Free trade warehousing zones must for India to grow

T. E. Raja Simhan | Updated on March 06, 2011 Published on March 06, 2011

FTWZs will be suitable for units with a large import content in manufacturing operations, and good domestic and export market potential for sales. - Photo : Bijoy Ghosh   -  Business Line

Free trade warehousing zones (FTWZs) have been a phenomenal success in Jebel Ali, Singapore and Rotterdam. One has to visit these zones to see their sheer size and contribution to the regions they are located in becoming major logistic hubs.

The Jebel Ali Free Zone (Jafza), for instance, accounts for 25 per cent of all container throughput at Jebel Ali port and 12 per cent of all air freight at Dubai International Airport. Established in 1985, it covers a 48 sq km area and is home to over 6,400 companies from across the world. It sustains over 160,000 jobs in the UAE through its companies and accounts for over 50 per cent of Dubai's exports.

Can India replicate the success of Jafza? The Government conceptualised a FTWZ policy five years ago but not much has happened since. While industry experts say it is possible to replicate the concept in India, they add that it will take a long time to establish a facility like the one at Jebel Ali or Singapore or Rotterdam. “We need to be patient and wait for a long time,” said an industry source.

FTWZs, which are a special category of Special Economic Zone, offer services such as speedy delivery of cargo, one-stop for Customs clearance capability; integrated solutions, such as packing management, sorting, inspection, re-invoicing, strapping and kitting, assembly of complete and semi-knocked down kits, and taxation benefits.

According to Mr Harry S. Lagad, Executive Director, Gati Ltd, FTWZs are the future of India. “I do not think that today the concept and the model will find many takers. In the next five to 10 years, the way supply chains are executed will change. A lot depends on what the duty structure is going to be. Value addition and last-mile customisation will be the concepts that drive the growth in the FTWZ segment.”

DHL was the first global logistics company to set up a facility recently within the new free trade warehousing zone inside the Chennai Free Trade Zone in Sriperumbudur.

The Jebel Ali or Singapore FTWZs did not come up in a day. It took years for them to become world-class zones. India will become one such hub in a few years, said Mr Amadou Diallo, Chief Executive Officer, Africa and South Asia-Pacific, DHL Global Forwarding Managements. “In a couple of years you will see all of our competitors operating in Sriperumbudur or Oragadam (automobile hubs of Tamil Nadu),” he said.

Manufacturing companies do not want to move their products to Singapore or Jebel Ali FTWZ for value addition. This will only add to the overall cost. The logistics market in India earned revenue of $75.19 billion in 2009, representing 6.2 per cent of the country's GDP. The market is expected to touch $120 billion in 2014, a 9.9 per cent CAGR between 2009 and 2014, according to a report on Strategic Analysis of Indian Logistics Market by Frost & Sullivan.

Evolving concept

If one had gone to Jebel Ali 17 years ago, there would have been nothing in the free trade warehousing zone. It is a similar situation in India today, said Mr Diallo. The industry need to test, pilot and demonstrate the success of the zone as adding value to the local economy. If the government is convinced that it increases the competitive edge in Chennai or any other city, then the authorities will push for it.

Jebel Ali FTWZ was not started just because the Dubai authorities wanted to have it. Logistics providers too wanted it, he said. “I discussed it with many Indian friends, who complained that we do not have infrastructure here. I can assure you that if you look at world-class facilities, like the airports in Delhi, Hyderabad, Chennai and Bangalore, a lot of things are happening. We cannot wait until all airports and highways are ready and start talking about logistics operations because these grow as the economy grows. It happened the same way in Jebel Ali or Singapore two or three decades ago,” Mr Diallo said.

Ms Rhea Vazirani, Founder Managing Director, Robinsons Global Logistics, says free trade warehousing zones are inevitable if India wants to achieve double-digit GDP growth rate. The objective of FTWZs is to create trade-related infrastructure to facilitate the import and export of goods and services with freedom to carry out trade transactions in free currency.

Support system

Having warehouses in each zone will make it easier to get Customs clearances to dispatch imported goods to retail outlets across India. Retail outlets and importers can plan their inventories better; save on transportation costs and add greater value to the customer. “FTWZs will only accelerate the efficiencies of industry and retailers,” she said.

According to Mr K. Ravichandran, Senior Vice-President, Co-Head, Corporate Sector Ratings, ICRA Ltd, although the concept is sound, they (the zones) will have to contend with competition from Container Freight Stations in the short to medium term as the latter already perform several functions that are done within FTWZs.

FTWZs would be suitable for units that have large import content in their manufacturing operations, and good domestic and export market potential for their sales. Such units can store the goods in the warehouses duty-free and sell to domestic or international customers as and when feasible. Such FTWZs would be economical if set up near ports, with significant market potential in the primary hinterland.

FTWZs located near the periphery of Chennai and Ennore ports should have good potential because of significant hinterland demand from several units among auto ancillaries, textiles, leather, electronics and chemicals. The region is slated to attract significant new investments in some of the above sectors, he said.

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Published on March 06, 2011
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