Container traffic growth to slow down over next 3 years

1) Growth in container traffic volumes is estimated to decline by 1% in 2013-14 and to increase by 3-5% over
3 years till 2015-16. Reasons: Continued recession in the EU zone and sluggish growth in major developed
economies impacting export growth. Weak domestic macroeconomic situation and rupee depreciation vis- a-
vis the US dollar impacting import growth.
2) CFS/ICD industry's revenues expected to decline by 3% in 2013-14. Reasons: Slowing container traffic
growth, falling dwell time and increasing competition leading to a fall in realizations.
3) With the economy expected to recover post 2013-14, the industry is projected to grow by 7-8% CAGR over
the next 2 years.
4) Operating margins of the industry are expected to decline by 600 bps in line with fall in realizations. In 2013-
14, RoCE is expected to decline by 200-300 bps y-o-y due to slowing growth in container traffic.
5) Total container traffic handled by Indian ports grew by 7.3% over the last 3 years to 10.0 mn TEUs (twenty-
foot equivalent units) in 2012-13 due to healthy growth in capital and engineering goods, textiles and
agricultural products.
6) Estimated total market size of CFS/ICDs is about Rs 45 bn, of which the CFS segment comprises Rs 30 bn.
7) Over the next 3 years, CRISIL research expects investments of about Rs 8-10 bn towards the establishment of
CFS/ICDs.
Competition to intensify at JNPT and Chennai ports (Competition scenario in 2012-13)

1) No capacity expansion plans at JNPT port till 2014-15 (utilization is about 97-100%). Mundra and Pipavav ports
expected to service majority of the incremental traffic till 2014-15.
2) Competition at JNPT is expected to remain high due to presence of a large number of CFSs near the port,
capacity constraints, higher capacity utilization levels, slowing container traffic growth and new capacity additions
by CFS players.
3) Chennai port is characterized by a large number of low capacity CFS players. Competition is very intense at
Chennai port due to weak container traffic growth leading to lower capacity utilizations of CFS players. Some
CFS players have shut their operations near the port. With the expected slowdown in container traffic growth
over the next year, utilizations of CFS players are likely to remain under pressure. As a result, we expect some
more players to shutdown their CFS operations.
4) Competition at Mundra port is lower than that at JNPT and Chennai ports due to presence of lesser number of
CFSs. At present, no major infrastructure bottleneck issues (hence, TAT of large capacity container ships
relatively less), congestion issues at JNPT port.

Market size of CFS/ICDs:
1) Handling, transportation and ground rent are the key revenue sources for CFS/ICD operators
2) Market size 45 bn (CFS 30 Bn and ICD 15 bn). CFSs derive revenues from handling & transportation
charges- 22bn and ground rent-8 bn and ICDs derive revenues from handling charges 8 bn and ground rent 7
bn.
3) H&T mainly includes stuffing/de-stuffing the container with the goods, and transporting the container
between the port and the CFS.
4) In the case of ICDs, only stuffing and de-stuffing is done at the ICDs as the transportation of the
container from/to the ICD is done by the exporter/importer.
5) While the H&T revenues are applicable for imports/exports, ground rent is primarily applicable for imports
where the containers are stored for a certain period of time till they are cleared by customs. The average time for
storing containers (dwell time) is around 10 days for imports as of 2012-13, and 3-4 days for exports.
6) Of the total container traffic handled, major ports (government owned) accounted for about 77%, and the rest
was handled by non-major ports (private ports) such as Mundra and Pipavav. Further, about 81% of the total
container traffic was handled by four ports JNPT (42%), Chennai Port (15%), Mundra Port (17%) and Pipavav
Port (6%).
7) With no capacity expansion likely at JNPT till 2014-15, the share of non-major ports is expected to grow to
about 28% by 2015-16 from the current 23%. Better infrastructure facilities, low congestion and increasing shipping
frequency to non major ports such as Mundra and Pipavav coupled with high congestion levels at JNPT, which is
running at 97% utilisation, will boost the share of non-major ports.
8) Tuticorin and Kolkata handled container traffic of 5% each in 2012-13.
9) Imports accounted for 51% of the total container traffic handled by major ports in the country in 2012-13,
and exports constituted the balance. Historically, the range is same.
10) Of the total containers imported, about 55% were handled by CFSs, 28% by ICDs, and the remaining 17% is
direct traffic flowing from the ports to the factory/importers' destination.
11) Under the Accredited Clients Programme (ACP), certain privileged importers are allowed to get their imports
customs cleared at the ports and need not use the services of CFSs. The AC status is given to importers with
demonstrated clean track record, and history of compliance with the laws and regulations enforced by the customs
department. Once the importer receives Accredited Client status, import consignments will not be subjected to
customs examination. Although the imports will undergo random checks, the clearance time for importers gets
substantially reduced.
12) Of the total containers exported, about 34% were handled by CFSs, 26% by ICDs, and the remaining is direct
traffic flow after it is cleared at the factory. Exporters typically stuff the containers at the factory, after which the
containers are cleared by the excise/custom authorities at the plant and are directly transported to the port
without employing the services of a CFS.
13) Currently, of the total container traffic (imports and exports) in the country, around 45% is estimated to be
handled by CFSs, about 27% by ICDs, and about 28 per cent directly at ports.

