Evaluating Development Opportunities for Inland Water Transport in

Amit Mishra, Alipt Saxena, V.B. Khanapuri ([email protected]) National Institute of Industrial Engineering,

Abstract Objective: There are 14,500 km of navigable inland waterways in India. However, it constitutes less than 1% of the overall transport movement [Raghuram G, 2004]. With the increasing cost of logistics, Inland waterways offer a potential scope of improving the bottom-line for the companies. The cost of transportation through waterways depends on various factors such as availability of one way/two way navigation, night navigation and also on infrastructure condition such as availability of mechanised handling at the terminals [S. Sriraman, 2010]. The purpose of this paper is to present both qualitative and quantitative comparison in terms of cost between IWT (Inland Water Transport) and present modes of transport such as railways and roadways. Based on this comparison, companies can decide which mode of transport would be best suited for transportation of their goods.

Methodology: Using secondary data about cost of transportation through IWT between various feasible geographical locations in India [TCS, 2004], a relationship between cost per tonne and distance travelled in km was estimated. This relationship also factors into account the parameters related to availability of night navigation and mechanised handling at ports. From-To charts depicting cost incurred per tonne while transporting goods between different major terminals on NW-1, 2 and 3 have been prepared. This paper also focuses on connectivity between NW-1 and NW-2 through waterways of Bangladesh and presents the benefits that can be availed with its use. A case has been studied to substantiate how NTPC and Cement Industry can help each other in reducing the total cost through collaboration and availing the benefits of two way navigation.

Findings: Based on the study, it was found that night navigation facility is available in almost all the national waterways. The study suggests that for one way navigation, fixed cost for transportation per tonne can be reduced by 20.6% if handling of goods on terminals is mechanised. Furthermore, Improvising from one way navigation to two way navigation results in reduction of variable cost of transportation by 50% and fixed cost by 16%. The fixed cost of transportation can further be reduced by 35.3% if handling of goods on terminals is mechanised for two way navigation. Thus, the focus of this paper is to assess how a company can reduce the transportation cost by collaborating with another company operating on the same route and planning return load in advance.

Conclusion: This paper will provide companies with an approach to have a qualitative and quantitative comparison between various available modes of transportation with IWT for selected routes. Also, companies would be able to assess how collaboration with other companies for two way navigation can be explored to avail the maximum benefits of Inland Water transportation.

Keywords: Inland Water Transport, Bulk shipment, National Waterways, Transportation, Collaboration, Two Way Navigation

Introduction In India around 61% of the cargo is carried by road, 30% by rail and the remaining is transported via Airways, Waterways and Pipelines [Total transport systems study on traffic flows & modal costs, Report for Planning Commission, RITES]. Despite 14,500 km of navigable inland waterways in India, its contribution is less than 1% of the overall transport movement [Raghuram G, 2004]. This is very less compared to countries like China, USA and Europe where freight transport via Inland waterways is around 8.7%, 8.3% and 7% respectively [Transforming India’s logistics industry, KPMG Report]. Certain countries like Germany (12%), Belgium (15%) and Netherlands (48%) are very efficient in making good use of their inland water system as far as their domestic freight is concerned [OECD, 2007]. With the increasing cost of logistics, Inland waterways offer a potential scope of improving the bottom-line for the companies. Inland Waterways especially makes a strong case for transportation of bulky and heavy materials like steel, iron ore, coal, cement, and fertilizers etc which occupy large volume and are very heavy. These materials are usually transported in large quantities and require high shipment capacity. Fuel consumption per tonne of freight shipped by water is only 15% of that of road and around 54% of that used by railways [Integrated Logistics Strategy, National Transport Development Policy Committee, September 2011]. Fixed cost for transportation per tonne can be reduced by 17.1% if handling of goods on one of the port is mechanised and by 20.6% if both the terminals are mechanised. Furthermore, Improvising from one way navigation to two way navigation results in reduction of variable cost of transportation by 50% and fixed cost by 16%. The fixed cost of transportation can further be reduced by 26.1% if handling of goods on one of the port is mechanised and by 35.3% if both the ports are mechanised for two way navigation [Raghuram G, 2004]. Savings are pronounced if it is used for long distance transportation. The current scenario demands more than just shifting modes of transport. It requires integration between various modes so that a seamless logistics network can be created. Now-a-days, rail-road connectivity to ports is increasing and facilitating movement of cargo. Cochin port is connected to main railway network via an 8 km railway line. This enhances connectivity and improves productivity. To explain how waterways holds a good scope for domestic transportation to reduce freight cost, let us discuss the case of M/s Ambuja Cement. Cement is a freight intensive industry and it accounted for 18% of Ambuja’s total cost. Transportation of cement by road for any distance beyond 200km didn’t seem to be a prudent business decision for the management. So they relied on rail for as high as 55% of the total volume. Non availability of wagons posed a major problem leading to high degree of uncertainty in their supply chain. In order to overcome all these issues, they started using water transportation for carrying 30% of the cement, eventually reducing dependency on rail to 30% and Road to 40%. Considering a ship which could carry 40,000 tons, the cost per tonne came down to mere Rs 190 in comparison to that of Rs 580 via rail and Rs 670 via road transport. After government allowed private players to invest in port and material handling terminals, they came up with terminals at Muldwarka, Surat and Vashi. All these efforts helped Ambuja in becoming a cost leader in the Cement Industry.

