With conflicts raging in Ukraine, Taiwan, Israel, and Palestine, 2023 was marked with geopolitical unrest. It came with significant challenges for global logistics and supply chains. India’s goods exports, however, recorded a 3.12 per cent year-on-year growth in January 2024, reaching $36.92 billion, facilitated by sectors such as electronics, engineering goods, and pharmaceuticals.
All indicators suggest that India is well-positioned to become a beneficiary of the China Plus One strategy. A report by global wealth intelligence firm New World Wealth and investment migration advisors Henley & Partners places India in a close second to another strong contender in terms of wealth generation—Vietnam.
Over the next decade, Vietnam is forecasted to register a 125 per cent growth in wealth, owing to its increasing prowess as a manufacturing hub for multinational tech, automotive, electronics, clothing, and surging exports; while India is slated to show a growth of 110 per cent. Combined with this is the Indian government’s strong intent to iron out issues in the logistics sector with the recent Interim Budget allocation boost of Rs 11 lakh crore highlighting a strong focus on sustainability, innovation, and strategic partnerships.
India needs to build strategic partnerships with ASEAN countries, not all of which have a positive relationship with China. It must proactively identify gaps in the market and work to use its goodwill to obtain the necessary know-how and raw materials from the many countries seeking to diversify away from China.
However, considering that the aftershocks of geopolitical conflicts are expected to persist well into 2024, with potential adverse consequences on India’s external trade, New Delhi must secure all options to strengthen its logistics operations. This also includes the need to safeguard against any opportunistic price gouging with respect to shipping containers, as is being witnessed globally. Gaining certainty in terms of container access should be one of the key priorities to maintain our competitiveness against other global players.
Local manufacturing
Increasing trade agreements across nations, expansion of the Indian e-commerce industry, digitisation in container shipping, and rising demand for specialised containers have placed the Indian container market at $ 10.3 billion by 2028, with an expected growth rate of 1.7 per cent during the forecast period, according to Grand View Research.
India needs a greater degree of containerisation to facilitate the seamless movement of goods within the country and to aid its external trade ambitions. Industry associations like the Federation of Indian Export Organisations (FIEO) have also pointed out the necessity of having more shipping containers on coastal routes to avoid repositioning charges. Repositioning is the process of moving empty containers from areas with a surplus to those with a deficit. For a typical carrier, repositioning costs can account for up to 8 per cent of total operating costs. India could significantly reduce these costs for its exports by having a localised supply of shipping containers.
Also read: Shipping containers, made in India — how Modi govt aims to cut dependence on China ‘monopoly’
Container manufacturing
A total of 96 per cent of the world’s shipping containers are manufactured in China. Under the central government’s Atmanirbhar Bharat push and flagship schemes like Make in India, the country needs to establish a strong, self-reliant position in the container manufacturing ecosystem to ensure seamless logistics.
Considering the container crisis during the Covid pandemic, the Ministry of Ports, Shipping and Waterways allocated Rs 11,000 crore for a production-linked initiative (PLI) scheme to manufacture containers over a nine-year period. However, this scheme is currently in limbo given that container prices crashed by nearly 40 per cent year-on-year in 2023, and there was an oversupply of containers at Indian ports.
However, given the current scenario with the ongoing conflict at the Red Sea, India needs to take a long-term view of the PLI scheme and its ambition to emerge as a hub of shipping containers—ready to meet 10 per cent demand from global liners by 2030. The shipping ministry had also been contemplating giving out manufacturing incentives over a shorter period, not necessarily for nine years as initially proposed. This could be worked out in the new scheme.
Ancillary policy nudges and schemes must be fast-tracked to take advantage of the prevailing circumstances and tackle China’s dominance over India in the shipping container space. Chinese containers are about half the cost of Indian ones. This huge difference can be attributed to several factors, including the cost of raw materials like Corten steel. It’s used for international shipping and repair of damaged cargo containers and costs approximately 50 per cent higher in India. There are also expenses related to container design approvals and licensing, which cost about Rs 5,000 per container. India has taken some steps with Tata Steel Ltd Jamshedpur steel plant initiating Corten steel production in 2022, but we will still need to bring in more major players to ramp up production of crucial raw materials. The private sector needs to be given incentives to move into manufacturing in a big way and not just focus excessively on the services sector.
