Major Global Triggers influencing the Freight industry in India
Written by Chitransh Sahai | August 27, 2016
It is the year 2016 and the Indian Shipping and Freight industry will undergo a lot of changes, some short term while others may be forever. Here we look at seven major events which will change the industry.
1. China’s Slow down
In a nutshell our exports to China will reduce and with cheaper Chinese imports our domestic companies will be hit. However, there is a positive side to it as well, this is making India a more attractive destination for manufacturing. In addition to electronic components, consumer electronics, electrical, equipment, industrial machinery and chemicals, India is also one of the largest markets for project exports from China.
Now, if you are in the freight business, strong in China, you should start focussing on the project exports business from China :).
2. Margin Squeeze: big surprise driver for change
Freight rates are lowest in the history. However, margins are not entirely dependent on freight rates. With Internet penetrating every aspect of business as an information enabler, it is difficult to earn on arbitrage margins. As a result, most of the freight forwarders are moving into service based models and for some, ocean freight is not a profitable business to be in anymore.
Relationships are shorter, spot quotes are on the rise, customers are more demanding and online sales competition from carriers is squeezing forwarder.
3. Global E-Commerce
With Alibaba’s advent in India, people are predicting more international e-commerce players to enter into India. IndianTradePortal.com is also making the discovery of Indian Suppliers easier for international businesses. The Government is pro-actively searching for ways to enable global e-commerce.
On Imports, along with basic customs duty there will be additional customs duty in lieu of CVD /Excise and the Special Additional Duty (SAD) in lieu of sales tax/VAT will be subsumed in the import GST. The imported goods will also be subjected to Central and State GST on a reverse charge basis.
For exports, the GST will be zero rated, i.e. the exports do not have to pay GST on the income derived from exporting goods. Also, they will receive tax rebates on the goods and services used by them.
For logistics sector - Most of the corporations have their warehouses in various states to adhere to each state’s tax code. Now, with standardization of tax rates nationally, this may not be required and manufacturers may ask logistics companies to manage their distribution and supply chains.
5. Parcel like Forwarding
Shippers are expecting parcel like services from forwarders. Tracking technology is built up by companies like DHL’s Global Forwarding who own the entire supply chains which makes it possible to build up such technology systems. For a forwarder this becomes extremely taxing in terms of cost and effort. Notwithstanding, companies like GoComet have built such functionalities in their Full Service Freight Forwarding services in India.
6. JIT systems and Supply Chains
Due to an increase in inventory holding costs and the advent of JIT (Just in Time) Systems less and less people want to hold the inventory. So, these days freight supply chains involve moving goods through multiple carrier modes and through multiple geographies. As a result, the demand for efficient total logistics solutions is on the rise.
7. Mergers and Acquisitions in Shipping Industry
Huge consolidations are happening in the transportation and logistics industries, as the carriers try to capture more and more market along with building economies of scale. Two major mergers to look at:
1. French Liner CMA CGM’s acquisition of Singapore’s APL
2. Cosco and China Shipping’s (CSCL) merger
With these changes, the new alliance structure would be like:
2M (Maersk, MSC); G6 (OOCL, Hapag-Lloyd, NYK, Hyundai, MOL, Hamburg Sud); KYHE (“K” Line, Yang Ming, Evergreen, Hanjin); and 05 (CMA CGM, CSCL, UASC, APL, Cosco).