Demand Outlook:
1) In 2012-13, India's container traffic growth is expected to grow at a CAGR of about 3-5% over the next 3 years as
compared to 7.3% CAGR recorded between 2009-10 and 2012-13.
2) Container traffic growth to recover only in 2014-15 (Expected growth 4%) and 2015-16 (7%), due to
an improvement in the global and domestic macroeconomic environment.
3) Dwell time declined as customers focus on clearing containers quickly from ports.
4) In the sluggish domestic macroeconomic environment, companies competing to increase market share by reducing
tariffs. Revenues of CFS/ICDs to decline by 2-3% in 2013-14
5) Congestion at JNPT and infrastructure bottlenecks at Chennai Port.
6) Mundra and Pipavav ports to service majority of the incremental traffic from JNPT
7) Supply-side issues at major ports will restrict the growth in container traffic handled by CFS' at major ports, and
CFS/ICDs catering to non-major ports such as Mundra and Pipavav will see majority of incremental growth over
the next 3 years.
8) CFS players to add additional capacities at JNPT and other non-major ports leading to increased competition. No
major capacity additions at Chennai Port due to infrastructure bottlenecks, and also, current capacity is sufficient to
service current and incremental container traffic at the port.
9) Capacity utilizations: JNPT (97%), Chennai port (71%), Mundra (70%) and Pipavav (61%)
10) Container traffic at non-major ports expected to grow at a faster rate of 9-10% to 3 mn TEUs in 2015-16
from 2.3 mn TEUs in 2012-13 due to infrastructure bottlenecks and capacity constraints at major ports such as
JNPT and Chennai. Hence, the share of non-major ports in the total containerised traffic is expected to increase
to 27-29 per cent from 23 per cent over the next 3 years.
Growth drivers:
1) Indias exports and imports to drive container traffic growth: Account for more than 90% of containerized cargo in
India. Non oil exports and imports grew at a CAGR of 10% over the past 5 years and expected to maintain this
pace for the next 5 years as well.
2) GDP (industry) and non-oil exports and imports demonstrated a close correlation with container traffic because
sectors such as auto, capital and engineering goods, agricultural products, granite, steel products, textiles and
chemicals form a substantial part of our EXIM trade.
3) India accounts for 5.6% of world GDP, but accounts for a mere 2.1% of global trade in 2011-12 (0.7% in 2000).
Over the last 5 years, global trade has grown at 8.1%, while India's trade with the rest of the world has grown at a
robust 20.7 per cent. Over the long term, increasing trade with emerging economies, increasing technological
capabilities, and favourable policies to further enhance India's share in global trade
Operating margins to decline sharply owing to weak container traffic demand:
1) In 2013-14, operating margins expected to decline by 600 bps due to weak growth in container traffic movement,
decline in dwell time (time spent by a container at a CFS/ICD) and increasing competition. (FY09- 58%, FY10-
52%, FY11- 50%, FY12 55%, FY13- 43% and FY14 projected 37%). Traditionally, this industry has been
driven by high operating margins.
2) Gateway distriparks and allcargo logistics ltd together account for a market share of 15% of the CFS/ICD industry.
3) Average dwell time in FY13 at various ports declined from 12 days to 11 days and expected to be 10 days in FY14
as importers increased focus on reducing storage costs and quickly evacuated containers from CFSs due to
slowdown in imports and falling rupee.
4) Utilisation levels are the key determinant of players' profitability as the industry is capital-intensive and majority of
costs such as land, construction expenditure, reach stackers, cranes and trailers are fixed in nature.
5) ROCE declined FY09: 41%, FY10-32%, FY11- 27%, FY12- 38%, FY13- 22% and FY14- 20%. Declined in FY11
due to addition of capacities by majority of the players, improved during 2011-12 with a healthy growth in
container traffic and strong increase in realizations, declined in 2012-13 as operating margins fell because of weak
container traffic movement and expected to drop due to weak container traffic growth, falling realizations owing to
increasing competition and lesser dwell time in 2013-14.
6) Operating margins and RoCE for Allcargo are high due to synergies from the NVOCC (non-vessel owning
common carrier) business, where it provides end-to-end freight services to exporters and importers of cargo. Due
to this, the company has strong relations with shipping lines that provide the import side business for its CFS
division. This is reflected in the fact that 85-90 per cent of the total container volumes handled by Allcargo at JNPT
are imports. Compared to exports, imports enjoy much higher realizations and profitability due to ground rent
revenues.
7) The dwell time for imports and exports is in the range of 10-12 days 3-4 days respectively. Higher dwell time for
imports leads to higher ground rent revenue, which boosts profitability due to lower operating costs for storage
services.
Operating cost break up:
1) Container transportation, power and fuel, and labour constitute majority of operating costs.
2) In 2012-13: Power and fuel (10%), container transportation (26%), equipment transportation (26%), equipment hire
(11%), repair and maintenance (4%), labour charges (17%), other expenses (32%). Other costs include sub-contract
charges, surveyors' fees, auction expenses and fees for operating a CFS.
3) Container transportation cost is incurred when trucks are hired to transport containers from/to the port. Power
and fuel costs, on the other hand, are incurred towards operating self-owned trucks, reach stackers, cranes and
reefer containers.
4) This industry requires skilled labour to operate sophisticated equipment and handle large capacities, and hence, is
highly labor-intensive. Considering the significant employee cost, several container freight station (CFS) players hire
labour on contractual terms, wherein charges are linked to the number of twenty-foot equivalent units
(TEUs) handled.
5) Equipment hire charges, licencing fees, surveyors' fees and auction expenses are other costs incurred. Licencing fees
arise on account of the mandatory renewal of licences each year, whereas auction expenses are attributable to the
auction sales generated when the CFS or inland container depot (ICD) auctions long standing cargo, not cleared by
customs.
6) Players that work on the operator model, develop and manage the CFS/ICD on behalf of owners, based on a long-
term contract and an annual fee.
Profitability drivers:
1) Reduced TAT, capacity expansion and integrated offerings
2) Diversification of operations: Companies forayed into a multitude of operations earned higher profits despite
the slowdown in international trade. It also acts as a hedging tool.
3) Integration of services: The market is in need of one-stop logistical solutions and would be willing to pay a
premium for such a service. Allcargo constituted a new division, Project and Engineering Solutions and
Gateway Distriparks initiated a rail freight network.
4) Increased traffic will lead to higher revenues, which will in turn, result in higher profits.
5) Increase in capacity: Our ports have a high utilisation rate vis-a-vis the major international ports, denoting a
supply side constraint, which hinders the optimum growth of the industry.
6) Reduction in TAT: The average TAT at India`s major ports ranges around 2 days, against an average TAT of
merely 8-10 hours at the prime ports of the world. Thus, a reduction in the TAT at Indian ports will help ease
the pressure on capacity and increase the throughput.
Outlook for investments:
1) Investments to the tune of Rs 8 -10 bn expected in CFS/ICDs over next 3 years.
2) Investments expected to slow down due to slowing container traffic growth over the next three years, we expect
investments to significantly slowdown during the same period. However, the Indian container industry has
considerable potential over the long term due to lower level of containerization as compared to its global
counterparts. Infrastructure and capacity bottlenecks at major ports have affected the sector's growth potential.
3) With the growth in container trade being the key driver, setting up new container terminals and expanding
existing container terminals at major and non-major ports will drive investments in CFSs/ICDs. The long-term
demand (especially post 2015-16) for container trade remains healthy.
Definitions:
1) CFS/ICD are facilities set up for the custom clearance of export and import containers, handling and storing
EXIM cargo on a temporary basis, and storing empty containers. It is a customs-bonded facility with a public
authority status, equipped with warehousing space, adequate handling equipment and IT infrastructure.
2) It provides an integrated platform for activities such as custom clearance, loading/unloading, transporting and
stuffing/de-stuffing of containers. CFS and ICD service providers also provide other services such as less than
container load (LCL) consolidation, refrigerated warehousing, hub-and-spoke services, etc.
3) In essence, the CFS/ICD industry forms a link between multi-modal transport operators (MTOs) and shipping
lines in the logistics value chain.
4) While the functional aspects are similar for CFS and ICD facilities, the only difference is that a CFS is located
near the gateway port (off-dock facility located near service ports) and an ICD is located in the hinterland.
5) Logistics value chain port based

