage cost per Ton or CBM – Rs 0.69

 

If we take downtime costs & operating margins, we can push this cost to a maximum of three times to Rs 42/. Actual tariff is 50 to 100 times of this. Wharfage & storage are charged for the usage cost of the Port separately. What a colossal national waste, the little Indian has to pay for? The reasons behind this are – Self serving Port Workers Union and a parasitic bureaucracy that manages the ports. Today I shall discuss on the former.

 

As a case study, I shall discuss the port of Paradip, which is more benign in contrast with Kolkata or Mumbai. There are three Unions involved in an operation of loading a box. One – Unloading cargo from wagon/truck. Two – moving from CY to shipside. Three – shipside to board. One is controlled by a local criminal & stevedoring company, who is the leading member of the Pool of six, entitled to draw labour from this pool – meaning the port is virtually controlled by one man. No outside stevedore company can draw labour. The entry of any new stevedore into this Pool of six is banned by an imbecile Supreme Court verdict. Note - How the so-called independent judiciary is instrumental in sucking little man's blood! This appears gross and murky, because a lower court cannot overturn this demonic verdict. No port user, however mighty, can use this port without the blessings and agreement to the administered price and conditions imposed by this person leading the Pool of six. He decides, out of this six, who will do what. He keeps the cream for himself. The Union leaders are in his pay roll and the poor workers are hoodwinked into his self-serving needs. There are similar & complex mechanisms for the other Unions too.

 

You need to book a gang well in advance. As a practice, the workers arrive on their sleek motorbikes, one hour after the shift starts. Then one of their leaders would start the loud haggling with the stevedoring supervisor (private) that takes about another 30 minutes to an hour. The first issue would be the quantum of incentive per box, for the workers not to work. Usually, we have to take our own hands from outside to do the operations, because the workers are generally obese & excruciatingly slow in their movements, with huge potbellies and have difficulty in climbing the gangway, let alone the Cranes or container-tops. Each of them owns a fleet of Dumpers or at least one dumper used inside the port by the stevedoring companies by compulsion. They are masters in the twisted Labour Laws of our country and can bamboozle any decent lawyer at any given day. Since it is illegal to bring in outside hands to work inside the port, they can keep their eyes shut on this, as long as the incentive or bribe is meaty enough and it usually is. The other issues for haggling are – working in tea-breaks, number of outside hands taken, meal price, time of stopping the work (Usually before one hour of the shift end, that could stretch to more than 2 hours if not properly negotiated), price of safety gears (we need to pay even if they don't use), and above all speed money. Speed money goes exponentially higher according to the benchmark set by the leader for the shift. If the benchmark set by the leader is 30 boxes, and you end up doing 100 boxes – you need to pay for these extra 70 boxes in different complex slabs. Usually, the leader's mathematical acumen is better than the supervisor, in deciding the number of boxes to load or unload in a given shift. Many times the supervisor bites far more volume and ends up paying so much incentive that, the bottom-line of the stevedoring company takes a beating. Out of 8 hours of shift, 3 hours are lost at the beginning, mealtime, and end of shift: provided you do a decent haggling. In addition, you need to train your outside hands to be respectful and obedient to the workers – failing that, work would be disrupted midway and another bout of haggling could start. This could be disastrous to the profit of the private stevedore. I do not blame the workers at all – In fact, under similar situation I or you would improvise a more sophisticated  and ingenious way of maximizing the returns. Unions are a bad idea, but held on to by politicians and criminals to serve their own interests - while the media & intelligentia look at it as a sacred cow. The little man pays a heavy price though. The above results in monstrous cost-sheets, destroying new businesses & new jobs, depriving the poor little Indian the right to equal opportunity to work, destruction of national economy, and above all a viable coastal shipping. I shall deal with a possible solution to this menace on the sequels.

Coastal Shipping (2)

 

Cost Of Ships For The Coast:

 

Looking at the Indian coastal landscape of coastal shipping, the most defining asset involved is the ship – assuming other elements like conducive port facilities, regulatory regimes, connectivity, tax laws, & fuel costs as clear givens. The cost of the ships or trucks (including usage cost of the paved roads) or railways (including the usage costs of the laid tracks) needs to be substantially low to justify lower cost of usage or hire. In the recent past, the hire for ships was abnormally high. Today, it is low. Such fluctuations shall shake & destabilize our economy, assuming coastal shipping carried domestic volumes as high as the railways. Imagine what would happen if railways increase freight by 50% across the board. There could be civil unrest! Therefore, we need the value of ships not only to be the lowest possible, but also relatively stable.

