Container traffic growth to slow down overnext 3 years1) Growth in container traffic volumes is estimated to decline by 1% in 2013-14 and to increase by3-5% over 3 years till 2015-16.Reasons: Continued recession in the EU zone and sluggish growth in major developed economies impacting export growth. Weak domestic macroeconomic situation and rupeedepreciationvis- a- vis the US dollarimpacting import growth.2) CFS/ICDindustry's revenues expected to decline by 3% in 2013-14. Reasons: Slowing container traffic growth, falling dwell time and increasing competition leading to afall in realizations. 3) With the economyexpected to recover post 2013-14, the industry is projected to grow by 7-8% CAGR over the next 2 years. 4) Operating margins of the industry are expected to decline by 600 bpsin line with fall in realizations.In 2013-14, RoCEis expected to decline by 200-300 bps y-o-y due to slowing growth incontainer traffic.5) Total container traffic handled by Indian ports grew by 7.3% over the last 3 years to 10.0 mn TEUs (twenty-foot equivalent units) in 2012-13 due to healthy growth in capital and engineering goods, textiles and agricultural products. 6) Estimated total market size of CFS/ICDs is about Rs 45 bn, of which the CFS segment comprises Rs 30 bn.7) Over the next 3 years, CRISIL research expects investments of aboutRs 8-10 bn towards the establishment of CFS/ICDs.Competition to intensify at JNPT andChennaiports (Competition scenario in 2012-13)1) No capacity expansion plans at JNPT port till 2014-15 (utilization is about 97-100%). Mundra andPipavav ports expected to servicemajorityof the incremental traffic till 2014-15.2) Competition at JNPTis expected to remain high due topresence of alarge number of CFSs near the port, capacity constraints, higher capacity utilization levels, slowing container traffic growth and new capacity additions by CFS players.3) Chennai portis characterized by a large number oflow capacity CFS players. Competition is very intense at Chennai port due to weak container traffic growth leading to lower capacity utilizationsofCFS players. Some CFS players have shut theiroperationsnear the port. Withthe expected slowdownin container traffic growth over the next year,utilizations of CFS players are likely to remain under pressure. As a result, we expect some more players to shutdown theirCFSoperations.4) Competition atMundraport islower than that atJNPTand Chennai ports due to presence of lesser number of CFSs. At present, no major infrastructure bottleneck issues (hence, TAT of large capacity container ships relatively less), congestion issues at JNPT port.

Market size of CFS/ICDs:1) Handling, transportation and ground rent are the key revenue sources for CFS/ICD operators2) Market size 45 bn (CFS 30 Bn and ICD 15 bn). CFSs derive revenues from handling & transportation charges- 22bn and ground rent-8 bn and ICDs derive revenues from handling charges 8 bn and ground rent 7 bn.3) H&Tmainly includes stuffing/de-stuffingthe container with the goods, and transporting the container between the portand the CFS.4) In the case of ICDs, only stuffing and de-stuffingis done at the ICDs as thetransportation of the containerfrom/to the ICD is done by the exporter/importer.5) While the H&Trevenuesareapplicable forimports/exports, ground rent is primarily applicable for imports where the containers are stored for a certain period of time tilltheyare cleared by customs. The average time for storing containers (dwell time)is around 10 days for imports as of 2012-13,and3-4 days for exports.6) Of the total container traffic handled, major ports (government owned) accounted for about 77%, and the rest was handled by non-major ports (private ports)such as Mundra and Pipavav. Further, about 81% of thetotal container traffic was handled by four ports JNPT (42%),Chennai Port (15%), Mundra Port (17%) and Pipavav Port (6%).7) With no capacity expansion likely at JNPTtill 2014-15, the share of non-major ports is expected to grow to about 28% by 2015-16 from the current 23%. Better infrastructure facilities, low congestion and increasing shipping frequency to non major ports such as Mundra and Pipavav coupled with high congestion levels at JNPT,which is running at 97% utilisation, will boost the share of non-major ports.8) Tuticorin and Kolkata handled container traffic of 5% each in 2012-13.9) Imports accounted for 51% of the total container traffic handled by major portsin the country in 2012-13, and exports constituted the balance. Historically, the range is same.10) Of the total containers imported, about 55% were handled byCFSs, 28% by ICDs, and the remaining 17%is direct traffic flowing from the ports to the factory/importers' destination.11) Under the Accredited Clients Programme (ACP), certain privileged importers are allowed to get their imports customs cleared at the ports and need not use the services of CFSs. The AC status is given to importers with demonstrated clean track record, and history of compliance with the laws and regulations enforced by the customs department. Once the importer receives Accredited Client status, import consignments will not be subjected to customs examination. Although the imports willundergo random checks,the clearance timeforimportersgets substantially reduced.12) Of the total containers exported, about 34% were handled byCFSs, 26% by ICDs, and the remaining is direct traffic flow after it is cleared at the factory. Exporterstypically stuff the containers at the factory, after which the containers are cleared by the excise/custom authorities at theplant and are directly transported to the port withoutemploying the services of a CFS.13) Currently, of the total container traffic (imports and exports)in the country,around45% is estimated to be handled by CFSs, about 27% by ICDs, and about 28 per cent directly at ports.

