A Case of Kattupalli Port Under Ppp Model in India

Home , Ennore, Kattupalli

International Journal of Civil Engineering and Technology (IJCIET) Volume 8, Issue 4, April 2017, pp. 1831–1839 Article ID: IJCIET_08_04_208 Available online at http://iaeme.com/Home/issue/IJCIET?Volume=8&Issue=4 ISSN Print: 0976-6308 and ISSN Online: 0976-6316

DIFFERENTIATION STRATEGY FOR AN EMERGING PORT - A CASE OF KATTUPALLI PORT UNDER PPP MODEL IN INDIA

Dr. M. Bina Celine Dorathy Associate Professor, AMET Business School, AMET University, 135 ECR, Chennai, Tamilnadu, India

ABSTRACT The Kattupalli port in Chennai, a greenfield port was established as a joint venture between Tamilnadu Industrial Development Corporation (TIDCO) and Larsen and &Toubro (L&T) under the Public Private Partnership (PPP) model. This port was set up primarily to handle the increased volume of sea trade along the East Coast line of Tamilnadu and to be a modern gateway in the region. The two major ports, Chennai and Ennore located in the same region were choked with traffic and Kattupalli was expected to give some relief. The port was strategically designed to offer more sophisticated services in order to divert the traffic from the two adjacent ports. The port became operational in January 2013. At this juncture, this paper makes an attempt to evaluate the performance of this port since its establishment to assess if the unique features of this port have helped to attract customers and ease traffic in the region. Key words: Port Performance, Operational Indicators, Financial Indicators, Differentiation Strategy Cite this Article: Dr. M. Bina Celine Dorathy, Differentiation Strategy For An Emerging Port - A Case of Kattupalli Port Under PPP Model In India . International Journal of Civil Engineering and Technology, 8(4), 2017, pp. 1831-1839 http://iaeme.com/Home/issue/IJCIET?Volume=8&Issue=4

1. INTRODUCTION Seaports facilitate trade between nations. A port has interface with other forms of transport and in doing so provides connectivity. Ports form a vital link in the overall trading chain. Port efficiency is an important parameter that determines a nation’s participation in international trade. The facilities provided by a port are expensive and hence under-utilization of the services provided would result in capital loss and higher cost for running the port. Optimum utilization of the available resources and efficient management of operations are vital for a port [1]. Measuring Port performance not only helps to understand its efficiency, it also helps to assess the effectiveness of the existing port promotion strategies and to devise suitable strategies for future. The Kattupalli port was promoted adopting the differentiation strategy. Differentiation involves making the products or services different from and more attractive than those of the

http://iaeme.com/Home/journal/IJCIET 1831 [email protected] Dr. M. Bina Celine Dorathy competitors. To make the Differentiation strategy a success, an organization must have the following features [2] 1. Good research, development and innovation. 2. The ability to deliver high-quality products or services. 3. Effective sales and marketing, so that the market understands the benefits offered by the differentiated offerings. This article evaluates the data and information collected on Kattupalli port to assess how far the port fulfills the above three criteria. This paper makes an attempt to gauge the effectiveness of differentiation strategy for an emerging port like Kattupalli.

Unique features of Kattupalli Port The Kattupalli port in Chennai, a greenfield port was established as a joint venture between Tamilnadu Industrial Development Corporation (TIDCO) and Larsen and &Toubro (L&T) under the Public Private Partnership (PPP) model. This port was set up primarily to handle the increased volume of sea trade along the East Coast line of Tamilnadu and to be a modern gateway in the region. Kattupalli Port was set up as a modern port with state of the art facilities. It has two container terminals and a shipyard adjacent to it. The port became operational in January 2013[3].Recently the port has been taken over by Adani Port Special Economic Zone (APSEZ) and renamed as Adani Kattupalli Port Private Ltd (AKPPL). The port is under compulsion to build its potential to offer niche services since it is in close range to two major ports. Therefore it is equipped to offer a whole new dimension of service, speed and sophistication [4]. The unmatched advantages of the port include • Modern equipment with global best-in-class technology providing effective service. • Proximity to Container Freight Stations (CFS) ensuring faster truck turnaround. Kattupalli International Container Terminal (KICT) is equipped with latest IT solutions to optimize its operational needs and to meet the demands of the customers. It has acquired competent and experienced people to provide high quality service to its customers. KICT functions round the clock and has the potential to handle upto 1.2 million TEUs [5]. KICT has implemented container terminal management system, capable of handling and automating all the varied and complex activities of the container terminal and container freight station (CFS) that leverages on state-of-the-art information technology architecture. With all of these in place, KICT assures its customers of unparalleled, exceptional service anytime of the year. ICAM (Integrated Computer Aided Maintenance) is used for maintenance planning, scheduling and work execution. This system is also used for procurement, supplier performance and warranty tracking with inventory link to other critical systems, i.e. finance/accounting, Content Management System (CMS) and yard management. Kattupalli port has the following facilities for incoming ship operations • Break water • Navigational channel • Maneuvering and berthing • Turning basin • Navigational aid • Power and water supply • Road connectivity