Parking in more incentives will help India cater to the varied nature of its global exports, and expand efforts towards diversifying its container needs as well, such as for reefer containers.
PLI focus on cold containers
India has been leading the global exports in sweets and savoury snacks not just because of rising demand from the Indian diaspora spread across the globe but also because the international market is becoming more receptive to new tastes and cuisines.
We have also seen reports of the Indian government being asked for support on the import of chicken, dairy, basmati rice, frozen seafood, and wheat products by countries such as Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates (UAE). The shortage of food in the world and the surplus of it in India indicates the potential for the expansion of food exports. High-quality packaging and temperature-controlled containers will help increase India’s ability to meet this growing, steady demand. This can open new markets and increase export volumes for India.
This necessitates a strong PLI focus on reefer containers in addition to dry containers. Reefer or refrigerated containers are used to transport temperature-sensitive cargo like pharmaceuticals, vaccines, sensitive electronics components, food items, seafood, meat, wine, flowers, and other perishable items. Reefer containers are a cost-effective way for India to be able to step into the long-distance transportation of perishables.
Such containers can be used for both shipping and air cargo on a hub and spoke model. Ultimately, connectivity to the hinterland warehouses or processing centres via rail or road would be key for faster turnaround of cargo. India’s Sagarmala initiative aims to promote holistic port-led development and establish the requisite infrastructure for transporting goods to and from ports quickly, efficiently, and cost-effectively. This will also be essential for the penetration of container freight movement into India’s hinterlands.
Besides the PLI push, India must take urgent stock of the present vulnerability in the shipping industry, and amp up efforts to resolve hurdles that stand in the way of diversifying and boosting its air logistics operations.
Also read: Why Indian exporters are seeking a ban on transshipment of Bangladeshi goods via Delhi
India as air logistics powerhouse
Currently, foreign carriers take around 95 per cent of India’s international air cargo. However, with regulatory reforms and infrastructure development initiatives like the new National Logistics Policy and PM Gati Shakti leading the way, India has the potential to become a global air logistics powerhouse and provide cost-effective solutions to businesses. The Indian government has also set an ambitious target of taking air cargo volumes to 10 million tonnes by 2030. However, there are many challenges—inadequate infrastructure, lack of skilled manpower, higher costs compared to shipping, and inadequate dedicated freighters among others.
To realise its potential, the domestic air cargo industry has some key asks from the government: removal of the time-bound threshold of 20 years on Indian cargo aircraft to place them at par with foreign operators, creation of dedicated cargo airports to handle all kinds of cargo, introducing a unified customs policy across airports for faster clearance of shipments, and bringing a trans-shipment policy to ease the transport process.
Prioritising air cargo transport also aligns with India’s goals to become the leader in electronics, semiconductor, and EV manufacturing. Industry stalwarts have pointed out that the transport of about 80 to 90 per cent of component logistics for electronics manufacturing and EV manufacturing is not via shipping but through air transport.
India should leverage its presence in several trade groupings in Southeast Asia, Europe, Australia, and beyond to increase its access to global value chains. Additionally, efficient multi-modal connectivity should be maintained to ensure that Indian businesses become integral parts of international production networks.
While long-term measures would involve undertaking extensive labour reforms, the lack of such reforms is holding back several lucrative sectors. Current priorities must focus on setting the PLI scheme for shipping containers into mission mode while increasing the efficacy of air cargo transport to enable India to gain dominance, absorb external shocks, and manage end-to-end risks in a resilient supply chain.
Swati Sudhakaran is Manager, Public Policy at Chase India and Manash Neog is MD and Co-Founder, Chase APAC. Views are personal.
(Edited by Ratan Priya)