CFS operators tweak logistics strategy to save costs

Firms shift to unnotified warehousing to escape the brunt of direct-port-delivery

Container freight station (CFS) operators at Jawaharlal Nehru Port (JNPT) are converting their facilities into unnotified warehouses, mainly because of continued lower volumes — a result of increased traction of direct-port-delivery (DPD) scheme introduced by the port.

“Allcargo Logistics has already converted one of its CFSs into an unnotified warehouse. Some more operators such as Gateway Distriparks could follow suit,” sources in the know told Business Standard. “It will help the operator to lower its costs by nearly 15 per cent, a significant cost-saving, especially when volumes are dropping continuously,” they added.

Allcargo Logistics, part of Avvashya Group, has two facilities — JNPT 1 and JNPT Annex — spread over 68 acres at the port. Of this, JNPT 1 occupies 22 acres, while JNPT Annex, with 45 acres, has developed only 23 acres as a CFS facility.

“Over the last six-eight months, we have converted a part of the JNPT 1 facility into an unnotified DPD yard, which will cater to storing DPD cargo that does not need customs monitoring,” said Executive Director and Chief Operating Officer Prakash Tulsiani. The official, however, did not reveal how much portion of the facility has been unnotified.

CFS facilities have to be customs notified and hence, charge a premium over warehouses that are unnotified. Labour costs are also lower at unnotified warehouses compared to a CFS, which brings down the overall cost for the facility.

“While converting a part of JNPT 1 into an unnotified warehouse has lowered our revenues by two-three per cent, our costs have also come down by a similar percentage,” said Tulsiani.

Allcargo Logistics has no plans to un-notify its second facility, JNPT Annex. Tulsiani, too, does not see more of the JNPT 1 facility come under the unnotified warehouse category as of now.

“We are changing our facilities depending on client-based needs. Earlier we were catering only to shipping line containers but now we have a pure DPD cargo, third-party nomination, shipping line container as well DPD- CFS requirement,” Tulsiani explained.

“Moreover, a JNPT terminal 4 is also coming up. Hence, CFS requirements remain. Thus, there are no plans to convert JNPT Annex into an unnotified warehouse,” he said.

Gateway Distriparks, with two CFSs, could also be contemplating unnotification of one of its 40,000-square-meter warehouse in the coming months.

“One of the Gateway Distriparks’ CFS is on long-term lease, which is due to renewal in the next four-five years. We could think of getting it out of customs notification. We are currently in the wait-and-watch mode,” said a source close to the development.

Another CFS operator, Navkar Corporation, seems to be relatively in a sweet spot, mainly because of its railway connectivity.

“There has been no impact of DPD traction on our revenues. Due to our rail connectivity, which makes transportation cost one-third compared to that via road, our hinterland deliveries directly from the port remains intact,” said Aneesh Maheshwari, chief financial officer of Navkar Corporation.

The company has three facilities at JNPT, spread over 85 acres. Of this, 48 acres has already been unnotified and hence, is being used for DPD storage and delivery.

“There is no change in our business model even after DPD traction since we had already factored in the possibility of CFS elimination,” he said.

Globally, no port has a CFS industry catering to storage of cargo. All across the world, cargo is directly delivered from the port to the final destination. According to the JNPT website, the share of DPD volume handled in December 2017 has gone up to 36 per cent from 27 per cent in February of the same year.

The domestic CFS industry is structured in a manner where nearly 60 per cent of its clients are importers who use the facilities for longer duration of 8-10 days, while the balance is housed by exporters where the cargo is for a much shorter duration. With importers are increasingly availing themselves of the DPD service, it is this major portion of CFS operators’ revenue volume that is taking a hit. JNPT has close to 35 CFS operators comprising listed as well as several unlisted entities.