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• Tugs • Storage area for containers • Maintenance and repair platform • Firefighting appliances Kattupalli Port offers best-in-class facilities for Roll On Roll Off (RORO) to shipping lines and Original Equipment Manufacturers (OEMs) in terms of the infrastructure catering to their needs, viz: • Exclusive yard fully paved and well illuminated to the extent of 15 acres which will be expanded in the near future to ultimately accommodate over 10,000 cars. • Proximity of parking yard to berth resulting in faster turnaround and enhanced efficiency in yard and stevedoring operations. • Buffer storage possibility in berths – approx. 500 cars • Competitive tariff to benefit OEMs and shipping lines • Hassle-free, user-friendly gate-house operations speedup entry and exit • Dedicated washing facility with potable or piped water supply • Possibility of Pre-delivery inspection (PDI) activities

Salient features of KICT in a nutshell * 2 berths with a combined length of 710 m * Capacity to handle 1.2 million TEUs per annum * 6 Post Panamax Quay Cranes * 15Rubber Tyred Gantry (RTG) * 360 Reefer Plug Points * Congestion-free and 24/7 access roads from / to port * Close proximity to Container Freight Station (CFS) and empty yards enabling faster turnaround times * Connected to all CFSs in Chennai for exports and imports * Connected to all major Internal Container Depot ( ICD) and Special Economic Zone (SEZ) * Connected to CONCOR(Container Corporation of India) for rail movements Adjacent to the terminal is a mega shipyard. The ship yard offers sophisticated Infrastructure facilities for ship construction and ship repair services. It undertakes construction of Commercial and Defense ships and hull, machinery and system piping repairs. The key features of this ship yard are • State-of-the-art technology and processes in design and operations • Construction of complex vessels with experienced specialists • Excellence in quality and on-time deliver The above information on Kattupalli port shows that the port has been developed after good research to deliberately draw customers from the overloaded Chennai and Ennore ports. The port has the capability to offer sophisticated and speedy services to customers which means it can soon emerge as the Modern Gateway of Tamilnadu. The port has fairly met the first two criteria of the differentiation strategy.

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2. PERFORMANCE EVALUATION OF KATTUPALLI INTERNATIONAL CONTAINER TERMINAL (KICT) The available information on the performance of this port has been evaluated using operational and financial indicators and presented below. It has also been benchmarked against industry standards whereever possible.

2.1. Operational Indicators The Primary measures of operational performance are the ship turn-round time and the tonnage handled per ship day in port. Operational performance is also measured in terms of how well the assets of the port such as the berths and cranes are utilised. The following operational indicators have been calculated to measure the performance of Kattupalli port.

2.1.1. Yard Productivity (TEU/hectare of yard) Yard productivity is arrived by dividing the number of TEU’s handled pa by the total area of the terminal. The industry benchmark is generally taken as 20,000 TEU/ hectare/ year. For larger terminals an increase of up to 50% is considered.

