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On V-Day, no roses from India

Indian firms that trade in perishables like flowers are stuck with 15-20 day delays, reports Mehul Srivastava.

india Updated: Feb 14, 2007 02:44 IST

On a February night in 2003, KS Ramakrishna, chief executive of Bangalore-based flower exporter Karuturi Networks, got a call he had been dreading for a while.

It was peak export season, with Valentine’s Day around the corner, and two of his three chartered planes hadn’t showed up. Half a million dollars worth of roses bound for Europe were stranded inside refrigerated trucks at Bangalore airport. The government cold-storage facility was full and the trucks were only designed for four-hour trips. As the night wore on and Ramakrishna worked the phones, the flowers began to wilt.

Eventually, they had to be dumped at huge discounts in the local market. “It was devastating,” he recalls.

After years of struggling against complicated customs requirements, freight charges that far exceeded global prices and losing 10 per cent of inventory to delays, Ramakrishna decided India wasn’t the place to be.

Karuturi invested in a 50-hectare farm in Addis Ababa, Ethiopia, and is now expecting revenues to exceed its decades-old Indian production in the first year itself, taking advantage of freight charges to Europe that are a fifth of those in India — 50 cents (Rs 22) per kg. In Bangalore, he would have paid $2.50 (Rs 110).

Karuturi’s growth has more than doubled, up to Rs 44 crore, compared to Rs14 crore the year before. Profits are up 126 per cent to Rs 6 crore.

Karuturi’s experience only underlines how India’s overcrowded air cargo system has been creaking since 2000, when foreign trade totaled $88 billion (Rs 3.87 lakh crore). In the years since, annual growth has been between 20 and 40 per cent. In 2006, $183 billion (Rs 8 lakh crore) worth of goods were passing through ports and airports that have seen very little increase in capacity. Now, the time between non-perishable cargo reaching an airport and being moved averages 17 days, according to Radharam Panicker, country manager for Mumbai-based Cargo Service Centre India, the KLM subsidiary that handles cargo for the Dutch airline.

The problem has not escaped government attention. In a recent interview, Ajay Prasad, outgoing secretary at the Civil Aviation Ministry, said capacity growth was high priority. “Economic growth is closely tied to cargo growth,” he added.

But, increased cargo capacity at Delhi and Mumbai won’t be available until 2010 and 2012 respectively, and till then Indian companies that trade in perishables like fruits and flowers are stuck with 15- to 20-day delays.

“These delays translate into extra dollars, because it’s tougher to satisfy a customer when we can’t control supplies, ” said Ramdev Sharma, country director for Chinese telecom gear maker Huawei, which imports cellphone and radio equipment.

Sharma estimated that almost a fifth of his average turnaround time for an order is taken up waiting for customs officials to approve release of shipments.

For companies that don’t do business internationally, delays are less severe. But Blue Dart Aviation and its parent company DHL, the top player in the Rs 6,000 crore air cargo services sector, says bottlenecks at airports and high taxes on aviation fuel force prices upward.

"It is a missed opportunity," said Tulsi Mirchandani, senior vice-president of marketing at Blue Dart. "If you look at this region, airports at Singapore and Dubai have increased cargo capacities tremendously."

In 1990, for instance, both Mumbai and Dubai airport had about the same cargo capacity. Today, Dubai’s total capacity ranks 18th in the world, moving about 1.5 million tonnes annually, while Mumbai struggles to handle less than half a million tonnes.

In the last three years, India’s customs regulations have been simplified somewhat —computerised systems and more customs officers. But the red tape remains. At Karuturi, for instance, at least two dozen rose shipments a day leave its farm outside Bangalore for the airport, where six sets of forms are needed for each shipment before they are allowed onto the tarmac. Each shipping bill needs a customs superintendent’s approval and each shipment gets inspected physically before take-off.

For businesses exporting perishable goods, these delays are deathblows.

The outlook in the coming years is bleak. Foreign trade is expected to keep growing, while cargo capacity won’t be available for a few years. The frustrating delays will continue until then.

Email Mehul Srivastava: mehul.s@livemint.com