A scheme devised to cut time and costs involved in clearing cargo conta..." /> Direct Port Delivery Tests the Calibre of J N Port - INDIA TradeWays

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Published on February 26th, 2017

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Direct Port Delivery Tests the Calibre of J N Port

A scheme devised to cut time and costs involved in clearing cargo containers imported into India through the country’s busiest container port located near Mumbai is struggling to live up to its potential.

Some of the 543 importers registered under the so-called Direct Port Delivery (DPD) scheme have told the Customs authorities that they want to opt out due to higher costs in availing the facility which is touted as a “game changer” by the government in its efforts to improve India’s ranking in the World Bank’s Logistics Performance Index where it is currently ranked 35th.

Jawaharlal Nehru Port Trust or JNPT, which ships close to half of India’s annual cargo containers passing through its ports and the Customs authorities are constantly improving the DPD scheme to make it attractive to importers.

On 14 February, the Customs agreed to designate 20 more container freight stations or CFS to handle DPD containers. So far, only the CFS run by Speedy Multimodes Ltd was designated for this task.

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.

While the original DPD scheme was intended to bypass CFS, often perceived as a laggard, to clear import containers, ground realities have demonstrated that the role of such Custom-bonded facilities cannot be eliminated from the container clearance matrix altogether. It may have to change profile to do more of warehousing and less of CFS activities once the DPD scheme gains traction with importers.

DPD essentially means import containers are delivered directly to pre-approved clients at the port itself instead of waiting in a CFS located outside for clearance, which reduces cargo dwell times and cost for shippers.

But, if the containers are not cleared by the DPD clients within 48 hours of their entry into the port’s yard or entry inward granted by the Customs, whichever is later, and the DPD client has not indicated his preferred CFS in the shipping documents, the container terminals were directed to shift them to Speedy Multimodes, the CFS designated by the Customs.

The decision to name Speedy as the designated CFS, initially, for keeping containers that are not cleared by DPD clients within 48 hoursis seen as a sign of favouring Speedy at the expense of 32 other CFSs that service JNPT.

The Customs have defended its decision to designate Speedy citing distance factor, since it is closest to the port, located 7kms away.

But, other CFS don’t buy this argument, mainly because the Speedy CFS is owned by JNPT but was given to Speedy Multimodes for operation and management for 20 years beginning 1 January 2006.

CFS executives say that this was an attempt to give assured business to Speedy which was lagging behind other CFS in volumes for many years due to its unwillingness to adopt a questionable or unfair trade practice widely prevalent in the CFS business.

CFS operators near several of India’s ports including JNPT routinely pay a so-called nomination premium to shipping lines to get import containers nominated to their CFS to promote business. This money is then recovered from the importers.

Speedy, being a CFS owned by government-owned JNPT, has refrained from paying nomination premium and this had impacted its volumes.

On 20 and 21 February, the Speedy CFS was chocked with containers as many DPD clients failed to take containers directly within the 48-hour time-limit and they were moved to Speedy. “It was chaos for two days. Now, it has come down. The blessing in disguise is that we don’t have many ships calling at the Port now because of the Chinese festival. The containers will be cleared in a couple of days. With DPD coming into force, some teething problems are bound to be there,” a JNPT official said.

Container shipping lines, custom house agents and CFS operators have publicly backed the DPD scheme, though, it’s success would hurt their business and revenue unless they morph into something else.

“33 CFS currently serving JNPT have invested money to create infrastructure. Overnight, JNPT and the Customs can’t say this is what it is,” said the managing director of one of the CFS.  The fate of another 5-6 new CFS that are under construction is uncertain as the government has decided not to give permits to new CFS in JNPT and Chennai Port Trust.

“DPD has turned murky. It’s in a mess; there is no doubt about it”, said the CEO of another CFS.

Importers, are not yet fully ready to accept DPD, but the Customs is “enforcing” the scheme on them, following a government diktat to increase the volume of DPD containers cleared at JNPT to 40% from the existing 8%.

On 20 February, JNPT chairman Anil Diggikar said that the number of importers registered under the DPD scheme jumped 8-fold in January 2017, with 483 importers registering as against 60 in December 2016. With this, the total DPD registrations have increased to 543.

“DPD registrations are rising because the Customs is forcing importers to do it to be allowed to take delivery of their containers or de-stuff containers and take cargo,” said an importer. The Customs is not ready to listen. Importers should be given a choice – to register under DPD or not. There are many who don’t want DPD, he pointed out.  

Firms such as Voltas Limited, Prama HIK Vision India Pvt Ltd and VIP Industries Ltd who ship cargo-laden containers in large numbers are looking to withdraw from DPD, citing transportation issues, space constraints inside factories to unload many containers simultaneously, inability to pay duty in advance and higher costs, something the government is seeking to reduce through DPD, posing a challenge to JNPT and Customs.

