Every crisis is like a coin. On one side are problems, while the other has opportunities. The acute shortage in shipping containers is one such coin for India.
While the two-year-long demand-supply mismatch in shipping containers seems to be easing in the US West Coast, the situation is likely to deteriorate in the coming months as hundreds of vessels are stuck in Shanghai, which is under lockdown. The ripple effect of this will hit India over the next two months, according to industry watchers.
Meanwhile, India is trying to flip the coin of crisis to achieve atmanirbharta (self-reliance) in container manufacturing. More than a year since the former minister of ports, shipping, and waterways, Mansukh Mandaviya, said that the Centre was looking to develop Bhavnagar in Gujarat as a container-manufacturing hub, several companies in the region have made commendable progress.
Sunil Vaswani, executive director of Container Shipping Lines Association (India), a body of foreign container shipping lines operating in the country, says, “This could be an opportunity for India to provide an alternative to the global community, as global importers are looking at having a China-plus-one strategy for sourcing their goods”.
However, the challenges for this startup-industry are humongous, as India competes directly with China, which controls the world’s container manufacturing market.
But then, India has to start somewhere.
Getting started
Despite the uphill task ahead, India’s nascent container-manufacturing industry is displaying startup-like excitement.
Take for instance Vaibhav Pradyuman Patel, the founder and CEO of Gujarat-based S Mohanlal Cargo Containers (SMCC). The 30-year-old, who belongs to a family of timber merchants, has chosen to take a different path and is gung-ho about the idea of made-in-India containers. Starting in August last year with a private investment of around INR8 crore and sourcing parts of machinery from Bengaluru, Coimbatore, and Pune, Patel is ready with the prototype of a shipping container. In a couple of months, SMCC will start commercial production of three to four 20-feet and 40-feet containers per day.
Patel is not alone in this journey. According to industry sources, a few companies, like Bhavnagar-based APPL Containers, are also in the fray. Haryana-based DCM Hyundai, an old player that had scaled down production, has ramped up its output to 200-300 containers per month.
“About one and a half years ago, the major question was whether India can do it or not. But now, I can confidently say that we can do it. We have the required expertise within the country,” says Kirit Soni, president, Saurashtra Chamber of Commerce and Industry at Bhavnagar, adding that initially the output could be low.
“Once the ecosystem, including land, labour, raw materials, and expertise, is developed, scale can be achieved,” says Soni, who is part of a committee on container manufacturing. He is confident that the two plants set up in Bhavnagar by APPL Containers and SMCC with private investment will kick off by making 300-500 containers per month, which will be gradually scaled up to at least 1,000.
That’s indeed great for a start, but taking on Chinese container manufacturers will be a David-versus-Goliath fight for the Indian startups. The Chinese container industry, which took off towards the early 1980s, has been growing at a scorching pace with due support from the government.
According to maritime research consultancy Drewry, until 2021, the top three Chinese container manufacturers accounted for 82% of global container production. China International Marine Containers (CIMC) made 580,000 20-foot equivalent units (TEUs), accounting for a market share of 42%, while Dong Fang International Containers manufactured 358,000 TEUs (26%), and CXIC Group produced 200,000 TEUs (14%). Given its scale, China has a huge advantage in terms of costs.
Most Chinese players, including Singamas and CXIC, operate on long-term contracts with global shipping lines.
According to Soni’s estimate, Chinese companies make one container every three to four minutes.
No rocket science
Simply put, container manufacturing involves cutting, bending, and welding of steel plates. Containers are designed and manufactured according to customers’ payload requirements and the type of material to be transported. Once designed, they go through a design approval by Lloyd’s Register, a UK-based body which approves cargo-container designs for international shipping. Upon approval, manufacturing can be started.
Once the first container is manufactured, it goes through a testing process involving 24 parameters, including strength. Following this, the manufacturer receives a licence number from Lloyd’s Register. Testing approvals are required on a lot of 100 containers. So, the 101st container will be tested again, besides going through other audits. Approvals are needed for every new design.
Though it’s not rocket science, building a container-manufacturing portfolio is a long haul. China, which now exports containers to almost all countries of the world, has expanded its portfolio to 900 different types and sizes of containers to meet requirements of different industries. These include warm-keeping containers, refrigerated containers, dry-bulk cargo containers, standard open-top containers, two-door containers, and semi-trailer containers.
The deal-breaker
The biggest differentiator between Indian container manufacturers and their bigger Chinese rivals is price. Thanks to China’s huge economies of scale, the price difference between Indian and Chinese containers at present is 30%-35%. The price of a 40-feet container at China’s Shanghai port is USD4,200 while the same in India will cost around USD6,000.