 

The reasons of high cost of our coastal ships – (1) IMO, STCW, IACS & other International regulations are being perceived & implemented as inviolably sacrosanct (2) Complex Bureaucratic Processes (3) Unionism (4) Unimaginative Taxations

 

IMO, STCW, IACS, & the Hague Rules are phrased & designed by the ship-owning countries of the world – Western Europe, USA, & Japan - an obvious attempt of self protection. Their ship-owning interests are not necessarily congruent with our nation's interests. Indian ship owning is infantile in contrast. Asking Indian Coastal Ships to comply with such rules (with hardly any substantive modifications) is like asking a child to wear his father's shoes. The child cannot walk. We need an affordable coastal shipping to support the economy of a country of more than a billion. Majority of this billion, live in dehumanizing poverty. Therefore, this country needs its own desi rules or at least the international rules need indigenization for it to be practical. I know, of one small ship owner, who converted his ship to home flag. He had his ship stuck in the repair yard for nearly three months. Heaps of correspondences, tons of steel, loads of hire losses, and innumerable telephone calls of person-hours, were sacrificed – not to mention greasing a few palms too as we call it under the table. The poor guy was pushed to near-bankruptcy, for daring to flag in. Can we not be less wasteful with out meager resources? In a coastal trade, where the vessel is not even 20 miles from the coast any time, do we have to be such a stickler for international rules! The coastal vessel is no 'Titanic' in northern Atlantic with surreptitious icebergs around! In extreme event, our Coast Guard could reach it in hours. If we can decolonize our heads, we could make our coastal ships more affordable – simplifying rules and making them practical. Flag rules & IRS – their actions are further demonized by the lethargic Dry Docks & work shops (Refer to Unionism). Delays & greasing costs due to bureaucratic procedures, duties on importation of spares and multiple taxations at various checkpoints, have no less a role to play in this drama. I know that the terrors of Unionism & Customs rules shall crumble in the end, when there is more awareness in the society – until then we need to align our maritime rules to our realities, not to the realities of the west. Sooner the better.

 

If STCW is devilish due its hidden agenda, our Unions are no less. It is easier to kill the devil from the outside, but the devil within is more painstaking to deal with. The answer lies in contracting out navigation & pilotage, maintenance, and cargo operations of coastal ships to specialized private companies. Doing away with STCW is like killing another form of License Raj: imported after independence. In fact, any graduate or engineer with only 3 months on-board experience should be allowed to do maintenance, operations, & assistance to navigation. Navigation is done on a GPS & a marine engine is not so different from any combustion engine. A private pilot could bring the coastal vessel from the berth in Kandla & hand over the vessel alongside in Nhava Sheva and from Nhava Sheva he could bring another vessel back again – as an example. A few crews & engineers are needed to operate & maintain during these short voyages. The specialized private companies shall bring in high standards of vessel operations, safety & maintenance at a fraction of the present cost.

 

I do not subscribe to complete waiver of duties and taxes as a means to help the industry grow, as suggested by many. However, the duties & taxes need to be rational, so as not to kill the market. If the taxes were kept small & procedures simple, the businesses would thrive – driving up the volume of tax collections.

 

Last but not the least – when there is a global meltdown pushing the asset values of ships to its historical lows, the government should encourage buying as many ships as the Indian Coast would need in next ten years. These cheap ships, if also run most economically as suggested above, shall add a few numbers to our national GDP and force the Indian railways excel further.

 

For more on this, you may visit following link - www.maxiconline.com

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The Big Opportunity To Coastal Shipping:

The Big Opportunity To Coastal Shipping:

 

The downturn in shipping is spreading wide & deep to all sectors, with occasional pseudo bear rallies as mere noise in the turbulence. This is bad for many. However, this could be an immense opportunity for Indian Coastal Shipping. There will be many cheap ships in the world market, those can be deployed on our coast. In six to ten months, the price of a second hand vessel could be as low as half of a road truck in terms of loadability : (Market Price of Ship ÷ DWT or Market Price of Truck ÷ Maximum Load).

 

	Con	Price	Mx Load	Con/1000	Cost/1000
	Liters	Rs	Tons	Liters	Rs
Ship	37500	13.5	10000	3.75	50.63
Rail	11000	30	3000	3.67	110.00
Road	4000	30	10	400.00	12000.00

 

Con : Consumption of fuel per every 1000 Kms

Price : Price of fuel per liter (IFO in case of ship & Diesel)

Mx Load : Maximum tons  of loadable cargo

Con/1000 : Fuel Consumption per Metric Ton for every 1000 Kms

Cost/1000 : Fuel Cost per Metric Ton for every 1000 Kms

 

** A typical ship of 12000 dwt is compared to rail & road. In case of very light cargo, CBM can be approximated to a Metric Ton for loadability purpose. In case of a mix of weights, the cost could be further leveraged down, more in case of a ship. The figures are approximate to justify the points made. The subsidized diesel price in India is  actually slightly higher than the world market price ( About Rs 23), because the subsidy is calculated on the duty-paid-landed price.