The observations made by the representative of VIP Industries during a 31 January Customs Clearance Facilitation Committee (CCFC) meeting at Jawaharlal Nehru Custom House bears this out clearly. Asia’s largest luggage-maker said that after availing the DPD facility, their costs have more than doubled and highlighted irrationality in levy of charges by various players in the DPD matrix. The VIP Industries official pointed out that they are importing 50-60 containers at a time and due to space constraints, on clearance, they have to hire a place for storage or warehouse in some CFS resulting in payment to terminal as well as CFS. Their earlier cost was Rs 7,000 per container which has gone up to Rs 15,000 after availing DPD facility. Moreover, the transporters are charging extra for DPD containers as they have to wait for a long time. He further pointed out that the terminals are collecting additional service request charges for changing CFS code in shipping documents.

Dr John Joseph, Chief Commissioner, Jawahar Customs, who chaired the 31 January CCFC meeting expressed “displeasure at the levy of additional charges leading to escalation in cost for DPD clients”.

Dr Joseph said that “cost savings was crucial to the success of DPD and asked port authorities and terminal operators to rationalise charges for DPD clients”.

The trade says that the DPD scheme should have been planned better, giving adequate time for the stakeholders to adjust. The hasty and forcible roll-out of the scheme has caught the trade on the wrong foot.

Before the introduction of DPD scheme, import containers were sent to CFS 1-1.5 days after they were unloaded from a ship. The importer has a right to nominate a CFS, a custom-bonded area, of his choice where the container should be sent for completing import clearance procedures. If this right is exercised by the importer, nomination premium will not come into the picture. The importers are billed only for the services provided by the CFS.

However, importers are rarely able to exercise this right in the face of hurdles put up by the shipping lines. “The shipping lines using their clout deny the importer his right to choose the CFS from where he wants to take delivery of the import container. The line nominates the CFS for which the CFS pays a nomination premium of as much as Rs 7,000 per container to the line. The CFS, then, recovers the nomination premium from the importers along with its charges for the services rendered,” a shipping ministry official said.

Once the Customs procedures are done, the container/cargo is delivered to the importer.

The maximum time taken for completion of all clearance and inspection procedures is in the CFS, L Satya Srinivas, joint secretary (Customs) Central Board of Excise and Customs or CBEC and N Muruganandam, (then) managing director, Indian Ports Association wrote in a June 2016 report submitted to the government suggesting steps to reduce cost and dwell time of cargo clearance in ports with specific reference to JNPT. The average duration of cargo in the CFS is around 8 to 9 days, the report concluded. Globally, containers are cleared in 2-3 days.

“It is pertinent that the total time taken by the Customs is around 6 hours for facilitated consignments and about 36 to 40 hours for non-facilitated cargo on an average. The importer or the Customs broker on his behalf takes about 2 to 3 days for payment of duties and completion of other regulatory requirements. Given the aforesaid, there is buffer time of 4 to 5 days of cargo dwell time in CFS. The cargo dwell time in CFS need to be brought down significantly. When facilitation levels are about 70% and all regulatory requirements are fulfilled by the Government within 6 hours there is no reason why the overall time for Customs, Port and Border handling time should be 311 hours as indicated in the World Bank Doing Business Report 2016. The long cargo dwell time in CFS would automatically add to the transaction cost,” the two-member study team wrote in the report.

Recognizing the fact that movement of container from yard to terminal gate is around 36 hours which is on par with international standards, the study team recommended increasing the volumes of DPD containers. Customs have to expand the scope of the Accredited Clients Programme and bring additional numbers into the fold of DPD, it said.

This explains the eagerness of JNPT and the Customs to drum-up more DPD registrations.

With DPD, import containers will to be delivered to the importer directly at the port with an average dwell time of only 1.5 days.

But, the extra costs and operational issues are acting as a dampner.

“During the visit, the trade complained that some terminals are imposing extra cost for DPD. This extra cost should be much less than the amount paid to CFS, in cases where DPD is not availed. Otherwise, there would not be any impetus (for importers) to opt for DPD,” the study team of Srinivas and Muruganandam wrote in the report.

When an importer is registered as a DPD client after complying with all the paperwork including opening an account for making requisite payments such as Customs duty, he can take delivery of the containers directly from the port terminals.

J N Port

Containers are typically stacked in different heaps in the terminal yard. To deliver the container/s to a particular DPD client, the terminal operator should shift the containers with his equipment. For this, the terminal operator collects a shifting charge from the DPD client.

The container terminal run by the Port Trust is not collecting shifting charges from DPD clients. But, the three private terminals are levying charges on this count from registered DPD clients.

Gateway Terminals India Pvt Ltd, the facility run by A P M Terminals, collect Rs 1,800 for 20-foot container and Rs 2,700 for a 40-foot container. Gateway has a revenue share agreement with JNPT and have requested it to waive off revenue share for DPD clients. But, the Port Trust has not agreed to this request.