Table 1 Yard productivity for KICT

Year TEUs handled Yard Productivity

2013-14 6,000 300 [6000/20] 2014-15 29,000 1450[29000/20] Sources: Port Statistics from JOC.com and https://www.zaubacorp.com The terminal area available at Kattupalli port is about 20 hectares [6]. Between 2013-14 and 2014-15 it has handled 6,000 and 29,000 TEUs respectively [7]. It can be seen from the above table that KICT’s yard productivity has increased from 300TEUs per hectare in 2013-14 to 1450 TEU’s per hectare in 2014-15. Though this is much below the industry standards of 20,000 TEU/ hectare/ year, Kattupalli being a new port is showing healthy signs of growth since its yard productivity has increased by almost 5 times between 2013-14 and 2014-15. Besides, KICT has got a capacity to handle upto 1.2 million TEUs per annum which means its yard productivity can increase upto 60,000 TEUs per hectare if it is operating at its full potential. This is 3 times more than the industry standards.

2.1.2. Quay Crane Productivity (TEU/crane/hour) The crane productivity reflects more on the systems operating around the crane rather than the crane itself. The type of quay crane used has a major bearing on the physical limitations of crane productivity, for example: • Post Panamax gantry cranes - 35 to 45 lifts/hour; • Panamax gantry cranes -20 to 30 lifts/hour; • Port Mobile- 18 to 25 lifts/hour; • Ship’s Gear - 8 to 15 lifts/hour. The newer-generation Super-Post-Panamax cranes have been designed to carry four TEUs or two FEUs at one time. These can weigh between 1,600–2,000 tonnes. Super Post-Panamax Quay Cranes are equipped to handle safe working load of 41 MTs (single) / 65 MTs (twin) / 85 MTs (underhook) and has an outreach of 23 rows across the vessel[8]. For a traditional

http://iaeme.com/Home/journal/IJCIET 1834 [email protected] Differentiation Strategy For An Emerging Port - A Case of Kattupalli Port Under PPP Model In India container terminal with conventional single lift quayside cranes, between 20 and 25 moves per crane per ship operating hour is taken as the standard and for modern gantry crane an industry benchmark of about 115,000 TEU pa has been set [9]

Quay Crane productivity at Kattupalli International Container Terminal (KICT) Kattupalli port has 6 Superpost Panama Quay cranes which mean it is equipped with the largest and the most modern crane facility [10]. Superpost Panamax Quay Cranes, on an average can lift upto 35 containers per crane per hour [11] which means it would have taken only 28.57 (6000/35x6) hours to handle the 6000 TEUs for the year 2013-14 and only 138 hours (29000/35x6) to handle 29000 TEUs for the year 2014-15 if all the 6 cranes had been employed in the operation. Quay crane with a capacity to handle 35 containers per hour at KICT is the best in the industry and it is on par with the standards of other modern ports.

2.1.3. Berth Productivity (TEU/m of berth length) Berth productivity depends very much on the size of ship and the percentage of cargo exchanged. Also terminals with high volumes of transhipment cargoes will have a considerably higher value because of the inherent speed of this operation [12]. For the purposes of terminal planning an industry standard of about 1,000 TEU/m of Quay is suggested [13].

Table 2 Berth Productivity at KICT Year TEUs handled Berth Productivity 2013-14 6,000 8.45 [6000/710m] 2014-15 29,000 40.85[29000/710m]

Source: The Economic Times, ET Bureau Nov 9, 2015 The Kattupalli Port terminal has two berths with a total quay length of about 710 meters [14]. The berths are equipped with six quay cranes and designed to handle container, dry bulk & break-bulk cargo. The berth productivity at KICT has shown an increase from 8.45 TEU/m of Quay to 40.85 TEU/m of Quay. Though as per industry standards it is much lower for KICT, it has got an installed capacity to handle 1.2 million TEUs annually, in which case the berth productivity can easily extend upto 12,00,000/710m= 1690 TEU/m if the port operates at its full potential. This is much higher than industry standards.

2.1.4. Vessel Turnaround Time This is the gross time spent by the ship in port. It can be computed by taking the date and time when the ship arrives within port limits and the date and time when the ship leaves the port limits [15]. The container ship turnaround time in port includes the following processes and operations: • arrival at port or estimated time of arrival, • start of waiting for free berth, if no berths are avail-able, • free berth available, proceeding to berth arrival at berth, including berthing, start of loading/unloading operations, • end of loading/unloading operations, unberthing and leaving of berth, • leaving the port, including corresponding manoeuvres.