 

Road is too fuel inefficient to have any fair comparison to coastal ship or rail. It has its utility in penetration, spread, & door-to-door capability. A ship is not necessarily a greener substitute to rail, though it could be more economic & practical. However, in case of a much larger ship, we will get that 15% edge(Carbon burning) over the rails. Larger ships could carry only coal or ore in large quantities at a time - not semi-finished and finished goods. We would need more of smaller, faster, cheaper, and varied coastal ships, like RORO/Container Feeders/RORO cum Container carriers/mini-bulkers/tankers & general cargo carriers in addition to the large bulk-carriers to cater to the current and future needs. Coastal shipping would demand less investment in infrastructure – unlike laying new rails or building straight unhindered roads. Even the current port facilities are sufficient for the time being : without the need for dedicated funds for its development to accommodate coastal shipping.

 

Integration of road, rail, & coastal ship can considerably cut on fossil fuel consumption, in addition to saving costs in billions of dollars and boosting productivity . Stand-alone strong coastal shipping or a lopsided rail system, as we currently inherit, will serve no meaningful purpose.  65% of our freight moves by road and 35% moves by rail, if you consider current coastal ship movements as negligible. As a national policy, we need to reverse this ratio, where the rail could carry 65% and the roads 35%. In order to do this, railways needs a challenge from coastal shipping as a competitor. Roadways do not have the teeth to compete with rails, as you can infer from the table on top. As coastal shipping keeps developing, the railways shall be forced to think out side the box to make it more competitive. This process shall balance the mix of rail, road & coastal ships to optimize green-effect & national productivity.

 

Then how do we promote coastal shipping to bring about this evolution? The myriad reports merely strengthen our entitlement mind-sets, with scanty regard to the tax revenue needed for the government for governing the issues in the first place. The reports sing the same songs like the industry bigwigs – tonnage tax, shipping finance from governments, develop port facilities, waiver of import duties on capital goods imports and so on. I feel these are superfluous and shall have insignificant effects, if any in.

 

High cost of ship owning in India, high cost of ship manning, high cost of ship maintenance, Seafarers Union,  high labour costs in ports due to complex layers of Unions, unusually high port tariffs for ships, too much tax on bunkers, greasing costs to Customs, & complex documentations & red tapes are the major cost boosters and in that order. Other problems, like warehousing, connectivity, port development and taxations etc though important, are minor in nature and can be corrected as the process starts building up. The concept of a "Smart Fag" as written in my earlier articles, corrects many of the current inherent problems in coastal shipping. In addition, there are other  vital considerations to address to have the desired effect. On my next article, I'll address the first issue of 'High Cost Of Ship Owning'.

 

 

Coastal Shipping and the Green myths:

In Strasbourg Mr. Obama pointed out to our Prime Minister's view that the carbon footprint left out by even the greenest European is far higher than an average Indian. I agree no less. However, I would like to point out to our Prime Minister that, even as a developing nation, we have the power & opportunity to go greener while accelerating growth in many fields, without any sacrifice. Let us take our coastal shipping as an example.

 

	Con	Price	Max Load	Con/1000	Cost/1000
	Liters	Rs	Metric Tons	Liters	Rs
Ship	25000	13.5	10000	2.50	33.75
Rail	11000	30	3000	3.67	110.00
Road	4000	30	10	400.00	12000.00

 

 

Con : Consumption of fuel per every 1000 Kms

Price : Price of fuel per liter

Max Load : Maximum tons  of loadable cargo

Con/1000 : Fuel Consumption per Metric Ton for every 1000 Kms

Cost/1000 : Fuel Cost per Metric Ton for every 1000 Kms

 

** A typical ship of 12000 dwt is compared to rail & road. In case of very light cargo, CBM can be approximated to a Metric Ton for loadability purpose. In case of a mix of weights, the cost could be further leveraged down, more in case of a ship. The figures are approximate to justify the points made. The subsidized diesel price in India is  actually slightly higher than the world market price ( About Rs 23), because the subsidy is calculated on the duty-paid-landed price.

 

India has 139 minor ports, 11 major ports and a coastline of  7600 Kms. So why our Coastal Shipping is is so malnourished? Is this a way of maintaining the scarcity power of the Railways ? From the above, you can infer that road is no match to railways. Railways are virtually without competition in India. Little wonder that the railway tariffs (Rs1400/ to Rs177/ as per class of commodity) are so excruciatingly high for carriage of cargo against a fuel cost of about Rs110/ per ton for every 1000 Kms. I will elaborate the reasons in brief & then describe the  resulting green wealth, if we leverage this rarely used resource. In addition this can put additional pressure on railways to increase its efficiency by adopting newer technology & management practices.