Demand Outlook: 1) In 2012-13, India's container traffic growth is expected to grow at a CAGR of about 3-5% over thenext 3 years as compared to 7.3%CAGR recorded between2009-10 and 2012-13.2) Container traffic growth to recover only in 2014-15 (Expected growth 4%) and 2015-16 (7%), due to animprovement in the global and domestic macroeconomic environment.3) Dwell time declined as customers focus on clearing containers quickly from ports.4) In thesluggish domestic macroeconomic environment,companies competing to increase market share by reducing tariffs. Revenues of CFS/ICDs to decline by 2-3% in 2013-145) Congestion atJNPT and infrastructure bottlenecks at Chennai Port.6) Mundra and Pipavav ports to service majority of the incrementaltraffic from JNPT7) Supply-side issues at major ports will restrict the growth in container traffic handled by CFS' at major ports, and CFS/ICDs catering to non-major ports such as Mundra andPipavavwill see majority of incremental growth over the next 3 years.8) CFS players to add additional capacitiesat JNPT and other non-major ports leading to increased competition. No major capacity additions at Chennai Port due to infrastructure bottlenecks, and also, current capacity is sufficient to service current and incremental container traffic at the port.9) Capacity utilizations: JNPT (97%), Chennai port (71%), Mundra (70%) and Pipavav (61%)10) Container traffic at non-major ports expected to grow at a faster rate of 9-10% to 3 mn TEUsin 2015-16 from 2.3 mnTEUsin 2012-13 due to infrastructure bottlenecks and capacity constraints at major ports such as JNPT and Chennai. Hence, the share of non-major ports in the total containerised traffic is expected to increase to27-29 per cent from23 per cent over the next3 years.Growth drivers: 1) Indias exports and imports to drive container traffic growth: Account for more than 90% of containerized cargo in India. Non oil exports and imports grew at a CAGR of 10% over the past 5 years and expected to maintain this pace for the next 5 years as well.2) GDP (industry) and non-oil exports and imports demonstrated a close correlation with container traffic because sectors such as auto, capital and engineering goods, agricultural products, granite, steel products, textiles and chemicals form a substantial part of our EXIM trade.3) India accounts for 5.6% of world GDP, but accounts for a mere 2.1% of global trade in 2011-12 (0.7% in 2000). Over the last5 years, global trade has grown at 8.1%, while India's trade with the rest of the world has grown at a robust 20.7 per cent. Over the long term, increasing trade with emerging economies, increasing technological capabilities, and favourable policies to furtherenhance India's sharein global tradeOperating margins to decline sharply owing to weak container traffic demand:1) In 2013-14, operating margins expected to decline by 600 bpsdue to weak growth in container traffic movement, decline in dwell time (time spent by a container at a CFS/ICD)and increasing competition. (FY09- 58%, FY10- 52%, FY11- 50%, FY12 55%, FY13- 43% and FY14 projected 37%). Traditionally, this industry has been driven by high operating margins.2) Gateway distriparks and allcargo logistics ltd together account for a market share of 15% of the CFS/ICD industry.3) Average dwell time in FY13 at various ports declined from 12 days to 11 days and expected to be 10 days in FY14 as importers increased focus on reducing storage costs and quickly evacuated containers from CFSs due to slowdown in imports and falling rupee.4) Utilisation levels are the key determinant of players' profitability as the industry is capital-intensive and majority of costs such as land, construction expenditure, reach stackers, cranes and trailers are fixed in nature.5) ROCE declined FY09: 41%, FY10-32%, FY11- 27%, FY12- 38%, FY13- 22% and FY14- 20%. Declined in FY11 due to addition of capacities by majority of the players, improved during 2011-12 with a healthy growth in container traffic and strong increase in realizations, declined in 2012-13 as operating margins fell because of weak container traffic movement and expected to drop due to weak container traffic growth, falling realizations owing to increasing competition and lesser dwell time in 2013-14.6) Operating margins and RoCE for Allcargo are high due tosynergies from the NVOCC (non-vessel owning common carrier) business, where it provides end-to-end freight services to exporters and importers of cargo. Due to this, the company has strong relations with shipping lines that provide the import side business for its CFS division. This is reflected in the fact that 85-90 per cent of the total container volumes handled by Allcargo at JNPT are imports. Compared to exports, imports enjoy much higher realizations and profitability due to ground rent revenues.7) The dwell time for imports and exports is in the range of 10-12 days 3-4 days respectively.Higher dwell time for imports leads to higher ground rent revenue, which boosts profitability due to lower operating costs for storage services.Operating cost break up:1) Container transportation, power and fuel, andlabourconstitute majority ofoperating costs.2) In 2012-13: Power and fuel (10%), container transportation (26%), equipment transportation (26%), equipment hire (11%), repair and maintenance (4%), labour charges (17%), other expenses (32%).Other costs include sub-contract charges, surveyors' fees, auction expenses and fees for operating a CFS.3) Container transportation cost is incurred when trucks are hired to transport containers from/to the port. Power and fuel costs, on the other hand, are incurred towards operating self-owned trucks, reach stackers, cranes and reefer containers.4) This industry requires skilled labour to operate sophisticatedequipment and handle large capacities,and hence, is highly labor-intensive.Considering the significant employee cost, several container freight station(CFS)players hire labour on contractual terms, wherein charges are linked to the number oftwenty-footequivalent units (TEUs)handled.5) Equipment hire charges, licencing fees, surveyors' fees and auction expenses are other costs incurred. Licencing fees arise on account ofthe mandatory renewal of licences each year, whereas auction expenses are attributable to the auction sales generated when the CFSor inland container depot (ICD) auctions long standing cargo, not cleared by customs.6) Players that work on the operator model, develop and manage the CFS/ICD on behalf of owners, based on a long-term contract and an annual fee.Profitability drivers:1) Reduced TAT, capacity expansion and integrated offerings2) Diversification of operations: Companies forayed into a multitude of operations earned higher profits despite the slowdown in international trade. It also acts as a hedging tool.3) Integration of services: The market is in need of one-stop logistical solutions and would be willing to pay a premium for such a service. Allcargo constituted a new division, Project and Engineering Solutions and Gateway Distriparks initiated a rail freight network.4) Increased traffic will lead to higher revenues, which will in turn, result in higher profits.5) Increase in capacity: Our ports have a high utilisation rate vis-a-vis the major international ports, denoting a supply side constraint, which hinders the optimum growth of the industry. 6) Reduction in TAT: The average TAT at India`s major ports ranges around 2 days, against an average TAT of merely 8-10 hours at the prime ports of the world. Thus, a reduction in the TAT at Indian ports will help ease the pressure on capacity and increase the throughput.