“Why would anyone pay INR1 lakh more per container and add to the logistics cost? At present, even after paying import duties on Chinese containers, Indian containers are costlier,” says Rahul Modi, member of advisory body National Shipping Board.
The difference in prices is due to several factors, including the cost of raw materials. For example, the prices of Corten steel, a special category of corrosion-resistant steel which accounts 80% of the total cost of production of containers, is around 50% higher in India. “In China, the rate of Corten steel is INR80-INR90 per kilogram. In India, it is INR125-INR130 per kilogram,” says SMCC’s Patel.
China also has a big advantage in the cost of container-design approvals and licensing. In India, it costs between INR4,500-INR5,000 per container towards certification costs which include design approval, testing, and other certifications.
India does not manufacture A-grade Corten steel used for international shipping and Patel plans to source it from traders in Chennai and Mumbai. Traders import and trade in Corton steel, which is used to repair damaged cargo containers moving at ports like Nhava Sheva.
“Since Corten steel is not part of their mainline production, Indian steel-makers would need large orders — a minimum of 200-300 metric tonnes and advanced payments. To meet this requirement, production capacity has to be in the range of 1,000-2,000 containers a month or upwards,” says Modi.
Manufacturers say government support is critical to the success of this project. According to them, container manufacturing should be incentivised through production-linked incentive (PLI) schemes.
“The idea is to get some relaxation in input duties on steel, GST, rebates, or tax waivers, at least for the initial three-four years of production so that the cost of production can be matched with China’s,” Modi points out, adding that the government will have to prioritise buying from Indian manufacturers until they stand on their own feet.
The container business bears close resemblance to shipping. The appetite has to be big and one should be ready to manage the peaks and troughs of the business cycle. “Ocean shipping goes through unpredictable cycles — a long period of slump followed by a few good years of business,” says Naveen Prakash, co-founder, Global Logistics Solutions.
Finding buyers
The toughest part of the container business is marketing. For domestic manufacturers, it will be a challenge to convince companies which currently source containers from China. Startups such as Patel’s SMCC are banking on the likes of Container Corporation of India (Concor) and Dubai-based multinational logistics company DP World, which require 3,000-10,000 containers per year.
The domestic market for containers, however, is limited. Locally, demand for containers is from smaller rail operators and coastal shipping operators with smaller requirements of 500-1,000 containers. India’s largest shipping company, Shipping Corporation of India, has limited global operations. A handful of other shipping companies such as Shreyas Shipping and Logistics and Sima Marine have limited capacity since they are largely involved in port-to-port shipments in India or shipments to the Far East and the Gulf.
There are several small operators in the NVOCC (non-vessel owning common carrier) business, which essentially don’t own ships but have containers and deploy them on feeder operators. However, their volumes are very small. Many NVOCCs buy second-hand containers.
Therefore, to achieve economies of scale, Indian manufacturers need to compete in the global container market, which was valued at USD8.70 billion in 2019 and is projected to reach USD12.08 billion by 2027. Global shipping lines such as Maersk and CMA CGM are the biggest consumers of containers. Since they operate across long-distance routes such as Europe, US, and Russia, they have huge capacities — 7,000 to 14,000 containers per vessel.
“For the industry to take off, we have to go beyond a few thousand orders from Concor and other entities. Economies of scale will come only when you get good orders from the big shipping companies. Ultimately, it is price that will decide the name of the game,” says Sanjiv Garg, managing director, Pipavav Railway Corporation, a 50:50 joint venture of Indian Railways and Gujarat Pipavav Port.
Industry leaders also point out that containers alone cannot solve the pains of the shipping industry. “Producing containers alone will not suffice. It has to be substantiated with development of our own shipping lines, which will carry these containers. Today, what we are seeing [high freight rates and container shortage] is a result of not having invested in our own container fleet. We are at the mercy of international shipping lines,” says Shankar Shinde, chairman of industry body Federation of Freight Forwarders’ Associations in India.
The bottom line
India has a minuscule share in global maritime trade. At present, the country is at the 17th position in the list of top countries controlling the world merchant fleet.
According to data from Indian National Shipowners’ Association (INSA), the total number of container ships owned by Indian flag vessels was eight as of January 2021, as compared with Greece’s 489 and China’s 769. The share of India’s national fleet in the country’s overseas trade was only 7.8% and in its domestic coastal trade was 59% in the same year. INSA argues that India lacks a robust container fleet of our own since operating an Indian flag vessel is about 20% costlier compared to a foreign vessel in the same trade because of duties, taxes, etc.
“With such a large coastline, ideally India should have had a few strong container shipping lines of its own. Had that been the case, like China, India too would have had a strong captive demand from local users,” says Vaswani.
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