Nhava Sheva International Container Terminal Ltd (NSICT) collects Rs 2,212 for a 20-foot container and Rs 3,318 for a 40-foot container while Nhava Sheva (India) Gateway Terminal Private Limited (NSIGT) charges Rs 2,604 for a 20-foot container and Rs 3,906 for a 40-foot container. Both NSICT and NSIGT are run by D P World.

NSICT/NSIGT count up to 24 hours as 1 shifting, and 24-48 hours as 2 shifting’s for computing the shifting charges. GTI take 24 hours as 1 shifting, 24-72 hours as 2 shifting’s and above 72 hours as 3 shifting’s and handling charges are collected accordingly.

“The government has now given instructions that all the terminals should charge a uniform rate of Rs 1,600 for a 20-foot container and Rs 2,300 for a 40-foot container as shifting charges,” a government official said. The Tariff Authority for Major Ports or TAMP, the rate regulator for ports such as JNPT, is expected to clear the proposal soon. Once the TAMP order comes, the rate will be made common to all the terminals. The importers will not be charged anything extra other than what is specified, irrespective of the number of shifting’ s within the time slabs.

The terminal run by JNPT will also start collecting shifting charges from DPD clients after the uniform rates are approved by TAMP to facilitate DPD without any hitch, the government official said.  

JNPT is also drawing up a logistics solution for DPD clients by engaging 5-7 big transporters through a tender to evacuate containers from the terminal on best pick-up basis in a bid to further rationalize shifting charges levied by the terminal operator.

After taking delivery of the containers directly from the port/terminal, importers are supposed to take them to their factory/premises. Some do, while some others don’t have sufficient space to stack many containers inside their factory/company. They need to take them to a CFS or a warehouse where they can be stored temporarily, take delivery of de-stuffed cargo or take loaded delivery as and when they need them. All DPD containers cannot be de-stuffed inside the port; they have to be taken to a CFS to de-stuff.

This triggered a call for a change in the working of CFS to cater to the logistics needs of DPD clients for their Customs-cleared containers.

The Customs have advised CFS to have a de-notified area within their premises because DPD containers are treated as ‘out of charge’ or OOC, implying that such containers have exited the Custom bonded area with the permission of Customs after paying duty.

Once OOC is issued, the container is treated as a normal domestic cargo and not an imported or bonded container. They cannot be stored in a bonded area anymore and should be send to a de-notified area.

All CFS have so far been operating as Custom bonded area or notified area. CFS now have to demarcate an area within their premises to store DPD containers to prevent mix-up with bonded containers.

Speedy CFS, for instance, have already demarcated a 15-acre area exclusively to store DPD containers. A few other CFS have started work on erecting a de-notified area.

“Earlier, people used to blame the Customs for the longer dwell time saying that because of the Customs, the containers are lying in the CFS. Now, by giving OOC to DPD clients, the Customs cannot be blamed for any delays in clearing import containers. Once OOC is issued, the accountability of the Customs over the container ends” said a JNPT official.

Once containers are issued OOC, it is not necessary they should be taken to a CFS. “If importers want, they can take containers directly to their factory. If you can’t take it or you don’t have any option, then you go to a warehouse or CFS”, the official said.

“If 40% of the import containers handled at JNPT are delivered directly to customers, they won’t be examined by the Customs at all. Imagine the amount of money saved by the importers”, he said.

“Besides, Customs have directed shipping lines not to nominate a CFS for DPD containers. This will restrict the ability of lines to nominate a CFS and extract nomination premium from the CFS. This is how the government is looking to cut costs,” he said.

And, if the DPD clients are not clearing the container within 48 hours, they are shifted to the Speedy CFS designated by the Customs, which is now being expanded to 20 more CFS. In such cases, the port terminals cannot collect shifting charges from the DPD clients who also saves on nomination premium which, otherwise, is levied from him when shipping lines nominate the CFS where the containers are to be sent. The DPD clients will only have to pay the rates prescribed by the CFS for imported or custom-bonded containers.

JNPT is also working on facilitating despatch of DPD containers by rail after OOC is issued.

DPD is not an easy thing; it is a challenging job, says the JNPT official.

DPD was conceived to deal with frequent congestions and allegations of over-charging of importers wherein CFS was often labelled the villain.

“CFS was called the bad boy. The general view was that CFS was making a lot of money. We could not give the trailers on time. Because of congestion, trailers could not go inside the port on time to pick up containers resulting in demurrage. Everyone blamed CFS,” said a CFS executive. 

CFS operators say that JNPT would find it difficult to give delivery to large number of DPD clients given the space constraints at its yard. “DPD containers require frequent shifting to facilitate delivery. To avoid inconvenience, the DPD containers will have to be stored separately, customer by customer. JNPT don’t have that much yard space. JNPT is unable to give delivery to 33 CFS. How are they going to give delivery to 500-odd DPD clients,” asks a CFS executive.

“It is not that there won’t be any benefits from DPD. Importers will benefit once the scheme is streamlined”, he added.

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