Outlook for investments:1) Investments to the tune of Rs 8 -10 bn expected in CFS/ICDs over next3 years.2) Investments expected to slow down due to slowing container traffic growth over the next three years, we expect investments to significantlyslowdownduring the same period. However, the Indian container industry has considerable potential over the long termdue to lower level of containerization as compared to its global counterparts. Infrastructure and capacity bottlenecks at major ports have affected the sector's growth potential. 3) With the growth in container trade being the key driver, setting up new container terminals and expanding existing container terminals at major and non-major ports will drive investments in CFSs/ICDs.The long-term demand (especially post 2015-16)for container trade remainshealthy.Definitions:1) CFS/ICD are facilities set up for the custom clearance of export and import containers,handling and storing EXIM cargo on a temporary basis, and storing empty containers. It is a customs-bonded facility with a public authority status, equipped with warehousing space, adequate handling equipment and IT infrastructure.2) It provides an integrated platform for activities such as custom clearance,loading/unloading, transporting and stuffing/de-stuffing of containers. CFS and ICD service providers also provide other services such as less than container load (LCL) consolidation, refrigerated warehousing, hub-and-spoke services, etc.3) In essence, the CFS/ICD industry forms a link between multi-modal transport operators (MTOs) and shipping lines in the logistics value chain.4) Whilethe functional aspects are similar for CFS and ICD facilities, the only difference is that a CFS is located near the gateway port (off-dock facility located near service ports) and an ICD is located in the hinterland.5) Logistics value chain port based

6)

7) CFSs/ICDs play a critical role as they are appointed as custodians of imported goods by the Commissioner of Customs U/s 45 of the Customs Act, 1962. Imported goods remain in the custody of the CFS/ICD until they are cleared for consumption, warehoused or transshipped to another location. Emergence of CFSs in and around ports and ICDs in hinterlands has aided a manifold increase in port handling capacity.8) Custom House Agent (CHA): A CHA is the licensed agent of the importer or exporter, designated to perform customs clearance services from the customs authorities.9) Multimodal Transport Operator (MTO): MTO is the chain that interconnects different links or modes of transport, such asair, sea and land into one complete process to ensure an efficient and cost-effective door-to-door movement of cargo under the responsibility of a single transport operator and under a single multimodal transport document.10) Freight forwarder: The agent who arranges the carriage of goods, including connected services and other related formalities on behalf of the exporter or importer, is a freight forwarder.11) Shipping line: These ship owners physically transport goods from the port of origin to the port of destination through the sea route. They are the most important initiators for the CFS business.12) Consolidators: A consolidator collects smaller cargo loads from exporters and consolidates them into a full container load for each destination.

Owned versus operator model of business:1) Majority of the CFS's/ICDs are based on the ownership model wherein the promoters themselves operate the CFS/ICD. These include players such as CWC, Allcargo Global Logistics, CONCOR etc.2) Few entities develop and manage the CFS/ICD on behalf of the owners, based on a long-term contract with them. Typically, the operating entity pays an amount upfront along with an annual fee to the CFS/ICD owner,considering the opportunity to manage a CFS. The operator is responsible for the cost of developing and refurbishing the CFS and generates revenues by managing operations. Operating entities include players such as Hind Terminal, which operates CFSs owned by CWC located near the JNPT and Mundra ports, and Gateway Distriparks Ltd which operates a CFS, owned by Punjab Conware in the JNPT area.3) Thus, the operator model enablesplayers to enhance their presence in the business without investing capital. The players typically have 10-15 year contracts, wherein the operator makes a fixed one-time charge and a pre-determined variable charge, leviedper twenty-foot equivalent unit (referred as TEU) handled per annum with a minimum charge payable.4) Products and services: Customs clearance CFSs/ICDs have in-house facilities to expedite the clearance of cargo, receipt and despatch/delivery of cargo, stuffing and de-stuffing of containers, transit operations by rail/road to and from serving ports, consolidation and desegregation of cargo, temporary storage of cargo and containers and repair and maintenance of containers.5) Benefits: Consolidation points for long-distance cargo and its unitization, transit storage in secure environment, localized customs and regulatory compliance, reduced level of demurrage and pilferage, no customs required at gateway ports, optimization in container utilization, optimization of transport cost/inventory cost, increased trade flows and liability transfer through issuance of bill of lading in advanceKey infrastructure components in a CFS/ICD1) Warehouse:It is a covered space/shed where the cargo is received, the imported cargo is stored/delivered, containers are stuffed/stripped/reworked, export cargo is consolidated and import cargo is unpacked. This is where the customs authorities physically examine the cargo. Export and import consignments are generally handled in different nominated warehouses/sheds.2) Container yard:The container yard occupies the maximum area in a CFS/ICD. In the yard, both used as well as empty containers are stacked for onward transportation. A container yard may have several clearly demarcated areas relating to hazardous chemicals, refrigerated goods, etc.3) Rail siding:Rail siding is required for loading/unloading of containers onto/from trains, for further transportation.4) Equipment:Dedicated machinery and equipment is required for lifting purposes and transporting containers over short distances. These include forklifts, reach stackers, straddle carriers, overhead cranes, rail mounted yard gantry crane, DG back up points, etc.5) Tracking system:With a large number of containers being handled at any given point in time, it is imperative to have an electronic tracking system in place.Pictorial depiction of basic workflow at a CFS