Challenges in using IWT

Despite cost reduction potential, Indian Inland waterway system suffers from certain drawbacks which affect its utilization in an efficient manner. Some of them are as follows: a. Inadequate Water Channel Depth- Large vessels cannot traverse without adequate waters in the rivers. This along with the seasonal dependency of river makes operation of many ports difficult. b. Storage Infrastructure- Other than certain government run warehouses whose main objective is grain storage; most of the warehouses are small in size and lesser in number. There is inadequate security measures, poor racking system and most important of all there is lack of cold storage facilities in majority of the ports. c. High Turnaround Times- Lack of proper material handling equipments and slow evacuation of cargo leads to congestion and high turnaround times. d. Excessive siltation- Deforestation and erosion activity of the river leads to siltation e. Poor Skills and Low Technology Adoption- Lack of automation in processes and low multi- operation skills affects efficient utilisation of ports. Despite the above mentioned challenges, IWT has a high potential to change the way logistics industry operate in India. Early literature and research work has elaborated upon the scope and prospects of IWT theoretically. This paper goes into the specifics and discusses an estimated costing for transportation between various ports lying on National Waterways. It takes into account qualitative judgement by including factors other than cost. It also proposes industry collaboration for reducing charges further by practicing two-way navigation.

Improving Condition of IWT

Inland Waterway Authority of India (IWAI) undertook projects to develop Inland Waterways. Currently there are three major National Waterways in India which are navigable and can be used for cargo movement domestically:

1. - A stretch of river Ganga connecting Allahabad to Haldia 2. - A stretch of river Brahmaputra connecting Sadiya to Dhubri 3. - A stretch of West Coast Canal, Udyogmandal Canal and Champakara connecting Kollam to Kottapuram

Other relatively recently declared National Waterways- NW 4, NW 5 and NW 6- are also coming into prominence. Multiple projects transporting bulk material via inland waterways has already been taken up by few companies to reduce their logistics cost and are found to be proved as cost-effective. Some of them are as follows: [Presentation on ‘Prospects of IWT in Multimodal Transport’, India Maritime Week, January 2012]

1. Cement - From port of Farakka to that of Nabadweep, Bhagalpur and Patna 2. Hot rolled Coils - From port of port of Kolkata to that of via Ashuganj 3. Food Grains - From port of Kolkata to that of 4. Iron Ore - It is being transported in the regions of

Other than this certain successful projects operating on Inland Waters are involved in the shipment of Coal, Fertilizers, and Fly Ash etc. These projects stand as a testimony to the merit being provided by the Inland Waterways. Other projects can be taken up on same lines.

Quantitative Analysis The cost of transportation through waterways depends on various factors such as scope of one way/two way navigation, availability of night navigation and also on infrastructure conditions such as availability of mechanised handling at the terminals [S. Sriraman, 2010]. Cost of Transportation by IWT was given in TCS report on ‘Development on Coastal Shipping’, 2004.

Table 1: Cost of Transportation by IWT (Source: TCS-2004) In order to determine the relation between cost and distance travelled, following two parameters are important to be considered: 1. Night Navigation - It is an important criterion that affects depth perception, judgement about distance and size of shore etc. Night navigation increases availability of time and reduces freight traffic. With due efforts of IWAI, almost all National Waterways in India have Night navigation facilities.

2. Mechanisation facilities at Ports - It is another criterion that increases productivity, reduce turnaround time and speed up cargo movement. It includes availability of cranes and other sophisticated material handling equipments to manage cargo loading and unloading. The secondary data obtained from the report was used to determine equations which had an R- squared value of 1. Based on Wholesale Price Index variation with year 1939 as the base year, multiplication factor was found to be 1.867 for adjusting 2003-2004 prices to inflation adjusted value in year 2013. Inflation adjusted price gave better estimate of the inland transport charges in the present scenario. Case I: Neither port mechanised; night navigation available: One way night navigation: Y= 1.193 X + 479.37 Two way night navigation: Y= 0.596X + 403.42 Case II: Either port mechanised; night navigation available: One way night navigation: Y= 1.193 X + 397.54 Two way night navigation: Y=0.596 X + 298.18 Case III: Both ports mechanised; night navigation available: One way night navigation: Y= 1.193 X + 315.72 Two way navigation: Y= 0.596 X + 192.94

