GST to cut logistics costs upto 20% by April 2016

Goods and Services Tax (GST) is a comprehensive tax levy on manufacture, sale and consumption of goods and services at a national level. One of the biggest taxation reforms in India, GST is all set to integrate Centre state economies and boost overall growth.

The Govt. of India first proposed that a number of indirect taxes levied by the Centre and states be replaced by the GST, several years ago. The GST project now seems underway and it is hoped that the GST bill will be cleared soon to enable it to be implemented from April 2016.

Complex and Cascading indirect taxes have been one of the key reasons impacting the competitiveness of Indian manufactures over the years. Alongside operational efficiency, tax avoidance has influenced the supply chain decisions of corporates, resulting in small and in-efficient warehouses and high logistics costs.

Once, the GST is introduced, ‘tax avoidance’ will no longer influence decisions concerning distribution network and total warehouse space can be reduced practically. Savings will accrue in three forms:

a)  Tax savings  b) Logistic cost savings  c) Elimination of check posts offers additional costs savings.

GST in India is expected to be implemented from April 2016 with proposed revenue neutral rate of 18 – 22 per cent (exact rate not yet finalized). The structure of GST comprises of State Level GST (SGST) and Central Level GST (CGST). SGST will absorb VAT/sales tax, Entertainment Tax, Luxury Tax, and Tax on Lottery, State Cess and Surcharge. CGST will absorb Central Excise Duty, Additional Excise Duty, Service Tax, Additional Custom Duty, surcharge, Education cess. Thus, integrated GST will total both of these - SGST and CGST.

The GST will have an impact on industries viz FMCG, Consumer durables, Pharmaceutical, Automobiles etc. Industry wise current logistics cost 8 to 9 per cent for FMCG, 7-8 per cent for Consumer durables, 5.5-6.5 per cent for Pharma, 5 to 6 per cent for Automobiles in terms of percentage of sales. There will be savings in logistics costs to the tune of 1.5 to 2.0 per cent as a percentage of sales on and average for all these sectors. This may amount to reduction upto 20 per cent in the logistics bill. Most of the companies have set up warehouses to save Central Service Tax and to be closer to retailers for logistical reasons. After GST implementation, companies will consolidate their warehouses and minimize the numbers to around 25 to 30 per cent from existing warehouses in turn saving cost for setting it up and running repairs and maintenance.

Some of the benefits of GST include tax savings, savings from consolidation, and lower transportation time due to dismantling of border check posts. Besides companies directly impacted from GST there are others that have to maintain warehouses for geographical penetration. There are around 650 odd check posts across pan-India. Truck drivers in India spend 60 per cent of their time negotiating check posts and toll plazas. This leads to increase in freight traffic and productivity loss. Thereafter, higher productivity would cut the need for buffer stocks, reduce the loss of perishable goods and cut down the need for many warehouses.

The GST formation will be the most admirable change since last decade and is expected to change the face of the Indian economy. The tax revenue of the Government will increase about 0.2 per cent according to National Council of Applied Economic Research because of GST implementation. While GDP growth could go up by 0.9 to 1.7 per cent over the years.

On the whole, supply chain inefficiency is a major obstacle to manufacturing growth and competitiveness, and the goods and service tax (GST) offers a unique opportunity for the Indian government to reform logistics networks in the country. Overall, an estimate has been made that Indian companies pay up to 10-14% of their net sales for logistics, compared to international standards of around 3-4%. Implementation of the GST and reducing checks at state borders can change all this. This would also benefit the maritime trade and shipping industry on account of reduction in logistics costs.

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An International Code of Safety for ships operating in Polar Waters (Polar Code)

In recent years, due to the effect of global warming, polar ice caps are receding and during summer the number of voyages across the north pole(the northern sea route) are increasing year by year as there is a considerable saving in distance between US East Coast/Canada/ Europe & Asia/ Pacific. Further, there is an increase in maritime activity in the Polar Regions.

Considering the above, IMO has adopted the International Code for Ships Operating in Polar Waters (Polar Code) and related amendments to make it mandatory under both the  International Convention for the Safety of Life at Sea (SOLAS) and the International Convention for the Prevention of Pollution from Ships (MARPOL).