6)

7) CFSs/ICDs play a critical role as they are appointed as custodians of imported goods by the Commissioner of
Customs U/s 45 of the Customs Act, 1962. Imported goods remain in the custody of the CFS/ICD until
they are cleared for consumption, warehoused or transshipped to another location. Emergence of CFSs in
and around ports and ICDs in hinterlands has aided a manifold increase in port handling capacity.
8) Custom House Agent (CHA): A CHA is the licensed agent of the importer or exporter, designated to
perform customs clearance services from the customs authorities.
9) Multimodal Transport Operator (MTO): MTO is the chain that interconnects different links or modes of
transport, such as air, sea and land into one complete process to ensure an efficient and cost-effective door-
to-door movement of cargo under the responsibility of a single transport operator and under a single
multimodal transport document.
10) Freight forwarder: The agent who arranges the carriage of goods, including connected services and other
related formalities on behalf of the exporter or importer, is a freight forwarder.
11) Shipping line: These ship owners physically transport goods from the port of origin to the port of destination
through the sea route. They are the most important initiators for the CFS business.
12) Consolidators: A consolidator collects smaller cargo loads from exporters and consolidates them into a full
container load for each destination.




Owned versus operator model of business:
1) Majority of the CFS's/ICDs are based on the ownership model wherein the promoters themselves operate the
CFS/ICD. These include players such as CWC, Allcargo Global Logistics, CONCOR etc.
2) Few entities develop and manage the CFS/ICD on behalf of the owners, based on a long-term contract with
them. Typically, the operating entity pays an amount upfront along with an annual fee to the CFS/ICD
owner, considering the opportunity to manage a CFS. The operator is responsible for the cost of developing
and refurbishing the CFS and generates revenues by managing operations. Operating entities include players
such as Hind Terminal, which operates CFSs owned by CWC located near the JNPT and Mundra ports, and
Gateway Distriparks Ltd which operates a CFS, owned by Punjab Conware in the JNPT area.
3) Thus, the operator model enables players to enhance their presence in the business without investing capital.
The players typically have 10-15 year contracts, wherein the operator makes a fixed one-time charge and a pre-
determined variable charge, levied per twenty-foot equivalent unit (referred as TEU) handled per annum with
a minimum charge payable.
4) Products and services: Customs clearance CFSs/ICDs have in-house facilities to expedite the clearance of
cargo, receipt and despatch/delivery of cargo, stuffing and de-stuffing of containers, transit operations by
rail/road to and from serving ports, consolidation and desegregation of cargo, temporary storage of cargo and
containers and repair and maintenance of containers.
5) Benefits: Consolidation points for long-distance cargo and its unitization, transit storage in secure
environment, localized customs and regulatory compliance, reduced level of demurrage and pilferage, no
customs required at gateway ports, optimization in container utilization, optimization of transport
cost/inventory cost, increased trade flows and liability transfer through issuance of bill of lading in advance
Key infrastructure components in a CFS/ICD
1) Warehouse: It is a covered space/shed where the cargo is received, the imported cargo is stored/delivered,
containers are stuffed/stripped/reworked, export cargo is consolidated and import cargo is unpacked. This is
where the customs authorities physically examine the cargo. Export and import consignments are generally
handled in different nominated warehouses/sheds.
2) Container yard: The container yard occupies the maximum area in a CFS/ICD. In the yard, both used as well
as empty containers are stacked for onward transportation. A container yard may have several clearly
demarcated areas relating to hazardous chemicals, refrigerated goods, etc.
3) Rail siding: Rail siding is required for loading/unloading of containers onto/from trains, for further
transportation.
4) Equipment: Dedicated machinery and equipment is required for lifting purposes and transporting containers
over short distances. These include forklifts, reach stackers, straddle carriers, overhead cranes, rail mounted
yard gantry crane, DG back up points, etc.
5) Tracking system: With a large number of containers being handled at any given point in time, it is imperative
to have an electronic tracking system in place.
Pictorial depiction of basic workflow at a CFS



