unifi green fund

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UNIFI Green Fund - December 2017

MARCO POLO

As per Eurostat, freight transportation by road within the European region has risen significantly from 42% in 1995 to 46%

in 2003. This posed a major challenge to policy makers given the amount of congestion this caused to road networks. Also

at approximately 28%, its contribution to total transportation led CO2 emissions in the European region was very material

to be ignored.

There was an urgent need for policy to limit the emissions and increase sustainability of transport in Europe. This led to

introduction of the largest and most comprehensive modal shift initiative ever in the world – Marco Polo Project.

The Project | It aimed to relieve congestion on road networks and improve the environmental performance of Europe's

transport system by providing financial incentives for relevant companies to use alternative methods of transport with

generally lower environmental impact; i.e., particularly coastal shipping, inland waterways and railways.

The first phase of the programme (Marco Polo I) had a budget of EURO 102 Mn and ran from 2003 to 2006. Owing to its

great success, the second phase (Marco Polo II/2007-13) had a substantially increased budget of EURO 450 Mn. The

programme funded various projects which involved modal shifts from road to waterborne systems and rail.

Triple Benefits: Logistic Cost Savings + Decreased Road Congestion + Environmental benefits

Between 2003 and 2009, the programme was successfully able to shift 30 Bn tons – kilometre worth of movement from

road transport to other environmentally friendly modes of transport. This resulted in a material and direct environmental

savings of Euro 594 Mn per annum.

Back to Bharat| The economic growth witnessed in India since the turn of the century has led to congested roads &

railways that are struggling to cope with ever increasing traffic. Movement of freight in India is heavily reliant on road

networks which accounts for 69% share of the total domestic transport in India. This lopsided dependence has increased

the total cost of logistics considerably, which at 19% of GDP, is at a very high level relative to other developed countries.

Importantly, road transportation accounts for as much as 87% of the CO2 emissions from the transportation sector, making

it single largest contributor to climate change and this has to be tackled on a war footing.

Source: India: Green House Gas emissions (MoEF)

S.No Country Logistics Cost as % of GDP

1 India 19.0%

2 China 12.5%

3 Indonesia 15.7%

4 UK 13.4%

87%

7% 5% 1%0%

20%

40%

60%

80%

100%

Roads Aviation Rail CoastalShipping

India: Share of Emissions from various modes of transportation

Source: World Bank

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Low-Carbon Transportation through Coastal Shipping

The movement of cargo by sea along the coast within a country/region, without crossing the national boundaries is defined

as Coastal Shipping or short sea shipping. India has a vast coastline of over 7,500 km with more than 200 ports (comprising

12 Major and 180+ Non-Major ports) covering 13 states and union territories. Also, the Indian peninsula is at a strategic

location on key international trade routes. However, the coastline is highly underutilized and has significant potential for

improvement.

Coastal shipping presently accounts for only 7% of the overall movement of cargo in India. Other major countries have much

higher utilization of waterways for transportation.

Source: Ministry of Shipping

The Coastal Wave: Many Benefits of Coastal Shipping

Coastal transportation is recognized as a viable mode for fuel efficient, cost effective and environmental friendly

transportation. The major benefits of coastal shipping are:

Reduction of Air Pollution | As per World Shipping Organisation, maritime shipping is the world's most carbon-efficient

form of transporting goods - far more efficient than road or air transport.

Source: World Shipping Organisation

7314 751714500

29751

23%

7%

20%

42%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

0

5000

10000

15000

20000

25000

30000

35000

Brazil India China Japan

% a

ge o

f to

tal t

raff

ic

KM

Coastal Length and share of coastal shipping for major countries

Length of Coastline in KM % of domestic cargo transported usingcoastal shipping

10

21

59

470

Ship

Rail(Diesel Train)

Truck(Tractor/Trailer)

Air(Frieght)

Grammes of Carbon Dioxide to Carry 1 Ton of Cargo 1 Kilometer

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Lower Fuel Consumption | Fuel consumption by coastal shipping is 4.83 gms/ton/km, by rail 8.91 gms/ton/km and by

road 31.33 gms/ton/km. As it can be seen, coastal shipping consumes 85% lesser fuel relative to road and is just 54% of that

by rail.