The Polar Code is expected to enter into force on 1 January 2017. This marks a historic milestone in the Organization’s work to protect ships and people aboard them, both seafarers and passengers, in the harsh environment of the waters surrounding the two poles.

The Polar Code covers the full range of design, construction, equipment, operational, training, search and rescue and environmental protection matters relevant to ships operating in the inhospitable waters surrounding the two poles.

The Code will require ships intending to operate in the defined waters of the Antarctic and Arctic to apply for a Polar Ship Certificate, which would classify the vessel as Category A ship  -  ships designed for operation in polar waters at least in medium first-year ice, which may include old ice inclusions; Category B ship  - a ship not included in category A, designed for operation in polar waters in at least thin first-year ice, which may include old ice inclusions; or  Category C ship  -  a ship designed to operate in open water or in ice conditions less severe than those included in Categories A and B.

The issuance of a certificate would require an assessment, taking into account the anticipated range of operating conditions and hazards the ship may encounter in the polar waters. The assessment would include information on identified operational limitations, and plans or procedures or additional safety equipment necessary to mitigate incidents with potential safety or environmental consequences.

Ships will need to carry a Polar Water Operational Manual, to provide the Owner, Operator, Master and crew with sufficient information regarding the ship's operational capabilities and limitations in order to support their decision-making process.

The Polar Code highlights the potential hazards of operating in polar regions, including ice, remoteness and rapidly changing and severe weather conditions, and provides goals and functional requirements in relation to ship design, construction, equipment, operations, training, and search and rescue, relevant to ships operating in Arctic and Antarctic waters.

Thus, it would be observed that these voyages to the Polar Regions are increasing and so this is going to pose as a new challenge for the shipping industry, companies, ships and seafarers. Further, as India is major manpower provider to the world fleet our seafarers, who are, or likely to serve on such vessels making voyages to the Polar Regions would need to be adequately trained in compliance with the Polar Code.

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IMO mandatory container weighing rule to take effect in 2016

Containerization is a system of inter-modal freight transport using inter-modal containers (also called shipping containers and ISO containers) made of weathering steel. The containers have standardized dimensions. Container ships have been getting bigger since they began operating in liner services over 60 years ago because the increased size gives increased operating efficiency and improved environmental performance.

Some of the world's biggest container ships are about 1,300 feet long - that's nearly 400 meters or the distance around an Olympic running track - with a maximum width of 194 feet (59 meters). Their engines weigh 2,300 tons, their propellers 130 tons, and there are twenty-one story’s between their bridge and their engine room. They can be operated by teams of just thirteen people and a sophisticated computer system and carry an astonishing 19,000 20-foot containers.

Consequent to several accident/incidents of overloading and excessive hull stresses of container ships, IMO adopted an amendment to SOLAS (Safety of Life at Sea )chapter VI Regulation 2 to avoid such accidents/incidents in the future ie. ‘Mandatory Container Weighment’. This amendment will come into force as of 1st July 2016.

Under the revised rule, the weight of the container must be verified either by weighing the unit or weighing all the cargo it contains via a method approved by each respective country. Container lines, port labor and terminal operators have pointed to recent accidents, including the breaking up of the MSC Napoli on the southern U.K. coast in January 2007, as proof of the need for mandatory container weighing.

Proponents of mandatory weighing counter that critics have inflated the extra costs and point to how the longstanding U.S. rule has improved safety without reducing supply chain efficiency. The IMO’s Maritime Safety Committee in May approved changes to SOLAS chapter VI and has formally set the rule to take effect.

Detractor’s feel that this is not a cost and time effective measure and it may result in delay to vessels so is not an optimal solution in the light of cost/benefit analysis. However, in the interest of safety we need to accept the practical difficulty and delays if any.

Weighing the loaded containers is the "gold standard" but the compromise is to allow verified weighing of all the individual items loaded into the container, including pallets and packing materials, and adding it to the weight of the shipping container itself.