Process flow: Imports
The shipping line/importer submits a request to the CFS for movement of container from the port to the
CFS. The CFS issues a job order to the handling and transport contractor (HTC), who takes delivery of the
container from the port and brings it to the CFS.
The cargo in the container is examined and the importer pays the duty assessed to the customs authorities.
Handling/storage charges are paid to the CFS.
The importer either takes the examined container to the factory for de-stuffing or brings empty trucks to the
CFS for loading the cargo directly from the container.
With customs approval and under customs supervision, the cargo intended for transhipment to other CFS /
ICDs are once again stuffed in other containers.
The shipping line submits a request for the movement of empty import containers to their designated yard or
for allotting empty containers to an exporter for stuffing in the CFS. Based on the request, empty containers
are moved to the yard.
The importer may submit a request to the CFS for storage of the examined goods in the bonded warehouse.
The importer pays the customs duty to customs authorities and charges the CFS for part delivery of the goods
taken out of the bonded warehouse.
If the importer does not take the cargo within 60 days despite issuance of a notice and approval of customs
for valuation, the same is sold through a public auction and the proceeds are used to recover the cost of the
auction, customs duty and company's charges.
Process flow: Exports
The export cargo is brought to the CFS by the exporter or his agent and is stored in sheds/open yards.
The exporter/CHA/consolidator gives a requisition for moving empty containers, which are moved through
the handling and transport contractor to the CFS from the shipping lines yard.
The cargo is examined and stuffed in designated containers under the supervision of customs authorities.
The loaded container is moved to the port yard from the CFS and placed at designated places earmarked for
containers of a particular vessel, set to berth and sail at a predetermined time and date.
Size of containers
Containerisation refers to the method of packing goods in reusable containers of uniform shape and size for
transportation. Goods normally are of different shapes and in different quantities, but when packed and shipped in
containers, they can be handled as a single piece, thus making transportation a lot easier. Containers come in different
shapes and sizes. The standard lengths are 10 feet, 20 feet, 30 feet 40 feet and 45 feet, but the most common
containers are 20 feet equivalent units (TEU) containers.


