Revised policy for CFS/ICD/AFS credit positive – Reports ICRA

Revised policy for CFS/ICD/AFS will address overcapacity concerns in the industry and is credit positive: ICRA

The revised policy for setting up CFS/ICD/AFS tries to address the issues of geographical disparity and concentration and aims to align future developments with projects like rail freight corridor and inland waterways

 The Central Board of Indirect Tax and Customs (CBIC) has notified revised policy and guidelines for setting up of Container Freight Stations (CFS), Inland Container Deport (ICD) and Airfreight Stations (AFS).  The revised policy aims to boost investment in CFS/ICD sector in underdeveloped regions in India, while the approvals in regions where already high concentration is there will be discouraged except in exceptional cases. The locations will be classified as Green, Blue or Red. While, the green zone will be the locations where the ICD/CFS concentration are low and will be open for new proposals, in case of blue zones the proposals will be accepted only based on specific trade generating locations and in red zone, the new proposals may not be accepted, except in exceptional cases. Further, there are also distance norms between two facilities and from ports. The approvals will be in consonance with national logistics policy/action plan.

Mr. K Ravichandran, Senior Vice President and Group Head, Corporate Ratings, ICRA commented on the policy “the new policy considers the issues faced by the sector; including regional disparities in concentration of facilities, with high concentration of CFS in Western and Southern regions and the adverse impact of new initiatives like Direct Port Delivery (DPD)/ Direct Port Delivery (DPE) on the CFS sector. While, the impact on volumes due to DPD implementation has stabilised to some extent, the margins have witnessed pressure and with growing investments in warehousing space, only CFS players with larger logistics offerings allowing them to re position their services will be able to continue in the long term. Hence, the zoning and distance rules in the revised policy will aid in more balanced development in the sector and prevent concentration of facilities which will improve the viability of existing/upcoming facilities by reducing competitive pressure.”

ICRA notes that the revised policy has factored the developments in the sector in the last two decades, including the growth in volumes during this period; geographical concentration of CFS/ICD; implementation of schemes like DPD/DPE and other automation and efficiency improvement measures; and also, the infrastructure developments like Direct Freight Corridor and inland waterways.

On the forward looking aspects of the policy, Mr. Sai Krishna, Assistant Vice President and Associate Head, Corporate Ratings, ICRA added “the policy also aims to encourage development of facilities along infrastructure corridors like railway freight corridors and inland waterways, which will complement Gov’t aim on improving multi modal transportation and logistics in India. These coupled with the zoning and distance guidelines should aid in more rational and balanced capacity additions in these segments going forward, which should also be favourable for the credit profile of the companies in the sector in medium to long term”

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