In other words, if the loaded shipping container cannot be weighed, shippers are allowed to get the weight with the formula of Goods + Dunnage + Tare = Container Weight.

On the whole, weighing of containers is proven beneficial for the shipping industry as it minimizes the chances of over loading, damaging the structure and affecting the stability of the vessel.

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A Bigger, Better Suez Canal

On November 17, 1869, the Suez Canal connecting the Mediterranean and Red Seas was officially opened in a lavish ceremony at Egypt’s Port Said. The canal took more than 15 years to plan and build, and its construction was repeatedly hindered by political disputes, labor shortages and even a deadly cholera outbreak. When finally completed, the 101-mile-long waterway permanently transformed international shipping by allowing vessels to skip the long and treacherous transit around the southern tip of Africa.

The Suez Canal (In Arabic: Qanat as-Suways), is an artificial sea-level waterway running north to south across the Isthmus of Suez in Egypt to connect the Mediterranean Sea and the Red Sea. It is one of the world's most heavily used shipping lanes. The Suez Canal is one of the most important waterways in the world.

Since the inception of The Suez Canal, it has been progressively widened and deepened so that larger vessels could use it. It is extensively used by modern ships , as it is the fastest crossing from the Atlantic Ocean to the Indian Ocean . Tolls paid by the vessels represent an important source of income for the Egyptian government. The Canal runs between Port Said harbor and the Gulf of Suez. The Suez Canal is a sea level Canal. 

The New Suez Canal is a feat of brawn, it is impressive. In just one year, a third of the time engineers wanted, Egypt has shifted enough sand to allow more and bigger ships to pass more swiftly through a crucial artery of global trade. As a political stunt it is big, too. Since coming to power in July 2013 President Abdel-Fattah al-Sisi has offered an unspoken bargain: in exchange for shrinking political freedoms he would bring stability and progress. Small wonder his government declared a holiday for the lavish opening on August 6th of the New Suez Canal, as it dubs its project; to bolster pride in the achievement, its religious-affairs ministry instructed mosque sermons to cite the Prophet Muhammad’s digging of a trench to defend Medina from attackers.

Egyptian officials claim that the $8.2 billion project, which expands capacity to 97 ships per day against the present 49 will more than double annual revenues to some $13.5 billion by 2023. A recent forecast from the IMF suggests that in the decade up to 2016 the annual rate of growth for global merchandise trade will have averaged 3.4%.

Until recently, it was one way traffic therefore, it would take much longer to pass through the canal but more ships will flock to the canal because new bypasses permit faster two-way traffic.

However on the other hand, there are strong critics of the project who foresee the growth respective to the current scenario of world economy  that investors, being citizens of Egypt, have been taken for a ride as no way  the traffic can go up as predicted given the projected dismal growth of world GDP and seaborne traffic. The traffic through Suez has increased only marginally in last decade and while curtailing of transit time is most welcome by shipping community that can't guarantee doubling the traffic in just a few years. To have any decent return on the huge investments made traffic must grow at least by 10% year on year which appears very doubtful given the state of world economy.

The Suez Canal's role is not confined to servicing the world trade.  It goes beyond that to serve the Canal Zone community (Port said, Ismailia, and Suez) as well as other governorates of Egypt.

The Shipping Industry welcomes the development of the new Suez Canal due to its shorter waiting period and transit time and particularly for Indian trade to the west which is a major user of the canal.

A Bigger, Better Suez Canal

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Port of Kolkata

The Kolkata Port was set up by the British East India Company after the company received trading rights from the Mughal emperor Aurangzeb. In course of time the power to rule this vast country passed from the East India Company to the British Crown and simultaneously the affairs of the Port were brought under the administrative control of the Government with the appointment of a Port Commission in 1870.

In the 19th century Kolkata Port was the premier port in British India. Though the port was conceived to be a commercial port and gateway of eastern India, the port played a very important role in the Second World War. It was bombed twice by the Japanese forces. After the independence, the Commissioners for the Port of Kolkata were in responsibility of the port till January 1975 when Major Port Trusts Act, 1963, came into force. Playing the role of a premier port and being rightly called as the gateway to Eastern India, it is the guiding factor to trade and commerce of vast hinterland comprising the entire Eastern India including Bihar and Eastern Uttar Pradesh and the two land-locked Himalayan Kingdoms of Nepal and Bhutan.