Market segment - Segmentation

Inter-Ministerial Committee monitors CFS/ICD industry
1) An Inter-Ministerial Committee, comprising representatives from different departments of the Ministry of
Commerce, regulates the CFS/ICD industry. The committee considers proposals submitted by the public and
private sectors intending to set up new CFSs/ICDs across the country, and monitors their progress.
2) The IMC examines CFS/ICD proposals based on the following guidelines:
Feasibility study: A feasibility study that explains the economic viability of the proposed CFS/ICD has to
be prepared and submitted. Data used for drawing this analysis should be from secondary sources and field
observations. The report should include the discussion and views of the exporters, shipping lines, freight
forwarders, port authorities, concerned commissioners of customs/excise etc. on the feasibility of the project.
Tariff and cost: The applicant must submit the proposed tariff structure and costing details along with the
feasibility report.
Traffic: While regulatory authorities have not specified a limit on the twenty-foot equivalent units (TEUs)
traffic handled by CFSs/ICDs, they have prescribed guidelines for this purpose:
o ICD - 6,000 TEUs per annum (outbound and inbound)
o CFS - 1,000 TEUs per annum (outbound and inbound)
Land requirement: The minimum land required to set up a CFS is 1 hectare and that for an ICD is 4
hectares. However, exceptions are permitted in case of technological advancement or other reasons justifying
the requirements.
Equipments required: The IMC guidelines make it mandatory for each CFS to possess a minimum set of
equipment, comprising forklifts, straddle carriers, rail mounted gantry crane, etc.
o Age of equipment: Dedicated equipment such as lift truck, straddle carrier, rail mounted yard gantry
crane, rubber tyred yard gantry crane, etc should be in good working condition (not more than 5-8
years old) and equipped with a telescopic spreader for handling 20 ft and 40 ft boxes.
o Minimum residual life: The equipment must have a minimum residual life of 8 years, duly certified
by the manufacturer or a recognised inspection agency.
o Throughput exceeding 8,000 TEUs: An additional unit of equipment should be provided as and
when the throughput exceeds 8,000 TEUs per annum or its multiples for lift truck-based operations.
o Chassis-based operations: Terminals resorting to purely chassis-based operations do not require
dedicated box-handling equipment. However, chassis-based operations should be restricted to CFSs
that are located in proximity to the ports.
o Forklifts: Small capacity (2-5 tonnes) forklifts must be provided for cargo handling operations in all
terminals.
Rail head CFS/ICD: Applicants intending to set up rail-based ICDs must bear all costs relating to
infrastructure facilities, including land, track, handling equipment for containers, maintenance of assets
(including track, rolling stock etc).
Top CFSs handle 45-50% of container traffic at ports
1) As of 2012-13, JNPT, Chennai port and Mundra Port together handled about 75% of the country's total
container freight traffic. However, JNPT handles almost 1.3 times the traffic handled by Chennai and Mundra
ports. JNPT, Chennai and Mundra have a presence of about 28, 26 and 11 CFS players, respectively.
2) Of the above, competition at the JNPT and Chennai ports is expected to remain very high, albeit for different
reasons.
3) JNPT port is operating at full capacity utilisation and no new capacity additions are expected until 2014-15. Any
new capacity additions will lead to higher competition, as players will look to increase their market share.
4) On the other hand, slowdown in growth coupled with low capacity utilization at Chennai port is expected to
keep competition at higher levels amongst CFS players.
5) However, Mundra is getting incremental container traffic due to almost full capacity utilization and lack of
capacity additions at JNPT port. The situation at JNPT port and the presence of very few players is expected to
keep competition at lower levels at Mundra port as compared to the scenario in JNPT and Chennai ports.
6) Top 4-7 CFS players together contribute 50-55 per cent of total container traffic at each of the JNPT, Chennai
and Mundra ports
7)
8) CONCOR was the sole container rail operator in the country until 2006, as all major ICDs necessitated rail
linkages, which the company alone possessed. In 2006, a new government policy by Ministry of Railways enabled
private operators also to obtain licenses for operating container trains on the Indian Railways'
network. CONCOR's share in total container rail traffic decreased to 79.5% in 2012-13 from 100% in 2006. As of
2011-12, there were 13 private container train operators, mainly connecting the JNPT and Mundra ports.
Increasing competition in the ICD segment from private players is set to further drag down Concor's market
share in the coming years.
9) Private container rail operators include (Adani Logistics Ltd,Boxtrans Logistics India, Central, Warehousing
Corporation,Container rail road services,Delhi Assam Roadways corporation, Emirates Trading Agency,Gateway
Rail freight,Hind Terminals, India infrastrucure and leasing, Innovative B2B Logistics solutions,Pipavav Railway
Corporation ,Reliance Infrastructure Engineering and SICAL Logistics Ltd)