 

High cost of ship owning in India, high cost of ship manning, high cost of ship maintenance, Seafarers Union,  high labour costs in ports due to complex layers of Unions, high port costs for ships, greasing costs to Customs, & complex documentations & red tapes are the major cost boosters. Other problems, like warehousing, connectivity, and taxations etc are minor in nature and can be corrected as the process starts building up.

 

I will discuss on the high cost of ship owning in India first, as this is the biggest cost booster.  If we compare the price of a ship, a goods train, & a truck in terms of loadabilities, it would appear that a ship is most expensive when this shipping market is at its peak. However, in a recessed market like today the price of a second hand vessel could be as low as half of a road truck in terms of loadability : (Price of Ship ÷ DWT or Price of Truck ÷ Maximum Load). Therefore, this is the right time to buy a lot of old ships for using on our coasts. Why can't we do that? Because, even for our coastal ship, we need to have almost the same fanatical IMO regulations & standards to be applied blindly by our DG Shipping & IRS.  Therefore, you may need to renew steel plates, pipes, or equipments – those have practically little relevance to our restricted coastal trade. Sometimes, if you happen to buy an old ship and bring into India for domestication, your ship may land up in a Dry-dock for months before the MMD or IRS shall let it pass, not to mention the palm-greasing involved in addition in different forms. The western standards, meant for a developed & wealthy west, has colonized the minds of our bureaucracy to the extent that we cannot look beyond IMO & STCW Conventions. IMO & STCW conventions cost dear to the poor little Indian. We need to have our own sets of liberal regulations governing ship's flagging, class & its personnel certification. I shall continue on them on my next, in line with my views on the creation of a SEZ of shipping to counter this huge basic problem.

 

Unmasking Our Unions:

 Like all other organized industries in India, we in shipping, inherit our own Unions. Dock Workers Union, Maritime Union of India, and their various affiliations are a few exemplary ones in additions to myriad local unions in the private ports, directly or indirectly controlled and mobilized by various political parties. The hard question to ask is – do they do any good to the little man?

 

Any Union is a tool by a select group of workers to collectively bargain for better wages & working conditions. It often does. That means the employer pays more than he ought to pay, had there been a perfect market where he could pick the most productive workers commanding the lowest wages and with a least demanding working conditions. This higher cost translates into a comparatively more expensive final product or service. Most importantly, the entire unemployed and poor population of India is denied access to this protected job-market and at the same time is asked to pay unjustifiably more for such products or services. In other words, the little poor man is made poorer by the acts of the Union, on every living day. We have people dying of hunger in Kandhamal without jobs. The above could be an old argument. However, today, for every Indian there is one Chinese, one Philippines, two Srilankans, or 0.2 Singaporean and many others in line to do the same job, directly or indirectly at the same wages but at a much accelerated pace of productivity. So, by stifling our little man, and allowing the Unions do dictate terms, we have moved these jobs out of India into these countries. Little wonder, we are a poor cousin to China in manufacturing and infrastructure building or Philippine seafarer or the worker who does our transshipment job in Colombo, Singapore or Portkelang or the Chinese or Korean shipyard who builds our ships. We do prominently well in IT, because we have no Unions so far. The only thing that the Unions have done and would do to our people and country is – make them poorer and uncompetitive in a flat world, where places like China or Singapore have no potent Unions. This anti-free activity of Unions in India will also shrink the job market in India and in an extreme case shall eliminate it, as they have already done in the past; making many million, Indians go hungry.

 

The Union was an old answer to an old problem in a far away-land with a different Socio-Political-Economic structure than ours.  In retrospect, this was no solution to the early European industrialization, as it haunts them even today, much to our benefit and shall continue to do same in the future, even insidiously encapsulated in the demonic Capitalism of the US. India is a story of nearly 10,000 years of experience & civilization. Until seventeenth century, India was the wealthiest nation in the world with a wealthy population. If we did not need Unions in the past, we do not need them now nor in the future, to keep us impoverished.

 

Therefore, we need a more modern approach that gives freedom of opportunity to our vast population of unskilled and makes migration from unskilled to semi-skilled or skilled and semi-skilled to skilled as easy & less painful as possible. This is where; we need to look at our Trade-Licensing and Training system etc with new lenses and rid the systems of the spirit of "License Raj" & seclusion of the little man from the mainstream economic activities. After all, a country's wealth or strength comes from its little men.