Cost Savings | The cost of coast-to-coast transportation of goods by coastal shipping is only about 21% of that by road

transportation and about 42% of that of rail transport. A coastal leg can carry larger parcel sizes, providing a great

opportunity for consolidation of loads and hence benefit from economies of scale.

Alleviation of Congestion | Diversion of cargo to coastal shipping can relieve the pressure on the existing choked road

network and rail infrastructure, de-congest traffic and provide greater flexibility for optimal modal transport mix.

Increased Safety | Road and rail movement result in a significant loss of lives in India. It is estimated that one life is lost

in a road accident every 3.7 minutes in India.

It is estimated that diversion of 5% of cargo transportation to water-borne mode can result in an annual

savings of INR 20 Bn and 6% reduction of harmful chemicals and pollutants.

Ahoy! Huge Potential for Coastal Shipping in India As per the National Perspective Plan 2016, savings opportunity of approx. Rs.35,000 – 40,000 cr., is estimated based on

comprehensive origin-destination study of logistics movement of key commodities. Some of them are -

Food grains | Domestic movement of food grain is estimated to be 260 Mn tons with rail / road accounting for 30% and

70% respectively with limited coastal movement. At present, Food Corporation of India (FCI) is moving significant proportion

of food grains from North to South which has potential to be converted to coastal cargo.

Automobiles | At present, movement of automobiles is seen along the routes of (i) Gujarat to Tamil Nadu and Kerala (ii)

Chennai to Maharashtra, Gujarat and NCR, and (iii) Pune to Punjab, Haryana and Tami Nadu. With the growth of automobile

sector, there is huge scope for coastal cargo.

Steel | Domestic movement of steel is estimated to be 51 Mn tons with rail / road accounting for 50% each. As there is

movement of large volume of steel to consumption centres near ports for ship building and automobile hubs like Gujarat,

Pune and Chennai, there is huge scope for transitioning to coastal cargo.

Marble | Total production of marble in India is estimated to be 14.3 Mn tons with rail accounting for just 5% of the freight

movement and road accounting for the rest. Kishangarh and Udaipur in Rajasthan are the marble manufacturing hubs in

India and transportation to southern states from road to coastal shipping has huge potential.

Ceramic | From the largest tile manufacturing hub in India, Morbi (Gujarat), majority of tile cargo movement happens

through road and rail. There is huge potential for this to shift to coastal cargo especially to Chennai, Bengaluru and Kolkata.

Cement | Currently transportation mode mix for cement is rail - 61%, road - 38% and, coastal shipping just at 1%. While

currently there is coastal movement only between Mundra and Cochin by cement companies located in the Kutch region,

there is huge scope for coastal transportation between Andhra Pradesh and Kerala.

Fertilizers | Domestic movement of fertilizer is estimated to be 31 Mn tons with rail / road accounting for 93% and 7%

respectively and limited coastal movement. Transportation within the coastal states through waterways has huge scope.

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Coastal Shipping with Renewed Focus - SAGARMALA

While the potential for coastal shipping in India is huge, several existential gaps such as, port capacity and infrastructure,

bottlenecks in road and rail connectivity with ports, creation of multimodal logistics hubs, streamlining procedures and so

on, need to be addressed.

Towards this, the Government of India has initiated the SagarMala programme in 2015 with the objective of increasing the

share of coastal shipping and inland navigation in the transport modal mix. This Rs.8 Lakh Crore investment initiative would

be implemented in phases from 2015 to 2035 and would focus on a) Enhancing of port connectivity b) Port-led

industrialisation and c) Development of coastal community.

Expected change in India’s modal mix through SagarMala Programme -

Source: National Perspective Plan, 2016, Ministry of Shipping

Policy Changes in favour of Coastal Shipping

The government in 2005 initiated the National Maritime Development Programme to develop the maritime sector with the

planned outlay of USD 11.8 billion. It plans to create port capacity of around 3200 MMT to handle the expected traffic of

about 2500 MMT by 2020.

Various state governments are also introducing schemes to promote coastal shipping. For instance, the Government of

Kerala has initiated a scheme to promote the use of coastal shipping for cargo generated out of Kerala – which is incentivised

at Rs.1 per tonne per km for cargo movement along the Kerala coast.

Among other changes, the Government of India has reduced taxes on coastal shipping, introduced a subsidy to encourage

shippers to use coastal transportation, and relaxed cabotage restrictions for certain types of vessels that are in limited

supply. These types of regulatory changes can energize coastal shipping sector.

