On 13 October, the fertilizer ministry issued an office memo stating that the movement of finished fertilizers by coastal shipping/inland waterways will be eligible for a freight subsidy granted by the government to fertilizer firms.
So far, only railway freight for primary movement of finished fertilizers from plants/ports to the nearest railway station of the dealers was reimbursed. The fertilizer ministry has a yearly budget of about Rs2,000 crore for this subsidy.
Primary movement has been redefined and expanded to cover transportation by rail, and/or coastal shipping or inland water transport or by any or two or by all three modes of transportation from the plant or port to the various railway rake points of districts (where dealers are located), P.B. Sahu, a fertilizer ministry official, wrote in the memo.
Fertilizer firms in the public, private and co-operative sectors pay the railway freight for the primary movement and then claim the money from the government, according to the practice followed.
In the new regime, freight subsidy for primary movement using coastal shipping/inland water transport will be reimbursed by the government in the same manner but at the lower of the equivalent railway rates or actual rates paid by the fertilizer firms, Sahu said.
The development lends a big boost to coastal shipping and inland water transport, which the government is seeking to promote to ease congestion on rail and road, reduce carbon emissions and cut logistics costs.
Fertilizer is seen as an ideal cargo to shift to water. Fertilizer production is very energy-intensive—with the cost of feedstock and fuel alone accounting for 55-80% of production cost. From the logistics perspective, therefore, production cost is of particular interest.
Growing agri-produce and an increase in the overall sown area will prompt greater demand for fertilizer end-products—around 70 million tonnes (mt) by 2020 and around 120 mt by 2035.
The volume of imports of fertilizer raw materials and finished products will grow at 4%, keeping the volumes handled at Indian ports fairly stable by 2020.
India’s 12 ports owned by the central government loaded 8.493 mt of finished fertilizers in the year to March 2016, clocking growth of 8.18%.
While rail is currently the primary mode of transport for long-distance fertilizer movement, experts say a modal-mix shift towards coastal shipping can significantly cut costs.
For instance, the movement between Andhra Pradesh and Maharashtra costs Rs1,928 per tonne via rail, while the same movement via road and rail-supported coastal shipping could cut cost to as low as Rs1,415 per tonne—a potential cost saving of 25-30%, according to the ministry.
If key rail movements are considered from major fertilizer plants to the top-200 fertilizer-consuming districts in India, around 10 plants have the potential to shift to coastal shipping, the ministry reckons.
Fertilizer corporations with multiple plant locations across the country seem to have the highest potential to leverage coastal shipping.
Finished products constitute half of the 28 mt of fertilizers that India imports in a year, with raw materials for the farm nutrients making up the other half.
The inclusion of coastal shipping/inland water transport in the freight subsidy scheme for moving fertilizers could spur interest among fleet owners by purchasing the right vessels that can move seamlessly between sea and inland waterways to tap this business. India’s maritime regulator, the director general of shipping, has already set rules for running the so-called river-sea vessels.
After putting in place an enabling environment to kick-start the fledgling sector through the Sagarmala programme, the government is now targeting fertilizers and automobiles to show the way. The shipping of cars by sea on roll-on-roll-off ships is slowly picking up on the back of an 80% discount in vessel-related and cargo-related charges over the rates approved at the ports owned by the Indian government for a two-year period.
The shipment of cars on national waterway 1 between Varansai and Haldia has also commenced.
Water currently contributes less than 6% to India’s modal mix and the government is looking to double this share by 2025. China uses its inland waterways to transport raw material and finished goods between the eastern and western provinces; water contributes 24% to China’s freight modal mix. Australia carries 17% of goods through coastal shipping. In Germany, 11% of goods are moved through inland waterways and coastal shipping.
If the movement of automobiles and fertilizers through coastal shipping and inland waterways catches up, it would not be long before producers of other commodities such as oil, liquefied petroleum gas, liquefied natural gas, steel, iron ore, coal and cement also seriously consider a big switch to this cost-effective and eco-friendly mode of transport, with a little more support from the government.
This would give a lot more confidence to cargo owners, who are now sceptical about the sustainability of such a shift, to move their goods by water.
The fertilizer ministry’s decision to bring coastal shipping and inland water transport under the freight subsidy plan shows that the Narendra Modi government is willing to tweak existing schemes to prop up the twin sectors, rather than formulate new incentive packages to achieve the objective. Many more funding schemes with individual ministries/departments can be tapped to promote water transport.
P. Manoj looks at trends in the shipping industry.