CFS/ICD industry witnesses intense competition due to high fragmentation, low value addition
1) There are three types of CFS/ICD players: independent private players, private players associated with
shipping lines, and public sector players. Pricing pressure in this segment is high due to lack of differentiation
in services offered. However, established companies that maintain good relations with shipping liners, are
located in proximity to the ports, and have a robust ICD network and good railway connectivity enjoy
relatively higher pricing power.
2)
3) Threat of new entrants: Medium: CFS/ICD industry is moderately capital intensive. With a capital
requirement of Rs 35- 40 Crs, the threat of new entrants in this industry is moderate. Also, the industry needs
to comply with guidelines of the Inter-Ministerial Committee under the chairmanship of the Additional
Secretary (Infrastructure) and the Ministry of Commerce.
4) Bargaining power of buyers: High- Even as exporters and importers constitute the main base of customers,
the decision to choose a CFS/ICD operator lies with the shipping liner for import traffic. Shipping liners have
high bargaining power due to the presence of a large number of CFS players. For the exports segment, the
decision to choose a CFS/ICD lies with the shipping liner, freight forwarder or the exporter. Overall, the
bargaining power of customers in this industry is high on account of the existence of significant number of
CFS operators, and lack of differentiation in services provided by the industry.
5) Bargaining power of suppliers: Medium -Major equipments required for daily operations of a CFS/ICD
operator are reach stackers, cranes and tractor trailers. The suppliers of reach stackers and cranes are mainly
foreign players with established operations in India. Over the past few years, the bargaining power of suppliers
has decreased with more foreign players entering this segment.
6) Threat from new substitutes: Low - The CFS/ICD industry was established primarily to de-congest ports
and provide quicker custom clearance for containers. The industry faces no major risk from substitutes other
than an increase in container yard capacity at major ports.
7) Competitive rivalry: High - The CFS/ICD industry faces high competition, given the large number of
players and the low level of value addition. The level of competition in the CFS segment is higher as compared
to the ICD segment, where CONCOR handles about 80 per cent of the traffic. However, competition in the
ICD segment is expected to increase with more private players setting up rail-linked ICD facilities.
Key success factors
The success of a CFS/ICD depends on:
1) Location: A favorable location ensures lower transportation costs and higher accessibility. CFSs located
adjacent to ports, not only attract higher traffic, but also enjoy better bargaining power. Similarly, ICDs near
industrial belts have a distinct locational advantage.
2) Efficiency of operations: A higher dwell time implies higher ground rent income, but results in lower
throughput especially when capacity utilization rates are high. Hence, an optimum balance between the dwell
time and the throughput enhances the top line and bottom-line.
3) Relationship with shipping lines: Maintaining strong relationships with shipping lines and customs house
agents would ensure constant throughput for the CFS/ICD. Typically, the shipping line decides the CFS
operator that will handle the transported containers. This discretionary authority, which the shipping lines
enjoy, makes it very important for CFS operators to maintain strong relations with them.
4) Integrated services: CFSs and ICDs offer similar types of services. Hence, to attract more clients and
generate greater revenues, players have been offering integrated services. Thus, a pool of services are
presented to clients as a one-stop solution. These include rail transportation and services of a multi-modal
transport operator.
Key risks:
1) Foreign trade risk: A weak international trade situation translates into lower profits for most of the CFS
players. However, macroeconomic growth forecasts and signs of a revival in international trade indicate
significant potential for the CFS industry. Such risks could be mitigated through diversification, mostly into
related logistic activities or by increasing dependence on domestic container traffic.
2) Regulatory risk: Due to strong linkages with export and import transactions, the CFS industry comes under
the ambit of several regulatory measures and stipulations. Any delay caused by regulations can impact the
operations of the industry. However, increasing government focus on initiatives to support this industry may
help mitigate regulatory risks.
3) Competition risk: The CFS industry has 5-6 major players which provide services at all domestic ports, and a
few local players. The major players command a larger market share and the competitive intensity between
them is high. Since the basic services provided by these players is not different, players are increasingly looking
at offering integrated services, evolve as a one-stop solution provider, and thus differentiate themselves from
their counterparts.
4) Execution risk: This risk arises out of inadequate infrastructure support, which causes delays. The average
TAT at most Indian ports is 2-3 days as opposed to a mere 8-10 hours at major ports globally. The
government has understood the importance of infrastructure and has increased its expenditure on
development initiatives. Secondly, the setting up of a CFS/ICD is a long and a tedious government procedure,
requiring clearances from the commerce, finance, railways and shipping ministries as well as concerned state
governments. The process takes between 30 days to 6 weeks.
5) Liability risk: The operator is responsible for liability arising out of possession of the cargo. In case the goods
get damaged during transit, the operator is held accountable. Nevertheless, insurance contracts help mitigate
these risks up to a certain specified limit.
All cargo logistics Company profile:
1) Incorporated in 1993, AGL is a leading private player in the CFS/ ICD industry. In 2006, the company was
listed on the BSE and NSE. AGL is in the business of CFS/ICD, multi-modal transport operations (MTO),
project and engineering solutions, less than container load (LCL) consolidation and warehousing. AGL
currently operates three CFSs, one each at JNPT, Chennai and Mundra ports and ICDs at Pithampur and
Dadri.
2) International trade slowed down in 2012-13 due to weak macroeconomic conditions in many parts of the
globe. Demand remained weak in the 1QFY14 as well. Container traffic in India is expected to grow at a
healthy pace over the long term, mainly due to increased containerization. The warehousing and third party
logistics (3PL) business is expected to do well, chiefly because of higher growth in the organized retail segment
and growth in the infrastructure sector. Margins are expected to remain under pressure during the year due
to sluggish demand and pressure on tariffs due to increasing competition.
3)
4) Business evolution: AGL was incorporated in 1993 by Mr Shashi Kiran Shetty as a private limited company.
It started its operations in the freight forwarding and less than container load (LCL) cargo consolidation
business. In 1995, AGL formed an association with ECU Line NV, Belgium to serve as their agents in
Mumbai and New Delhi. In 1998, AGL received the multimodal transport operations (MTO) license from the
Ministry of Shipping and consequently, started its operations in multimodal transport business. In 2002, the
company acquired a 50% stake in ACM Lines (Pty) Ltd, a shipping company. In 2003, AGL entered the
CFS/ICD segment by commissioning phase I of its CFS at Koproli near JNPT, which currently has a capacity
of 120,000 twenty-foot equivalent unit (TEUs). In 2003, AGL entered into a joint venture (JV) with
Transworld Logistics and Shipping Services Inc of USA. This helped GDL target the American cargo
consolidation market. In 2004, AGL commenced its project cargo handling business and acquired a 33.8 per
cent stake in ECU Line NV in 2005 with its representation on the board of the company. In 2006, AGL
became a public limited company and subsequently became the world`s second largest non-vessel operating
common carrier (NVOCC) after acquiring the balance stake in ECU Line NV. In 2007, the company entered
the airfreight business segment by acquiring 100 per cent stake in Hindustan Cargo Ltd from Thomas Cook
India Ltd for Rs 89 million. In 2007, AGL commissioned its CFS at Mundra port and Chennai port, with a
capacity of 100,000 TEUs and 50,000 TEUs, respectively. In 2008, AGL started operations at Pithampur ICD
with a capacity of 30,000 TEUs. Also, AGL entered into a JV with Concor to set up an ICD facility in Dadri,
Uttar Pradesh. The company brought in Blackstone Group as a private equity investor during the same year.
In 2009, AGL started its first ICD at Pithampur and entered into a strategic alliance with Hind Terminals to
set up and operate ICDs across India. In 2010, AGL acquired two Hong-Kong based companies engaged in
non-vessel owning common carrier business for an undisclosed amount, as a part of its inorganic growth
strategy. In 2011, the company acquired MHTC Logistics Pvt. Ltd, which is engaged in the business of project
cargo logistics, freight forwarding and warehousing services. In 2012-13, AGL started its new CFS at JNPT
with a total installed capacity of 1,44,000 TEUs per annum.
5) AGL has a total of 104 subsidiaries all over the globe, mostly due to ECU Line acquisition.