Process flow: Imports The shipping line/importer submits a request to the CFS for movement of container from the port to the CFS. The CFS issues a job order to the handling and transport contractor (HTC), who takes delivery of the container from the port and brings it to the CFS. The cargo in the container is examined and the importer pays the duty assessed to the customs authorities. Handling/storage charges are paid to the CFS. The importer either takes the examined container to the factory for de-stuffing or brings empty trucks to the CFS for loading the cargo directly from the container. With customs approval and under customs supervision, the cargo intended for transhipment to other CFS / ICDs are once again stuffed in other containers. The shipping line submits a request for the movement of empty import containers to their designated yard or for allotting empty containers to an exporter for stuffing in the CFS. Based on the request, empty containers are moved to the yard. The importer may submit a request to the CFS for storage of the examined goods in the bonded warehouse. The importer pays the customs duty to customs authorities and charges the CFS for part delivery of the goods taken out of the bonded warehouse. If the importer does not take the cargo within 60 days despite issuance of a notice and approval of customs for valuation, the same is sold through a public auction and the proceeds are used to recover the cost of the auction, customs duty and company's charges.Process flow: Exports The export cargo is brought to the CFS by the exporter or his agent and is stored in sheds/open yards. The exporter/CHA/consolidator gives a requisition for moving empty containers, which are moved through the handling and transport contractor to the CFS from the shipping lines yard. The cargo is examined and stuffed in designated containers under the supervision of customs authorities. The loaded container is moved to the port yard from the CFS and placed at designated places earmarked for containers of a particular vessel, set to berth and sail at a predetermined time and date.Size of containersContainerisationrefers tothe method of packing goods in reusable containers of uniform shape and size for transportation. Goods normally are of different shapes and in different quantities, but when packed and shipped in containers, they can be handled as a single piece, thus making transportation a lot easier. Containers come in different shapes and sizes. The standard lengths are 10 feet, 20 feet, 30 feet 40 feet and 45 feet, but the most common containers are 20 feet equivalent units (TEU) containers.

Market segment - Segmentation

Inter-Ministerial Committee monitors CFS/ICD industry1) An Inter-Ministerial Committee, comprising representatives from different departments of the Ministry of Commerce, regulates the CFS/ICD industry. The committee considers proposals submitted by the public and private sectors intending to set up new CFSs/ICDs across the country, and monitors their progress.2) The IMC examines CFS/ICD proposals based on the following guidelines: Feasibility study: A feasibility study thatexplainsthe economic viability of the proposed CFS/ICD has to be prepared and submitted. Data used for drawing this analysis should be from secondary sources and field observations. The report should include the discussion and views of the exporters, shipping lines, freight forwarders, port authorities, concerned commissioners of customs/excise etc. on the feasibility of the project. Tariff and cost:The applicant must submit the proposed tariff structure and costing details along with the feasibility report. Traffic:While regulatory authorities have not specified a limit on the twenty-foot equivalent units (TEUs) traffic handled by CFSs/ICDs, they have prescribed guidelines for this purpose: ICD - 6,000 TEUs per annum (outbound and inbound) CFS - 1,000 TEUs per annum (outbound and inbound) Land requirement:The minimum land required to set up a CFS is 1 hectare and that for an ICD is 4 hectares. However, exceptions are permitted in case of technological advancement or other reasons justifying the requirements. Equipments required:The IMC guidelines make it mandatory for each CFS to possess a minimum set of equipment, comprising forklifts, straddle carriers, rail mounted gantry crane, etc. Age of equipment: Dedicated equipment such as lift truck, straddle carrier, rail mounted yard gantry crane, rubber tyred yard gantry crane, etc should be in good working condition (not more than 5-8 years old) and equipped with a telescopic spreader for handling 20 ft and 40 ft boxes. Minimum residual life: The equipment must have a minimum residual life of 8 years, duly certified by the manufacturer or a recognised inspection agency. Throughput exceeding 8,000 TEUs: An additional unit of equipment should be provided as and when the throughput exceeds 8,000 TEUs per annum or its multiples for lift truck-based operations. Chassis-based operations:Terminals resorting to purely chassis-based operations do not require dedicated box-handling equipment. However, chassis-based operations should be restricted to CFSs that are located in proximity to the ports. Forklifts:Small capacity (2-5 tonnes) forklifts must be provided for cargo handling operations in all terminals. Rail head CFS/ICD:Applicants intending toset up rail-based ICDs must bear all costs relating to infrastructure facilities, including land, track, handling equipment for containers, maintenance of assets (including track, rolling stock etc).

