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Published on March 16th, 2017

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Govt Targets CFS Through Direct Port Delivery, but JNPT-Owned CFS Make Hay

For many years, a so-called Container Freight Station or CFS owned by the union government-controlled Jawaharlal Nehru Port Trust (JNPT) has been under-performing compared to many of its peers that service India’s biggest container gateway.

Suddenly, JN Port CFS – which was given to a private firm for operation and management – has sprung to life. It has, ironically, become the biggest and sole beneficiary of a program designed by the government to cut dependence on such intermediaries to speed-up and slash extra costs on clearing import containers landing at the port located near Mumbai which handles about 45 per cent of India’s cargo containers moved by sea every year.

Speedy CFS is thriving on rules and regulations framed by the Customs Department to implement the Direct Port Delivery (DPD) scheme introduced at JNPT, whereby import containers are delivered directly to pre-approved clients at the port itself instead of waiting in a CFS located outside for clearance in a bid to reduce cargo dwell time and cost for shippers.

A CFS is an off-dock facility licensed by the Customs Department to help decongest a port by shifting containerized cargo and for carrying out customs-related activities outside the port area. In India, due to Customs procedures and space constraints, the Customs clearance happens at the CFS, which are designated custom-bonded areas located in the vicinity of the ports.

It takes about 311 hours to complete Customs procedures, port and border handling for an import container at JNPT, according to the World Bank’s Doing Business Report 2016.

Of this, the maximum time taken for completion of all clearance and inspection procedures is in the CFSs, according to the shipping ministry.

“The average duration of cargo in the CFSs is around 8 to 9 days. The long cargo dwell time in CFSs would automatically add to the transaction cost. The cargo dwell time in CFSs need to be brought down significantly,” a ministry spokesman said.

Similarly, on the cost for Port and Border handling which is indicated as $342 in the World Bank Report, the cost for handling within JNPT is only around $60, while the remaining cost is related to CFS and other logistics, he stated.

Since starting operations from 1 January 2006 on a 20-year contract, Speedy run by DBC Port Logistics Ltd has been running at about 30-40% of its capacity, often paying from its pocket to compensate for the short fall in the contractually-mandated minimum volumes as 33 CFSs servicing JNPT fought for the same containers.

JNPTSpeedy’s ability to attract more containers was also hampered by its inability to follow a practice widely prevalent in the CFS business because its 68-acre facility belonged to the government-owned JNPT and hence regulated by the Tariff Authority for Major Ports (TAMP). Thus, Speedy is the only CFS among the 33 that serve JNPT whose rates are regulated by TAMP.

CFS operators servicing several of India’s ports including JNPT routinely pay a so-called nomination premium of as much as Rs 7,000 per container to shipping lines to get import containers nominated to their CFS to promote business. This money is then recovered from the importers along with the CFS charges.

Though importers have the right to choose a CFS and inform the shipping lines 72 hours before the arrival of the ship, this right is often impractical to exercise given that lines insist on importers surrendering the original bill of lading while submitting relevant documents in this regard.

When importers are unable to choose a CFS, this right is assumed by the shipping lines.

Speedy, being a CFS owned by government-owned JNPT, has refrained from paying nomination premium as TAMP would not allow that payment to be factored in while setting rates for Speedy. This adversely impacted volumes of Speedy and the facility hardly managed to handle some 4,000 containers a month.

That was until January this year. In February, the first full month when the DPD facility entered full force, Speedy’s volumes more than doubled to some 9,518 containers and the trend is set to continue unless the Customs re-draw rules. Most of the other CFSs reported drop in volumes, some of them steep, during February.

The DPD program has helped Speedy turn the tables on the other 32 CFSs with the Customs playing a big supporting role either “knowingly or unknowingly”.

Registered DPD clients have to clear the import containers within 48 hours of their entry into the port terminal’s yard or entry inward granted by the Customs, whichever is later, according to rules framed by the Customs. Otherwise, the port terminals have been directed by the Customs to shift them to the Speedy CFS, even if the DPD client has indicated his choice of CFS to the lines 72 hours prior to the arrival of the ship.

The Customs designated Speedy CFS solely for handling DPD containers that are not taken delivery by the importers from the port terminal within 48 hours, citing distance factor. Speedy is located hardly 7 kms from the Port.

Simultaneously, the Customs also directed shipping lines not to nominate a CFS of their choice in case where an importer is unable to exercise his right to choose a CFS 72 hours in advance of the arrival of the vessel.

The Customs further directed shipping lines not to put “any extra condition on the importer” such as surrendering the original Bill of Lading, that blocks the importer from choosing his CFS.