6) Range of services: ICD: Inland Container Depot; CFS: Container Freight Station; NVOCC: Non Vessel,
Owning Container Carrier; LCL: Less than Container Load; FCL: Full container Load; MTO: Multimodal
Transport Operations

7) Multimodal transport operations (MTO): AGL is the largest player in the MTO segment in India. It
manages the transportation of its cargo right from the warehouse/factory of the consignor to the nearest
CFS/ICD. It provides services such as stuffing, loading of containers, transhipment/transit, destuffing at the
CFS and finally, delivery to the consignee at his warehouse/factory. Thus, AGL transfers the cargo using
multiple modes of transportation under a single multimodal transport document. AGL buys container space in
bulk on ships and offers sea freight services to its clients. It owns containers that it utilises for transporting
cargo in LCL (less than container load) or FCL (full container load) consignments. In the case of LCL
consignments, the cargo of multiple clients are grouped into a container and later destuffed at the destination
port.
8) Capacity details in TEUs per annum: JNPT 288,000; Chennai 120,000; Mundra 77,000; Dadri
52,000 and Pithampura 36,000
9) The main revenue streams for a CFS: Ground rent from containers, Container handling storage and
transportation charges, Service charges and Auction sales: Sales generated when the group auctions long
standing cargo that has not been cleared by customs. AGL`s CFS generates bulk of its revenue from handling
transportation and service charges as well as ground rent. Ground rent is charged on import containers, as it is
the importer's liability to clear them. In the case of exports, it is the duty of the CFS to transport the container
to the port/ship.
10) Dwell time (the number of days that a container remains in the container yard) lowers the volume throughput
and consequently the associated revenues, if capacity utilisation is high. The resultant ground rent may not
entirely compensate for the potential loss of business. However, if the CFS/ICD has significant spare capacity,
dwell time provides additional revenues and profits without loss of throughput. In general, lower dwell time is
an indicator of higher efficiency of CFS/ICD.
11) Project and Engineering Solutions: This is a new business segment that the company has ventured into. It
consists of the `Equipment` segment and `Project Logistics` division of MTO. The basic idea of starting this
division is to increase the value offering to customers by providing integrated projects, engineering and
equipment logistics solutions. It offers services that include transportation of high-value specialised equipment
such as oilfield equipment, power plants and compressor stations that cannot be containerised on a turnkey
basis. The segment has shown tremendous growth potential with a 60 per cent growth in profit before taxes
and also an increased asset base. The company has followed an expansion strategy that is based on order book
status. Assets are acquired only when there is an order build-up from the client end. Increased government
impetus on infrastructural development is expected to have a positive impact on this segment as there is a
huge demand supply gap in this segment. With the focus shifting to the PPP model, the industry will require
a one-stop solution provider, going ahead.
12) Prior to the detachment of Project Logistics division, MTO was the prime contributor to AGL`s revenues. It
caters mainly to the EXIM traffic. A new segment, Project and Engineering Solutions, was created by clubbing
Equipment and Project Logistics divisions. This was done because the company wanted to increase its value
offering by presenting an end-to-end offering to its customers. This newly created segment witnessed
unprecedented growth on the back of infrastructural development in the country. The CFS/ICD business
grew at a slower pace of 5.5 per cent in 2012-13 after robust performance of about 42 per cent, mainly due to
slowdown in container traffic movement and increase in competition. The fixed asset turnover ratio of
AGL declined to 2.1 times in 2012-13 as against 2.9 times in 2011-12 mainly on account of decline in
operating income.
13) Business environment:

14) Key competitive factors:

15) Revenues from the CFS/ICD segment grew at a CAGR of 23 per cent over the past 3 years driven by growth
in container traffic and capacity expansion of the CFS facilities by the company. However, there was
slowdown in EXIM trade, during the year 2012-13. Operating margins came under pressure in 2012-13, as the
company was unable to pass on the increase in expenditure to customers due to weak EXIM demand and
increasing competition in the industry. Margins are expected to remain under pressure in 2013-14 as well.
16) Financial statements analysis: AGL has shown above average financial performance. AGL`s low gearing,
healthy returns on capital employed and consistent high net cash accruals act as significant positives for the
company.