Top CFSs handle 45-50% of container traffic at ports1) As of 2012-13, JNPT, Chennai port and Mundra Port together handled about 75% of the country's total container freight traffic. However, JNPT handles almost 1.3 times the traffic handled by Chennai and Mundra ports.JNPT, Chennai and Mundra have a presence of about 28, 26 and 11 CFSplayers, respectively.2) Of the above, competition at the JNPT andChennai ports is expected to remain very high, albeit for different reasons.3) JNPT port is operating at full capacity utilisationand no new capacity additionsareexpected until 2014-15.Any new capacity additions will lead to highercompetition, as players will look to increase their market share. 4) On the other hand, slowdown in growth coupled with low capacity utilization at Chennai port is expected to keepcompetition at higher levels amongst CFS players.5) However, Mundra is getting incremental container traffic due toalmost full capacity utilization and lack of capacity additions at JNPT port. The situation at JNPT port and the presence of very few playersis expected to keep competition at lower levels at Mundra portas compared to the scenario inJNPT and Chennai ports.6) Top 4-7 CFS players together contribute 50-55 per cent of total container traffic at each of the JNPT, Chennai and Mundra ports7) 8) CONCOR was the sole container rail operator in the country until 2006, as all major ICDs necessitated rail linkages, which the company alone possessed. In 2006, a new government policy by Ministry of Railwaysenabled private operators also to obtain licenses for operating container trains on the Indian Railways' network.CONCOR's share in total container rail traffic decreased to 79.5% in 2012-13 from 100% in 2006. As of 2011-12, there were 13 private container train operators, mainly connecting the JNPT and Mundra ports. Increasing competition in the ICD segment from private players is set to further drag down Concor's market share in the coming years.9) Private container rail operators include (Adani Logistics Ltd,Boxtrans Logistics India, Central, Warehousing Corporation,Container rail road services,Delhi Assam Roadways corporation, Emirates Trading Agency,Gateway Rail freight,Hind Terminals, India infrastrucure and leasing, Innovative B2B Logistics solutions,Pipavav Railway Corporation ,Reliance Infrastructure Engineering and SICAL Logistics Ltd)