This was done for two reasons – to eliminate the possibility of lines extracting a nomination premium from CFS which hikes the transaction costs of importers and to ensure that the containers are shifted to Speedy if importers fail to take delivery within 48 hours.

On 14 February, following protests from DPD clients, the Customs designated 21 more CFSs to handle DPD containers. But, the expansion of the list of CFSs came with strict conditions.

If an importer fail to take delivery of DPD containers from the port terminals within 48 hours, the containers would be shifted to the CFS preferred by him and intimated to the shipping lines 72 hours before the arrival of the ship, provided this CFS is one among the 22 CFSs designated by the Customs for handling DPD containers. Otherwise, by default, they would be shifted to Speedy CFS.

It is always the responsibility of the CFS preferred by the importer to make arrangement for transporting the container from the port terminal to the CFS.

But, the Customs also said that when CFS logistics is being used for evacuation of DPD containers, it is the responsibility of the CFS concerned to ensure that the so-called Customs ‘Out of Charge’ or OOC has been obtained before the container leaves the port terminals and enter the CFS. The Customs officer posted at the gate of CFS has been asked to verify the compliance.

If this requirement is not complied with, the containers will be moved to Speedy CFS even if the importer has indicated his preferred CFS to the shipping lines 72 hours in advance of the arrival of the ship and it is a part of the 22-CFS list approved by the Customs.

OOC is granted by the Customs authorities after the importer pays all statutory levies including customs duty and completes other clearance formalities.

The Customs stipulation implies that import containers cannot go to any of the CFS other than Speedy, says a trade executive, adding that a CFS operator is unable to check whether the import container has got OOC or not.

“If the importer does not take OOC and 48 hours pass, the containers are moved to Speedy CFS. Even if the other 21 CFSs want to take those containers, first they will have to ensure that the containers have OOC,” he said.

“This is the key difference. After giving permission to 21 more CFSs to handle DPD containers, the Customs have prescribed that they will only be allowed to move containers that have OOC. While the same containers will be shifted to Speedy CFS after 48 hours even if they don’t have OOC. So, Speedy is not bound by any condition in order to move containers to its CFS – whether the containers have OOC or not. It will simply pick up the containers after the 48-hour time limit is over and move it to its CFS. This is nothing but partiality towards Speedy at the expense of 21 other designated CFSs,” he said.

This alleged favoritism comes a few months after DBC Port Logistics Ltd, the entity that ran Speedy Multimodes Ltd on an operation and management contract with JNPT, was acquired by Swastik Enterprises Ltd, in October 2016. The ownership change was approved by JNPT.

JNPT has some 778 registered DPD clients. If their containers don’t get the OOC, after 48 hours, the importer cannot take it out, either to his factory or to his preferred CFS. They are moved to Speedy CFS. “This is hurting 21 other designated CFSs”, said the trade executive.

While asking CFSs not to lift containers that are not OOC, the logical thing for the Customs to do was to make the Customs officer posted at the Port gate itself to check and allow only those containers that have OOC to pass and move to the CFS.” But, what they have done is, at the gate of the CFS, a customs officer will check and if the container is not OOC, it will not be allowed inside the CFS. The container will then be in no man’s land because it can’t go back to the port now. There will be chaos”, he said.

CFS operators want Customs to give equal treatment to all. Speedy CFS, according to rival CFS operators, is being singled out for preferential treatment though all the CFS are on the same pedestal as far as CFS license is concerned.

“Agreed that the land on which Speedy operate is owned by JNPT, but the CFS license is solely in the name of Speedy. All the money that the public pays is collected by Speedy, which is purely a private entity. Out of the money collected, Speedy gives royalty per container and lease rentals to JNPT. So, basically, it is a private entity. You cannot call it a JNPT CFS because the CFS license is in the name of Speedy. Hence, when the Customs makes rules which leads to automatic flow of containers/assured business to Speedy, it is just benefitting a private entity”, he explained.

“It is virtually creating a monopolistic situation and the consequent arm-twisting of importers. The Customs rules are giving hardships to everybody. Importers are hassled,” said the director of one of the 32 CFSs.

If the DPD client does not clear the containers within 48 hours, the Customs should allow to shift them to the CFS preferred by the importer and indicated in the documents without stipulating that the containers should first have OOC to be able to do this, he said. “This is what should happen, but it is not happening”.

While the general view is that DPD is good for importers and trade, it is seen to be benefitting only Speedy CFS. And, Speedy is making best use of the opportunity, the CFS director said.

“Thus, with loads of help from the Customs, Speedy is now making up for the business lost over the years ironically through a program designed to eliminate the role of CFSs which are seen as an unwanted intermediary in the import clearance process”, an industry executive said.

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