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Increasing Awareness and Consistency of Coastal Services

Led by favourable policies towards the development of coastal mode of transport, cargo traffic has been consistently

increasing both at major and non-major ports. As per a recent KPMG analysis, share of coastal as percentage of total

cargo handled at Indian Ports would consistently increase.

Source: Ministry of Shipping

With increasing cargo volume, various shipping operators are increasing their services on coastal routes. As the

consistency of their services is increasing, awareness about them is also increasing. Detailed schedule of vessel

movement is available to cargo supplier to match their dispatch schedule with vessel movement.

Vessel Schedule of India’s leading coastal shipping services provider -

Source: Shreyas Shipping and Logistics Ltd

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Unifi's Strategy in Green Fund

A holistic approach to address the problem of environmental pollution and global warming will have significant

implications for quite a few listed stocks. There has been an increased focus towards coastal shipping industry in India in

recent times as it provides a fuel efficient, cost effective and environment friendly mode transportation. Government

policies towards new port development, increasing infrastructure in existing ports and better connectivity with ports

would provide the necessary fillip to the sector. Increased consistency of services provided by fleet operators in coastal

route would increase awareness and a combination of these factors will give boost to increased transportation through

the coastal route and we expect services providers in this sector to benefit from this.

Unifi Green Fund has an investment in India’s largest owner and operator of container fleets on coastal routes – Shreyas

Shipping & Logistics Limited. An investment in a single share of Shreyas Shipping, results in total CO2 emission savings of

37 Kg per annum. For instance, a Rs.10 Lakh investment in Shreyas Shipping will equal to CO2 emission savings of 65 tons

per annum. This is equivalent to saving CO2 emissions from 12 diesel buses or 892 cars per annum. Detailed calculations

are shown in the following annexure.

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Annexure:

The below table computes amount of CO2 emission saved per annum by each share held in Shreyas Shipping –

Company : Shreyas Shipping Calculation Comments

Emission from Water Transportation

Total Capacity of Shreyas Shipping Ltd (in TEUs) - (A)

23,143

Total Capacity in terms of TEUS (Twenty feet equivalent units) from company's Presentation ( as on 22/11/2017 )

Percentage of Domestic Cargo handled by overall Capacity - (B)

60% From Company's Disclosures (2016). However, this would increase as per prevailing trend.

Capacity available for domestic Cargo Movement (As substitute to Road Transport) C = (A*B)

13,886

Converting Capacity in TEUs to Tons - (D = C*14)

1,94,401

Average Maximum Cargo in MT per TEU =14 Source: The Maritime Executive

Carbon Emissions emitted by transporting 1 Ton of Cargo for 1 Kilometre by Ship (in Gram) - (E)

10 Source: World Shipping Council

Average Weekly Distance travelled by Ships owned by Shreyas Shipping Ltd (From Mundra to Cochin or Cochin to Haldia) - (in Kilometre) - ( F )

2333

Total Carbon Emitted Weekly – G = D*E*F (in Millon Gram)

4535

Total Carbon Emitted Yearly – H = G*52*70%/1000( in Mn Kgs)

165 Assuming 52 weeks in 1 year and overall 70% capacity utilisation

Emission from Road Transportation

Equivalent weekly Carbon Emissions by Truck for carrying total tonnage carried by Shreyas Shipping capacity (in Millon Gramm) -( I )

26759

Total Carbon Emitted Yearly - J = I*52*70%/1000( in Mn Kgs)

974 Assuming 52 weeks in 1 year and overall 70% capacity utilisation

Net Carbon Emission Savings

Net Co2 emission saved (Mn kgs) (J minus H) 809

No. of listed shares of Shreyas Shipping (in Mn)

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CO2 emission saved (kg/share) 37

Note: The calculation for CO2 emission savings from coastal shipping has been verified by an independent expert - Mr.

Surendra Sharma. (Brief profile shared below).

Brief Profile of Mr. Surendra Sharma F.NMIS: Mr. Surendra Sharma is currently a consultant at Maritime – India. He has over three decades of experience which includes association with development of Nargol port (Gujarat) project, consultant with Deloitte in shipping, port logistics and cargo handling and J.M. Baxi & Co., handling end to end services in shipping logistics. He is a noted writer, speaker and reviewer on matters related to the Indian Shipping Industry.

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