CFS/ICD industry witnesses intense competition due to high fragmentation, low value addition1) There are three types of CFS/ICDplayers: independent private players, private players associated with shipping lines, and public sector players. Pricing pressure in this segment is high due to lack of differentiation in services offered. However, established companies that maintain good relations with shipping liners, are located in proximity to the ports, and have a robust ICD network and good railway connectivity enjoy relatively higher pricing power.2) 3) Threat of new entrants: Medium: CFS/ICD industry is moderately capital intensive. With a capital requirement of Rs 35- 40 Crs, the threat of new entrants in this industry is moderate. Also, the industry needs to comply with guidelines of the Inter-Ministerial Committee under the chairmanship of the Additional Secretary (Infrastructure) and the Ministry of Commerce.4) Bargaining power of buyers: High- Even as exporters and importers constitute the main base of customers, the decision to choose a CFS/ICD operator lies with the shipping liner for import traffic. Shipping liners have high bargaining power due to the presence of a large number of CFS players. For the exports segment, the decision to choose a CFS/ICD lies with the shipping liner, freight forwarder or the exporter. Overall, the bargaining power of customers in this industry is high on account of the existence of significant number of CFS operators, and lack of differentiation in services provided by the industry.5) Bargaining power of suppliers: Medium -Major equipments required for daily operations of a CFS/ICD operator are reach stackers, cranes and tractor trailers. The suppliers of reach stackers and cranes are mainly foreign players with established operations in India. Over the past few years, the bargaining power of suppliers has decreased with more foreign players entering this segment.6) Threat from new substitutes: Low - The CFS/ICD industry was established primarily to de-congest ports and provide quicker custom clearance for containers. The industry faces no major risk from substitutes other than an increase in container yard capacity at major ports.7) Competitive rivalry: High - The CFS/ICD industry faces high competition, given the large number of players and the low level of value addition. The level of competition in the CFS segment is higher as compared to the ICD segment, where CONCOR handles about 80 per cent of the traffic. However, competition in the ICD segment is expected to increase with more private players setting up rail-linked ICD facilities.Key success factorsThe success of a CFS/ICD depends on:1) Location: A favorable location ensures lower transportation costs and higher accessibility. CFSs located adjacent to ports, not only attract higher traffic, but also enjoy better bargaining power. Similarly, ICDs near industrial belts have a distinct locational advantage. 2) Efficiency of operations: A higher dwell time implies higher ground rent income, but results in lower throughput especially when capacity utilization rates are high. Hence, an optimum balance between the dwell time and the throughput enhances the top line and bottom-line.3) Relationship with shippinglines: Maintaining strong relationships with shipping lines and customs house agents would ensure constant throughput for the CFS/ICD. Typically, the shipping line decides the CFS operator that will handle the transported containers. This discretionary authority, which the shipping lines enjoy, makes it very important for CFS operators to maintain strong relations with them.4) Integrated services: CFSsand ICDs offersimilartypes of services.Hence, to attract more clients and generate greater revenues, players have been offering integrated services. Thus, a pool of services are presented to clients as aone-stop solution. These include rail transportation and services of a multi-modal transport operator.Key risks: 1) Foreign trade risk: A weak international trade situation translates into lower profits for most of theCFS players. However, macroeconomic growth forecasts and signs of a revival in international trade indicate significant potential for the CFS industry. Such risks could be mitigated through diversification, mostly into related logistic activities or by increasing dependence on domestic container traffic.2) Regulatory risk: Due to strong linkages with export and import transactions, the CFS industrycomes under the ambitof several regulatory measures and stipulations. Any delay caused by regulations can impact the operations of the industry. However, increasing government focus on initiatives to support this industry may help mitigate regulatory risks.3) Competition risk: The CFS industry has5-6 major players which provide services at alldomestic ports, and a fewlocal players.The major playerscommand a larger market share and the competitive intensity between them is high. Since the basic services provided by these players is not different, players are increasingly looking at offering integrated services, evolve as a one-stop solution provider, and thusdifferentiate themselves from their counterparts.4) Execution risk: This risk arises out of inadequate infrastructure support, which causes delays. The average TAT at most Indian ports is 2-3 days as opposed to a mere 8-10 hours at major ports globally. The government has understood the importance of infrastructure and has increased its expenditure on development initiatives. Secondly, the setting up of a CFS/ICD is a long and a tedious government procedure, requiring clearances from the commerce, finance, railways and shipping ministries as well as concerned state governments. The process takes between 30 days to 6 weeks.5) Liability risk: The operator is responsible for liability arising out of possession of the cargo. In case the goods get damaged during transit, the operator is held accountable. Nevertheless, insurance contracts help mitigate these risks up to a certain specified limit.All cargo logistics Company profile:1) Incorporated in 1993, AGL is a leading private player in the CFS/ ICD industry. In 2006, the company was listed on the BSE and NSE. AGL is in the business of CFS/ICD, multi-modal transport operations (MTO), project and engineering solutions, less than container load (LCL) consolidation and warehousing. AGL currently operates three CFSs, one each at JNPT, Chennai and Mundra ports andICDs at Pithampurand Dadri.2) International trade slowed down in 2012-13 due to weak macroeconomic conditions in many parts of the globe. Demand remainedweak inthe 1QFY14as well.Container traffic in India is expected to grow at a healthy pace over the long term, mainly due to increased containerization. The warehousing and third party logistics (3PL) business is expected to do well, chiefly because ofhigher growth in the organized retail segment and growth in the infrastructure sector. Margins are expected to remain under pressure during the year due tosluggish demand andpressure ontariffs due to increasing competition.3) 4) Business evolution: AGL was incorporated in 1993 by Mr Shashi Kiran Shetty as a private limited company. It started its operations in the freight forwarding and less than container load (LCL) cargo consolidation business. In 1995, AGL formed an association with ECU Line NV, Belgium to serve as their agents in Mumbai and New Delhi. In 1998, AGL received the multimodal transport operations (MTO) license from the Ministry of Shipping and consequently, started its operations in multimodal transport business. In 2002, the company acquired a 50% stake in ACM Lines (Pty) Ltd, a shipping company. In 2003, AGL entered the CFS/ICD segment by commissioning phase I of its CFS at Koproli near JNPT, which currently has acapacity of 120,000 twenty-foot equivalent unit (TEUs). In 2003, AGL entered into a joint venture (JV) with Transworld Logistics and Shipping Services Inc of USA. This helped GDL target the American cargo consolidation market. In 2004, AGL commenced its project cargo handling business and acquired a 33.8 per cent stake in ECU Line NV in 2005 with its representation on the board of the company. In 2006, AGL became a public limited company and subsequently became the world`s second largest non-vessel operating common carrier (NVOCC) after acquiring the balance stake in ECU Line NV. In 2007, the company entered the airfreight business segment by acquiring 100 per cent stake in Hindustan Cargo Ltd from Thomas Cook India Ltd for Rs 89 million. In 2007, AGL commissioned its CFS at Mundra port and Chennai port, with a capacity of 100,000 TEUs and 50,000 TEUs, respectively. In 2008, AGL started operations at Pithampur ICD with a capacity of 30,000 TEUs. Also, AGL entered into a JV with Concor to set up an ICD facility in Dadri, Uttar Pradesh. The company brought in Blackstone Group as a private equity investor during the same year. In 2009, AGL started its first ICD at Pithampur and entered into a strategic alliance with Hind Terminals to set up and operate ICDs across India. In 2010, AGLacquired two Hong-Kong based companies engaged in non-vessel owning common carrier business for an undisclosed amount, as a part of its inorganic growth strategy. In 2011, the company acquired MHTC Logistics Pvt. Ltd, which isengaged in the business of project cargo logistics, freight forwarding and warehousing services. In 2012-13, AGLstarted itsnew CFSat JNPT with a total installed capacity of 1,44,000 TEUs per annum.5) AGL has a total of 104 subsidiaries all over the globe, mostly due to ECU Line acquisition.