17) In the long term, AGL plans to leverage its leadership position across segments such as MTO and CFS/ICD
to emerge as a leading 3PL service provider. The company`s total capex plan for 2013-14 would purely be
utilised for maintenance activities, which would be in the range of Rs 50 to 75 crores, mainly due to the
overall slowdown in capex cycle caused by weak global and domestic macroeconomic environment.
Gateway Distriparks Limited:
1) Gateway Distriparks Ltd (GDL), a joint venture (JV) between NTSC, Parameshwara Holdings Ltd, Windmill
International Pvt Ltd and Thakral Corporation Ltd, was incorporated in 1994.The company owns, develops
and manages CFS and ICDs and warehouses. The company has diversified into rail container transportation
through its subsidiary Gateway Rail Freight Pvt Ltd, and into cold chain logistics following the acquisition of
Snowman Frozen Foods Ltd.
2) Capacities (TEUs per annum): JNPT CFS 216,000; Chennai CFS 90000; Vizag CFS 48000; Faridabad
ICD 96000; Garhi Harsaru ICD 120000; Ludhiana ICD 144000
3) The container traffic scenario in India is expected to remain strong over the long term. However, weak global
macroeconomic environment may hinder its short-term growth. Rail container movement is forecast to grow
due to increasing awareness about cost and time benefits offered by containerisation. Cold chain logistics
services will continue to grow because of increasing demand for perishable goods and supply chain
requirements of retail chains. The company has a good financial profile due to operational diversification,
adequate capacities, balanced expansion plans and high operating margins.
4)
5)
6) Business evolution: GDL commenced operations at the JNPT CFS in 1998 with a capacity of 48,000 TEUs
per annum. In April 2004, the company acquired an ICD with a capacity of 240,000 TEUs at Garhi Harsaru
near Gurgaon from Continental Warehousing Corporation Ltd. This helped the company target the industrial
region in North India. In August 2004, GDL formed a JV with the Suri Group (Gateway East India Pvt Ltd)
to develop a CFS near Visakhapatnam port with a capacity of 30,000 TEUs per annum. In 2004-05, GDL
acquired 100 per cent shareholding in Indev Warehousing, which has a CFS at Chennai port with a capacity of
40,000 TEUs per annum. In 2005-06, GDL received approval to operate private container trains.
Subsequently, it formed a subsidiary - Gateway Rail Freight Ltd (GRFL) that operates container trains from its
Garhi ICD to JNPT, Mundra and Visakhapatnam. In July 2006, the company acquired 60 acres of land at
Faridabad to build its second ICD. In September 2006, GDL formed Gateway Distriparks (Kerala) Pvt Ltd
(GDKPL) to develop a CFS with a capacity of 15,000 TEUs per annum near Cochin Port as a JV with the
Chakiat Group, a family business group engaged in freight forwarding, customs broking, transportation and
other logistics services. In November 2006, GDL acquired 50.1 per cent stake in Snowman Frozen Foods Ltd
and entered the cold chain business segment. In February 2007, GDL took over Punjab Conware CFS based
on a 15-year operations and management agreement (O&M). As per the contract terms, GDL had to pay an
upfront fees of Rs 350 million and an annual payment of Rs 10 million (inflation adjusted) for the next 15
years. In March 2007, Gateway Rail Freight Ltd (GRFL) formed a JV with Concor (with a 51 per cent stake)
to develop and operate a rail-linked ICD at Garhi Harsaru. In November 2009, PE major, Blackstone acquired
37.5 per cent stake in Gateway Rail Freight for Rs 3,000 million. In October 2010, the JV floated by GDKL
and Chakiat group won the tender to develop a CFS at Kochi with a planned capacity of 40,000 TEUs.
7) Subsidiaries:

8) Business model: GDL provides CFS services at major ports in India such as JNPT, Chennai, Cochin and
Visakhapatnam. GDL also has an ICD at Garhi Harsaru. Generic services: Stuffing/de-stuffing of
containers, Customs clearance, consolidation and segregation of LCL (less than container load) cargo, Rail
freight movement and Cold chain logistics. Special services: Repackaging of export commodities, sorting and
labeling, re-bagging, palletisation (securing cargo for movement by providing a base on which the cargo is
kept), shrink wrapping (the cargo is wrapped with a polymer plastic film, which, on applying heat, shrinks
tightly over the cargo) and Inspection services.
9) Revenue streams for CFS: Ground rent from containers,
container handling storage and transportation charges, service charges
and auction sales.
10) Revenue break up: Rail logistics 56%; CFS 32% and cold chain related logistics 12%
11) Ground rent: Ground rent is a function of import throughput and dwell time. Dwell time (the number of
days that a container remains in the container yard) lowers the volume throughput, and consequently, the
associated revenues, if capacity utilisation is high. The resultant ground rent may not entirely compensate for
the potential loss of business. However, if the CFS/ICD has significant spare capacity, dwell time provides
additional revenues and profits without loss of throughput. In general, lower dwell time indicates that a
CFS/ICD is functioning efficiently.
12) Income from auction sales of cargo is a form of cost recovery by the CFS, when the importer or consignee
refuses to take delivery of the cargo brought to the CFS.
13) GDL is a major player at JNPT. The company also operates the Punjab Conware CFS, giving it an additional
capacity of 1,50,000 TEUs per annum at the JNPT port, which deals with more than 50 per cent of the total
container traffic in the country. Through its various subsidiaries, GDL has a presence in other major container
ports in the country besides JNPT, such as Chennai and Visakhapatnam. Its ICD at Garhi Harsaru helps it to
target the industrial region of North India. Clients of GDL include shipping lines, consolidators and customs
house agents.
14) Rail container transport: GDL operates private container trains from its ICD at Garhi Harsaru to the ports
of Visakhapatnam, JNPT and Mundra through its subsidiary Gateway Rail Freight Ltd (GRFL). GRFL
provides rail services for EXIM and domestic cargo. The company provides rail services coupled with first and
last mile connectivity and provisions for custom clearing, stuffing and de-stuffing of containers, bonded and
non-bonded warehousing, and other terminal-based value-added services. GRFL is also setting up new rail-
linked ICDs at Ludhiana, Asaoti (Faridabad) and Chennai. Industry interactions indicate that it has a market
share of around 20 per cent amongst private players. GRFL's clientele includes Adani Enterprises, Asahi India,
Goodyear, Honda Scooters, Honda Siel, Jindal Stainless, Maruti Suzuki, Toyota and Mitsubishi Corp.
15) Cold chain logistics: GDL's subsidiary, Snowman Frozen Foods Ltd (SFFL), is a market leader in the
organised segment of the cold chain industry. With a pan-India presence, SFFL has a fleet of over 150
refrigerated trucks and operates 14 cold stores across the country. Its key clients include Mother Dairy, Amul,
Mars Chocolate, Metro, Domino's Pizza, Pizza Hut and KFC.
16) Business Environment:
17)
18) Key competitive factors:

19) Business and financial outcomes:

20) Future plans: Plans to put up 70,000 pallets at its subsidiary, Snowman Logistics Ltd, which will entail a
capex of Rs 120 crores in 2013-14. Another Rs 20 crores of capex will be incurred towards the development
of the CFS business in 2013-14