The history of Kolkata Port has been a continuous story of struggle and success – it’s a saga of uninterrupted development, improvement and achievements. In the recent past, Kolkata Port has also been adjudged as the best managed port in the country. Despite it being 126 miles away from the sea, Kolkata is, by far, the best choice for eastern gateway to this continental-country. Kolkata Port Trust remains one of the pioneering and most promising ports of India. It commands a vast hinterland that comprises almost half of the Indian states. It has two dock systems - Kolkata Dock System at Kolkata with the oil wharves at Baj Baj and Haldia Dock Complex at Haldia - have a combination of facilities offering various shipping related packages.

The Kolkata Port is now run by a Board of Trustees having representatives from the Government, Trade Bodies, various Port Users, Labor Unions and some nominated members.

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Indian Ports see shipping fuel demand jump as much as 25%

Demand for shipping fuel at major Indian ports has climbed in the past week by up to 25 per cent as the cost of refuelling at Singapore, Asia's bunkering hub, soared following the collapse of the world's leading supplier, traders said.

The announcement of OW Bunker's – the Danish shipping fuel supplier filing for bankruptcy drove up shipping fuel prices in Singapore - one of the cheapest ports in Asia in which to refuel - to their highest in more than two years as oil supplies tightened due to credit worries.

Marine fuel prices in Mumbai, India's largest bunkering port, were still around $15 a tonne higher than in Singapore on a delivered basis, but a Singapore-based trader said ship owners could be interested in bunkering in India when the price difference between Fujairah, United Arab Emirates, and Singapore narrows.

Fujairah, which is one of the busiest ports in the world, is closer to India and may be taken as a price reference.

The price difference between Fujairah and Singapore has flipped into a discount of more than $10 since late last week.

“I'm seeing about 20-25 percent more demand month on month," said a trader who sells fuel in India. "But (buyers) are also just watching the prices, as the market is still volatile, so they are trying to delay their purchases."

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India – West Africa Trade increased 15 times since 2003

Krishnapatnam Port Container Terminal (KPCT), located 30 km from Nellore, has been focusing its attention on the Ivory Coast to operate cargo services to Ports of San Pedro and Abidjan (West Africa). According to KPCT officials, India’s trade with West Africa has increased 15 times since 2003. Rice being the main export is followed by pharmaceutical products, machinery, articles of iron, chemicals, plastics, rubber and vehicles. Over 69% of India’s cashew imports go to Ivory Coast, Guinea-Bissau, Benin and Ghana.

 

Trade takes place largely from two important ports of San Pedro and Abidjan. As both the economies of India and Ivory Coast are poised to grow, KPCT is keen on becoming East India gateway for the two countries. As a first step, Krishnapatnam Port Container Terminal organised a trade meet in Abidjan recently to have a mutual dialogue for bilateral trade development. Importers of raw cashew, teak wood, metal scrap and exporters of pharmaceuticals, transport equipment, engineering goods, steel, rice, cotton yarn, besides logistics service providers and export-import trade associations attended the meet in large numbers.

 

They were familiarised with the infrastructure and operational advantages of KPCT and the ease of shipping containerised cargo owing to tariff flexibility, connectivity to cashew and timber processing units in the hinterland, various vessel services connecting KPCT with Abidjan and future trade potential benefiting West African countries. The traders involved in cashew import were impressed when the KPCT delegation presented the advantages of connectivity with Krishnapatnam.

 

KPCT pointed to saving additional cost through truck movement from Krishnapatnam Port to the final place of delivery in Andhra Pradesh. KPCT also offered additional free demurrage time (up to 14 days) on a case-to-case basis through respective lines, closed warehouse facility to enable stuffing/de-stuffing inside the warehouse,  24/7 storage and handling of cargo besides cargo storage at free of cost up to 15 days.

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