6) Range of services: ICD: Inland Container Depot; CFS: Container Freight Station; NVOCC: Non Vessel, Owning Container Carrier; LCL: Less than Container Load; FCL: Full container Load; MTO: Multimodal Transport Operations

7) Multimodal transport operations (MTO):AGL is the largest player in the MTO segment in India. It manages the transportation of its cargo right from the warehouse/factory of the consignor to the nearest CFS/ICD. It provides services such as stuffing, loading of containers, transhipment/transit, destuffing at the CFS and finally, delivery to the consignee at his warehouse/factory. Thus, AGL transfers the cargo using multiple modes of transportation under a single multimodal transport document. AGL buys container space in bulk on ships and offers sea freight services to its clients. It owns containers that it utilises for transporting cargo in LCL (less than container load) or FCL (full container load) consignments. In the case of LCL consignments, the cargo of multiple clients are grouped into a container and later destuffed at the destination port.8) Capacity details in TEUs per annum: JNPT 288,000; Chennai 120,000; Mundra 77,000; Dadri 52,000 and Pithampura 36,0009) The main revenue streams for a CFS: Ground rent from containers, Container handling storage and transportation charges, Service charges and Auction sales: Sales generated when the group auctions long standing cargo that has not been cleared by customs. AGL`s CFS generates bulk of its revenue from handling transportation and service charges as well as ground rent. Ground rent is charged on import containers, as it is the importer's liability to clear them. In the case of exports, it is the duty of the CFS to transport the container to the port/ship.10) Dwell time (the number of days that a container remains in the container yard) lowers the volume throughput and consequently the associated revenues, if capacity utilisation is high. The resultant ground rent may not entirely compensate for the potential loss of business. However, if the CFS/ICD has significant spare capacity, dwell time provides additional revenues and profits without loss of throughput. In general, lower dwell time is an indicator of higher efficiency of CFS/ICD.11) Project and Engineering Solutions:This is a new business segment that the company has ventured into. It consists of the `Equipment` segment and `Project Logistics` division of MTO. The basic idea of starting this division is to increase the value offering to customers by providing integrated projects, engineering and equipment logistics solutions. It offers services that include transportation of high-value specialised equipment such as oilfield equipment, power plants and compressor stations that cannot be containerised on a turnkey basis. The segment has shown tremendous growth potential with a 60 per cent growth in profit before taxes and also an increased asset base. The company has followed an expansion strategy that is based on order book status. Assets are acquired only when there is an order build-up from the client end. Increased government impetus on infrastructural development is expected to have a positive impact on this segment as there is a huge demand supply gap in this segment. With the focus shiftingto the PPP model, the industry will require aone-stop solution provider, going ahead.12) Prior to the detachment of Project Logistics division, MTO was the prime contributor to AGL`s revenues. It caters mainly to the EXIM traffic. A new segment, Project and Engineering Solutions, was created by clubbing Equipmentand Project Logisticsdivisions. This was done because the company wanted to increase its value offering by presenting an end-to-end offering to its customers. This newly created segment witnessed unprecedented growth on the back of infrastructural development in the country. The CFS/ICD business grewat a slower pace of 5.5 per cent in 2012-13 after robust performance of about 42 per cent,mainly due to slowdown in container traffic movement and increase in competition. Thefixed asset turnover ratioof AGLdeclined to2.1 times in 2012-13 as against2.9 times in2011-12 mainly on account of decline in operating income.13) Business environment:

14) Key competitive factors:

15) Revenues from the CFS/ICD segment grew at a CAGR of 23 per cent over the past 3 years driven by growth in container traffic and capacity expansion of the CFS facilities by the company. However, there was slowdown in EXIM trade, during theyear 2012-13. Operating margins came under pressure in 2012-13, as the company was unableto pass on the increase in expenditure tocustomers dueto weak EXIMdemand and increasing competition in the industry. Margins are expected to remain under pressure in 2013-14 as well.16) Financial statements analysis: AGL has shown above average financial performance. AGL`s low gearing, healthy returns on capital employed and consistent high net cash accruals act as significant positives for the company.