Where Y-cost incurred in ₹ X-distance between two ports in Km

Methodology for Developing From-To Chart Following methodology was followed to develop From-To chart depicting cost per tonne in going from one port to another on NW1, 2 or 3: 1. List down all major ports on NW 1, 2 and 3 2. Determining distance between each port from one another based on the river route 3. Information regarding mechanisation of all ports lying on NW1, NW2 and NW3 was gathered from secondary sources like inland waterway authority of India or websites of that specific port etc. 4. Based on the parameter of Night navigation and mechanisation, appropriate equation was used to find cost per tonne and From/To chart was developed. 5. Obtained data was inflation adjusted.

Table 2: Inter port Distance in Km - NW1

Table 3: Transportation Cost per Tonne in ₹ - NW1

Table 4: Inter port Distance in Km - NW2

Table 5: Transportation Cost per Tonne in ₹ - NW2

Table 6: Inter port distance in Km - NW3

Table 7: Transportation Cost per Tonne in ₹ - NW3

The From-To chart can be used by companies in estimating the cost per tonne for transporting freight from one port to another and comparing it with other available modes of operations. Certain inferences that can be derived from the chart are as follows:

1. As distance increases, transportation by waterways becomes more and more profitable. Following graph shows how the transportation cost per Tonne per Km decreases as the distance travelled increases in case of transportation between ports of NW–3.

Relation between inter port Distance and Transportation cost per Tonne in NW3 15

10

5 Cost per tonne per Km in Rs 0 0 50 100 150 200 Distance in Km . Fig. 1

2. For two ports with similar distance, transport cost decreases considerably as navigation mode changes from one-way to two-way when both ports are mechanised compared to the case when only one or none of the ports are mechanised. For instance, consider the ports Bhagalpur and Farakka on NW1 and also ports Kollam and Kottapuram on NW 3. Both are at distance of 180 Km from each other. For NW1, cost reduces by Rs 183 whereas for NW3, it reduces by Rs 231 when we shift from one way navigation to two way navigation between these ports. This again emphasizes the importance of providing mechanisation facilities at various ports.

Qualitative Analysis

While deciding upon the mode of transport to be used, cost is not the only criteria. Multiple factors influencing level of service level and acceptable lead time plays an important role in choosing. Though Waterways may rank higher when it comes to cost for long distance transportation, but it has certain limitations which needs to be taken care of. But incorporating concepts of two way navigation by collaborating with other companies can prove beneficial to both of them. Therefore other than cost consideration, certain qualitative factors taken into account are as follows:

1. Transit Damage - It is the loss to goods due to improper packaging and storage, jerk during transport etc 2. Speed - With market becoming very demanding, the rate of movement of goods needs to be high 3. Reliability - It brings in the importance of consistency in performance with minimal delays in consignment delivery 4. Bulk Shipment Capacity - It is about the load carrying capacity of the vehicle used for the given mode of transport. 5. Transit Pilferage - It is the theft of some or all the content of the consignment or replacing actual content with other things in between the despatch and receipt of consignment. 6. Frequency - It takes into consideration how frequently the same vehicle used for given mode of transport be used for return journey. 7. Availability - It is about how convenient it is to arrange for movement of goods via any mode of transport in relatively short span of time 8. En-route Check Points - This point highlights the number of check points and paper work involved while transporting goods

The significance of these factors varies across industries and from product to product. Inland Waterways have following factors in its support: a. High Bulk Shipment Capacity due to large size of barges and ships b. Low Transit Pilferage due to sealed cargo and containers c. Low En-route checkpoints due to minimal stoppages

High Transit Damage can be improved with proper packaging. Frequency can also be increased if return cargo is planned in advance. Similarly as the industry develops, the problem of availability could also be minimized in long term. The importance of any of the mentioned factors cannot be neglected for transporting bulky material like steel, cement etc. But shipment capacity and pilferage control surely are very important factors that are of more interest for the bulk material industry. Inland Waterways can thus provide an efficient alternative option for it.

