The amendment to the Nepal-India Railway Service Agreement on July 3 ended the monopoly of the Indian Container Corporation for 18 years.
--BY OMPRAKASH KHANAL
In the last five years, many competitive initiatives have been taken to facilitate the transportation system of Nepal's overseas trade. As competition grows, so does the cost of transportation. Cost rise brought about by the COVID-19 pandemic has been a common issue, with Nepali importers and exporters facing many inconveniences in trade with third countries. It is not uncommon to expect that the recent competition in railway services will be the basis of trade facilitation due to procedural reforms in Indian ports, which are being used by Nepal in foreign trade. Expectations are being curtailed unnaturally. Why has the rising cost of transportation in foreign trade not stopped? The only thing concerning it is a lack of factual thinking.
Added problem when monopoly ends!
The amendment to the Nepal-India Railway Service Agreement on July 3 ended the monopoly of the Indian Container Corporation for 18 years. But Nepal's foreign trade has not been able to take advantage of this yet, on the contrary, the tension has increased. After the amendment to the agreement, three private companies of India have entered into the competition with Indian Container Corporation. Indian Container Corporation, which initially reduced fares to put pressure on competitors, has now cut off rail rake supplies, which has resulted in piling up of containers from third countries to Nepal at Indian ports. Indian Container Corporation is a company with a strong infrastructure that has reduced fares by up to 35%. At present, other competing companies are transporting only about 10% of the total containers coming to Nepal. Before the amendment to the Railway Service Agreement, Indian Container Corporation had a monopoly and was responsible for all transportation. Indian Container Corporation was relieved of this obligation and now both fare and rake have been reduced. Transportation has been disrupted due to the inability of other competitors to increase their capacity. Among them, Pristine Logistics Infra Projects is the main partner of Birgunj Dry Port Operating Company. Intending to make a profit, this Company which has won the contract is now in a dilemma.
What are the advantages of process and competition?
It was said that the fare would be halved after the implementation of the transshipment system in Indian ports. Instead, transportation fares increased by 50% immediately. Earlier, when importing containers with customs transit declaration, the importer's representative had to be kept in Kolkata. Now the shipping company started acting as the representative in the transshipment. After the transportation to Birgunj, the detention (delay penalty) at the Indian port was stopped. But the shipping company increased the fee by adding the possible delay and other cost at the port to the freight. Eventually, the benefits of procedural improvements at the port went to the shipping company, not to Nepali traders. Earlier, the importer's agent's arbitrariness was said to have increased the cost. But it seems that the importers have jumped out of the frying pan into the fire.
As a matter of fact, Nepal's imports did not get the benefit of reduced fare. In the transshipment model, the exporter transports to Birgunj port. The cost of transportation from the origin of the goods to Birgunj is added to the value of the goods. As the business agreement with the railway service provider is to be decided by the same company, the shipper or shipping company has been taking advantage of the reduction in freight from the Indian port to Birgunj. Importers have not experienced any reduction in fares.
In April 2017, the port of Visakhapatnam in Andhra Pradesh, India, was opened for use by Nepali importers after a long period of inconvenience at the port of Kolkata and the limitations of Haldia. Most of the freight through Kolkata, which is 700 km away from Birgunj, has now shifted to Visakhapatnam, a double distance. Containers are now piled up in this port. Today, over a million containers arrive from overseas each year. This number is increasing rapidly.
Nepal has reached an agreement in principle to use India's Dhamra and Mudra ports. The Dhamra port in the state of Orissa, situated between Kolkata and Visakhapatnam, may be more convenient than Visakhapatnam. The Mudra port in the state of Gujarat facilitates transportation to the western part of Nepal. It is pertinent for Nepal to adopt a long-term strategy in port management. By agreeing to use all the ports of India, the importer can use any port that suits him. Structural improvement and capacity building of trade facilitation infrastructure such as integrated check posts, dry ports, and border customs should be made effective.
Most of Nepal's transportation is based on land routes. Waterways are considered the cheapest form of transportation. Nepal and India reached an agreement three years ago on the use of waterways to Sahibganj and Kalughat in India. Birgunj is 483 km away from Sahibgunj in Jharkhand, India. It is 492 km from Kalughat in West Bengal. Biratnagar is only 254 km away from Sahibgunj and 171 km from Kalughat. Under the Sagarmala project, India has put forward ambitious plans, including the expansion of waterways, improvement of ports, transit infrastructure, and the construction of a coastal economic zone by 2035. There is a need for effective diplomatic initiatives on how to take advantage of this. Planning for the use of inland waterways is becoming more and more a matter of politics than reality in Nepal.
Measures to improve capacity
The revised Nepal-India Railways Agreement provides a facility for the operation of transportation services for both Indian and Nepali private railway companies. The state-owned Nepal Transit and Warehouse Management Company Limited (NTWCL) may be the best option for running the railways right now. There are 15 private companies providing railway services in India. We have to take initiative to bring in those companies. The government can operate rail transport services in partnership with other companies.
At present, the benefit of most of the transportation business in Nepal (more than Rs 3 trillion per annum) is being taken off by transport service providers from India and other countries. Although more than 21 shipping companies and Indian transport companies are active in Nepal's transportation, they are not subject to Nepali law. This is also the main reason why the government is helpless in the face of the whims of such companies in transportation. The government had earlier asked the shipping company to register in Nepal. In time, that effort slowed down. Transportation laws should not be delayed to make it systematic, competitive, and safe. For long-term purposes, Nepal's private sector must be made competitive in transportation. The number and capacity of such companies should be expanded. While bringing in companies from other countries, efficiency can be increased by partnering with Nepali companies. At present, the limited railway infrastructure at Birgunj should be extended as soon as possible to major ports like Biratnagar and Bhairahawa and other ports respectively. This measure can be a tool for cost reduction.
Awareness in Private sector
Importers themselves must be equally vigilant to take advantage of improvements in foreign trade infrastructure, processes, and competition. Even if the government arranges the process and infrastructure, the opportunity for competition is decided by 'B to B'. As long as importers get a "concession" to transfer the cost on the consumer, they won’t get competitive. When importers choose "free on board" (FOB) transportation, the benefits of competition can be eased. Importers are free to choose their representatives among shipping companies, railway services, and Indian ports as the shipper is responsible for transporting the goods only to the country's ports of origin. This makes it easier for importers to take advantage of the competition. Most of the containers that come to Nepal now return empty. Export growth can also be a way to reduce transportation costs. Competitive production based on quality and price will be a prerequisite for this.