Corten Steel, Manufacturing and Leasing

Part 1

The value chain on containers and the metrics involved have to address a few questions.

a. One, whether fabricating a container is better in domestic territory, specifically for Indian conditions. Across India, there would be a regular requirement for certified ISO marine containers, which can currently be estimated at around 300,000 brand-new units, fungible from any origin to any destination within India.

b. Two, when marine containers are leased to the three biggest users of marine containers in the world, they are:

– Maersk, headquartered in Denmark, now known globally as Maersk. This is a Denmark-based oligopoly.

– The next is MSC, short for Mediterranean Shipping Company, headquartered in Switzerland and also one of the biggest and best-operated shipping lines.

– The third is CMA CGM, which is also a family-based organisation and operates out of the port of Marseille in the south of France.

– American President Lines, called APL, is based out of the USA and, ironically, is partially or fully owned by CMA CGM, even though “American” is attached to the name.

These are European entities and have overtaken the American agenda in terms of owning and operating huge container ships, each time improving their operational abilities. They are now dominant from any port to any port, managing scale and size efficiently.

On the eastern side, Japan hosts its own national shipping lines. There was a Korean entity which went bankrupt, but ultimately the bankruptcy was adjusted in world interest, and they either merged or were completely taken over, though this process took time. Japan has a reputation for having its own line-up, but it is again confronted with cost issues.

Research and study on Japan’s container lines will also have to contend with the fact that they would be very interested in operating out of Sri Lanka, which may be better than operating out of places such as Krishnapatnam or Bangalore, and they would be interested if Indians collaborated.

There are independent lenders, each of whom operates out of an island jurisdiction, maybe Hong Kong, Singapore, or any free trade zone, which gives them operational flexibility without sacrificing competitiveness in leasing.

Each company has a policy to own containers of its own, which they order from China according to ISO specifications. They prefer to lease rather than buy, because even if they are cash-rich, leasing gives them ease of operation as well as ease of ownership. Eventually, they can sign off containers once they have gone through their life cycle.

It is not known to me what the exact life cycle is within this oligopoly, after which tenders are called and old containers are sold off. This typically happens from Hong Kong, Singapore, or similar locations.

In India, the value chain for Corten steel depends on a major steelmaker like JSW Steel having the ability to manufacture Corten steel exactly to the required specifications.

The reason why Corten steel is important is that containers are exposed to rough seas and salt air and are therefore prone to rust easily. Hence, ordinary steel sheets are unsuitable. The steel must therefore be specially coated or evolved with material suitable for long-term marine exposure.

This leads to the second and third questions: whether special economic zones, such as in Mangalore, or a dedicated 25-hectare sector-specific special economic zone for assembly and services, can be created next to the JSW plant in Bellary or near any plant producing the required sheets.

These sheets can then be transported over short rail distances, after which fabrication of marine containers can take place. The entire setup would need to be equal to or better than what is currently being done in China, connected directly to a railhead.

Any company can then take the following steps:

a) Fabricate or independently order 50,000 wagons suited only for containers. For this, the wheel sets would have to be specially prepared. JSW or Jindal can manufacture the long rails that would go into third-line and fourth-line loops.

b) Indian Railways permits operations on privately owned flat wagons. Flat wagons are easier to manufacture and can provide a rate of return of approximately 8% to 8.25%. Therefore, 100% of the value of this asset can potentially be structured as bonds, graded and rated so that they can be picked up by mutual funds, debt funds, and even national pension schemes approved by private pension funds. These instruments can also be traded internationally, with portfolio investments invited in any currency, including the Japanese yen.

c) In Mangalore, there are two specific areas where collaborations can happen between at least nine high-net-worth private individuals, who can then be allotted these containers as partial or total investments. This would allow them to claim depreciation while also earning returns higher than the standard rate of return, which will be discussed further in the business plan.

d) In the Mangalore SEZ, approximately 120 acres are currently available. In my opinion, not more than two hectares would be sufficient for managing positioning or repositioning because of the services element that comes within a special economic zone. Preferably, this should become a subsidiary of either Jindal or JSW and should only perform leasing functions, while ownership can remain with multiple stakeholders.

e) There is also land, approximately 40 acres or possibly less, owned by the Agarwals of the Emami Group, which they have already paid for and are prepared to surrender. Therefore, the Jindals can take over the entire 40 acres, though due diligence would be required to determine whether a railway track can be connected up to the point linking with the Konkan Railway or Southern Railway networks connecting to Tokur. This would involve a stretch of a few kilometres, approximately two to five kilometres.

f) That portion of the land, approximately one to two kilometres in length, can serve as a railhead inside the compound of the special economic zone. A compound wall would need to be constructed, creating a sector-specific SEZ, which should be relatively easy to obtain through the Board of Approvals under the Ministry of Commerce and in the national interest.

g) The fabrication process can then operate on a 16-hour shift basis, from 7 a.m. to 9 p.m., considering Bangalore operational standards, for six days a week. Intelligent systems can ensure that once fabricated parts enter the system, they remain securely available for inspection.

h) Inspection must comply with ISO standards and can be carried out by at least ten agencies in India, including entities such as Bureau Veritas, DNV, or other Denmark- or Netherlands-based certifying agencies physically present at the plant.

Next in the Series: The next article examines ISO container standards, repositioning strategies, inland ports, global logistics networks, and India’s opportunity to become a major marine container hub.