Industry Collaboration for Two-way Navigation

One of the major impediments to the regular and effective usage of Inland waterways is the non- availability of return cargo. This leads to either high cost being incurred for transportation or major loss of time due to wait for orders which could lead to full capacity utilisation. In order to overcome this issue, the need of the hour is a long term symbiotic relation among industry. In such a case, two or more companies (preferably of non-competing nature) operating on same water route but in opposite direction can collaborate to help each other in ensuring return load, thus minimizing cost and time for each other. Consider a scenario wherein there are two companies say NTPC and a Cement manufacturing firm. Coal India provides Coal to NTPC. Coal mine of CIL and the cement firm are located close to port A. Coal India transports coal from port A to NTPC plant located near port B. The distance between place A and B is assumed to be 525 km. Burning of Coal leads to generation of high amount of fly ash which are superior due to low content of sulphur and presence of unburnt carbon. Fly ash is used in the production of certain types of cement and concrete. If cement manufacturing firm comes into strategic collaboration with NTPC to carry fly ash in return route after unloading coal at port B, both companies can reduce logistics cost. Lead time will reduce and cost per tonne will also go down as a result of two way navigation.

Analysis for Transportation cost comparison

Cost incurred while transporting coal from place A to Place B via 3 main modes of Roadways, Railways and Waterways are calculated and compared as shown in Fig.4.

Railways

Referring to Class Rate for Coal from Fig.5, it is found that a distance of 525 Km lies in the range of 501 to 550 Km. The corresponding cost per tonne is Rs 722.9. In this handling charges needs to be separately included which depends on the per hour wages which may vary from place to place.

Roadways

From secondary sources it is found that transportation by highways may cost on an average Rs 1.5 per km. considering this data for a distance of 525 km, an estimated cost of Rs 787.5 is achieved. This also does not include handling charges which needs to be additionally added.

Waterways For waterways all three cases discussed above are considered and cost per tonne is individually calculated using mentioned equations. As it can be observed that for two way navigation in all the cases, the cost of transportation per tonne is lesser than both railways and roadways. Cost further reduces based on the mechanisation facilities provided at the port. This makes a very strong case for exploring possibility of two way navigation each time transportation through waterway is to be considered.

Fig 2: Cost Comparison between Place A and B for same distance

Fig. 3: Railway Freight Charges for transportation of Coal through (Source: Freight Operation Information System, Ministry of Railways, GOI)

Transportation by Waterways

Case III: Both ports mechanised; night navigation ₹ 505.84 available ₹ 942.05

Case II: Either port mechanised; night navigation ₹ 611.08 available ₹ 1,023.87

Case I: Neither port mechanised; night navigation ₹ 716.32 available ₹ 1,105.70

₹ - ₹ 200.00 ₹ 400.00 ₹ 600.00 ₹ 800.00 ₹ 1,000.00 ₹ 1,200.00

Two way Navigation One Way Navigation Linear (One Way Navigation) Linear (Two way Navigation)

Fig.4 Conclusion

The inland waterways system may considerably reduce the logistics cost. The degree to which a cost can be reduced depends upon the distance, night navigation facility and the level of mechanisation at the port. As the distance between which goods has to be transported increases, scope of cost reduction due to use of waterways increases. But waterways are not always the cheapest mode. Instead of using roadways or railways directly without proper analysis, a methodical approach as explained in the paper needs to be adopted which could compare risks as well as benefits in terms of cost reduction due to use of inland waterways.

Future Scope

The existing paper is restricted to the extent of developing an approach for evaluating modes of transport in terms of both qualitative and quantitative aspects. If the expected cargo movement between various ports on National Waterways is estimated, a list of ports can be made which are ranked and prioritized based on freight volume and scope of overall cost reduction on waterway. Government can allocate limited resources and money on the port mechanisation and its development as per the priority list.

References

1. Dr. S. Sriraman, January 2010 – ‘Long Term Perspectives on Inland Water ’, RITES Journal 2. Dr. Sriraman, April 2002 – ‘Perspective on Inland Water Transport in India’, RITES Journal 3. TCS, Tata Consultancy Services, Mumbai, 2004: ‘Report on the Development on Coastal Shipping’ 4. Deloitte : ‘Report on Logistics Sector Present situation and way forward’ 5. KPMG: Presentation at CII on ‘ Transforming India’s Logistics Industry’ 6. Rangaraj, N, and Raghuram, G., New Delhi, 2007 – ‘Viability of Inland Water Transport in India’, INRM Policy Brief, Asian Development Bank 7. Manoj Kumar Singaravelu: ‘ Ambuja, Cost leader in the Indian Cement Industry’, IBS Centre for Management Research 8. The Working Group Report on Shipping And Inland Water Transport for The Eleventh Five Year Plan 9. http://www.iwai.gov.in/waterwaysnw2.html 10. http://www.cuttingthechai.com/2013/08/6461/india-inflation-adjustment-calculator 11. http://www.haldiadock.gov.in/Aspx/BulkTerminals.aspx 12. http://www.kolkataporttrust.gov.in/cargofacility.html 13. http://www.fois.indianrail.gov.in/ 14. http://www.business-standard.com/article/companies/ntpc-s-farakka-project-gets-domestic-coal-via-inland- waterways-114060800075_1.html