17) In the long term, AGL plans to leverage its leadership position across segments such as MTO andCFS/ICD to emerge as aleading 3PL service provider.The company`s total capexplan for 2013-14would purely be utilisedfor maintenance activities, which would be in the range of Rs 50 to 75 crores, mainly due to the overall slowdown in capex cyclecaused byweak global and domestic macroeconomic environment.Gateway Distriparks Limited:1) Gateway Distriparks Ltd (GDL), a joint venture (JV) between NTSC, Parameshwara Holdings Ltd, Windmill International Pvt Ltd and Thakral Corporation Ltd, was incorporated in 1994.The company owns, develops and manages CFS and ICDsand warehouses. The company has diversified into rail container transportation through its subsidiary Gateway Rail Freight Pvt Ltd, and into cold chain logisticsfollowing the acquisition of Snowman Frozen Foods Ltd.2) Capacities (TEUs per annum): JNPT CFS 216,000; Chennai CFS 90000; Vizag CFS 48000; Faridabad ICD 96000; Garhi Harsaru ICD 120000; Ludhiana ICD 1440003) The container traffic scenario in India is expected to remain strong overthe long term.However, weak global macroeconomic environment may hinder its short-term growth. Rail container movement isforecast to grow due to increasing awareness about cost and time benefits offered by containerisation. Cold chain logistics services will continue to grow because of increasing demand for perishable goods and supply chain requirements of retail chains. The company has a good financial profile due to operational diversification, adequate capacities, balanced expansion plans and high operating margins.4) 5) 6) Business evolution: GDL commenced operations at the JNPT CFS in 1998 with a capacity of 48,000 TEUs per annum. In April 2004, the company acquired an ICD with a capacity of 240,000 TEUs at Garhi Harsaru near Gurgaon from Continental Warehousing Corporation Ltd. This helped the company target the industrial region in North India. In August 2004, GDL formed a JV with the Suri Group (Gateway East India Pvt Ltd) to develop a CFS near Visakhapatnam port with a capacity of 30,000 TEUs per annum. In 2004-05, GDL acquired 100 per cent shareholding in Indev Warehousing, which has a CFS at Chennai port with a capacity of 40,000 TEUs per annum. In 2005-06, GDL received approval to operate private container trains. Subsequently, it formed a subsidiary - Gateway Rail Freight Ltd (GRFL)that operates container trains from its Garhi ICD to JNPT, Mundra and Visakhapatnam. In July 2006, the company acquired 60 acres of land at Faridabad to build its second ICD. In September 2006, GDL formed Gateway Distriparks (Kerala) Pvt Ltd (GDKPL) to develop a CFS with a capacity of 15,000 TEUs per annum near Cochin Port as a JV with the Chakiat Group,a family business group engaged in freight forwarding,customs broking, transportation and other logistics services. In November 2006, GDL acquired 50.1 per cent stake in Snowman Frozen Foods Ltd and entered the cold chain business segment. In February 2007, GDL took over Punjab Conware CFS based on a 15-year operations and management agreement (O&M). As per the contract terms, GDL had to pay an upfront fees of Rs 350 million and an annual payment of Rs 10 million (inflation adjusted) for the next 15 years. In March 2007, Gateway Rail Freight Ltd (GRFL)formed a JV with Concor (with a 51 per cent stake) to develop and operate a rail-linked ICD at Garhi Harsaru. In November 2009, PE major, Blackstone acquired 37.5 per cent stake in Gateway Rail Freight for Rs 3,000 million. In October 2010, the JV floated by GDKL and Chakiat group won the tender to develop a CFS at Kochi with a planned capacity of 40,000 TEUs.7) Subsidiaries:

8) Business model: GDL provides CFS services at major ports in India such as JNPT, Chennai, Cochin and Visakhapatnam. GDL also has an ICD at Garhi Harsaru. Generic services: Stuffing/de-stuffing of containers, Customs clearance, consolidation and segregation of LCL (less than container load) cargo, Rail freight movement and Cold chain logistics. Special services: Repackaging of export commodities, sorting and labeling, re-bagging, palletisation (securingcargo for movement by providing a base on which the cargo is kept), shrink wrapping (the cargo is wrapped with a polymer plastic film, which, on applying heat, shrinks tightly over the cargo) and Inspection services.9) Revenue streams for CFS:Ground rent from containers,containerhandling storage and transportation charges, service chargesand auction sales.10) Revenue break up: Rail logistics 56%; CFS 32% and cold chain related logistics 12% 11) Ground rent: Ground rent is a function of import throughput and dwell time. Dwell time (the number of days that a container remains in the container yard) lowers the volume throughput, and consequently, the associated revenues, if capacity utilisation is high. The resultant ground rent may not entirely compensate for the potential loss of business. However, if the CFS/ICD has significant spare capacity, dwell time provides additional revenues and profits without loss of throughput. In general, lower dwell time indicates that a CFS/ICD is functioning efficiently.12) Income from auction sales of cargo is a form of cost recovery by the CFS, when the importer or consignee refuses to take delivery of the cargo brought to the CFS.13) GDL is a major player at JNPT. The company also operates the Punjab Conware CFS, giving it an additional capacity of 1,50,000 TEUs per annum at the JNPT port, which deals with more than 50 per cent of the total container traffic in the country. Through its various subsidiaries, GDL has a presence in other major container ports in the country besides JNPT, such as Chennai and Visakhapatnam. Its ICD at Garhi Harsaru helps it to target the industrial region of North India. Clients of GDL include shipping lines, consolidators and customs house agents.14) Rail container transport: GDL operates private container trains from its ICD at Garhi Harsaru to the ports of Visakhapatnam, JNPT and Mundra through its subsidiary Gateway Rail Freight Ltd (GRFL). GRFL provides rail services for EXIM anddomestic cargo. The company provides rail services coupled with first and last mile connectivity and provisions for custom clearing, stuffing and de-stuffing of containers, bonded and non-bonded warehousing, and other terminal-based value-added services. GRFL is also setting up new rail-linked ICDs at Ludhiana, Asaoti (Faridabad) and Chennai. Industry interactions indicate that it has a market share of around 20 per cent amongst private players. GRFL'sclienteleincludes Adani Enterprises, Asahi India, Goodyear, Honda Scooters, Honda Siel, Jindal Stainless, Maruti Suzuki, Toyota andMitsubishi Corp.15) Cold chain logistics: GDL's subsidiary, Snowman Frozen Foods Ltd (SFFL), is a market leader in the organised segment of the cold chain industry.With a pan-India presence, SFFL has a fleet of over 150 refrigerated trucks and operates 14 cold stores across the country. Its key clients include Mother Dairy, Amul, Mars Chocolate, Metro,Domino's Pizza, Pizza Hut and KFC.16) BusinessEnvironment: 17) 18) Key competitive factors:

19) Business and financial outcomes:

20) Future plans: Plans to put up 70,000 pallets at its subsidiary, SnowmanLogistics Ltd,which willentail a capex of Rs 120 croresin 2013-14.Another Rs 20 crores of capex will be incurred towards the development of the CFSbusiness in 2013-14