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Table 3 Vessel Turnaround Time

Vessel Turnaround time ( in Year Port days) Chennai 1.66

Ennore 1.80 2015-16 Kattupalli 1.08

Sources: www.chennaiport.gov.in and Port wings Maritime Exim Weekly Newspaper, May 6, 2016

Vessel turnaround time at KICT With absolutely no congestion and waiting time, the vessel turnaround time at KICT is 1.08 days against an average of 1.66 days for Chennai port and 1.80 days for Ennore port. The lesser turnaround time gives KICT a competitive edge in the region. This feature is attracting huge shipping lines such as Mearsk to call at KICT.

2.1.5. Ship waiting time Waiting time is defined as the time elapsed between when the vessel arrives at the port and when the vessel is berthed at the terminal. The vessel would prefer a short waiting time and the port operator’s objective is to minimize the same. A vessel is said to be “berthed-on-arrival” (BOA) if the actual berthing time is within 2 hours of arrival.

Ship waiting time at KICT There is no congestion or waiting time at the roads or at the berth. Due to this Kattupalli is becoming the preferred destination for shippers and it might soon emerge as the natural gateway for cargo in this region. The present situation is very favourable for Kattupalli since Chennai port is worst hit by congestion and Ennore port is operating at overcapacity. The situation might change when the traffic increases for the port.

2.1.6. Berth Occupancy Berth occupancy is the ratio of time the berth is occupied by a vessel to the total time available in that period. High berth occupancy is a sign of congestion (>70%) and hence decline of services, while low berth occupancy signifies underutilization of resources (<50%) KICT has 2 berths each with a total Quay length of 350 m, on an average it has 1.7 vessel calls per day (in 2016) with an average service time of 0.62 days [16]. Therefore the berth occupancy = 1.7x.62 x 100 = 52.7% (approx).

2 The berth occupancy though not less than 50%, is closer to it, which signifies low berth occupancy and underutilization of resources.

2.2. Financial Indicators Since the joint venture between L&T and TIDCO was not profitable for L&T, in 2015 the port alone was hived off and sold to Adani group[17]. Therefore available financial information on both L&T Shipbuilding and Adani Kattupalli Port Private Ltd were taken into account to assess the financial performance of KICT.

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Table 4 Profit and Loss of L&T Shipbuilding for Year Ended March 31, 2013 2012-13(in Rs) 2011-12(in Rs) REVENUE Revenue from operations 1,048,232,724 – Other income 116,090,567 41,454,233 TOTAL REVENUE 1,164,323,291 41,454,233 EXPENSES Construction and operating expenses (a) Cost of materials consumed 895,229,102 – (b) Purchase of stock-in-trade 75,737,818 – (c) Operating expenses 293,335,070 4,470,755 1,264,301,990 4,470,755 Employee benefits expense 293,096,576 25,406,908 Sales, administration and other expenses 340,623,563 21,091,995 Finance cost 676,229,804 – Depreciation and amortisation expenses 555,440,723 746,820 TOTAL EXPENSES 3,129,692,656 51,716,478 Profit/(loss) before taxes (1,965,369,365) (10,262,245) Tax expense: Current tax – 13,449,826 Deferred tax – – – 13,449,826 Profit/(loss) for the year (1,965,369,365) (23,712,071) Earnings per equity share (Basic and diluted) (3.62) (474.24) Face value of an equity share 10.00 10.00 Source: Director’s Report L&T Shipbuilding Ltd, 15th May, 2013 It can be seen from the above P&L statement of L&T Shipbuilding that the company has incurred a loss of Rs 1,965,369,365 for the year ended March 2013. But a closer observation shows that the revenue generated from operation is 3.5 times (1,048,232,724 / 293,335,070) more than its operating expenditure. The port became operational only in January 2013 and within a short period of 3 months it has been able to achieve this. The rate of return on turnover, another useful measure of financial performance, calculated and presented below is also quite appreciable Rate of return on turnover = Operating Surplus / Operating Income x100 = 754,897,654 / 1,048,232,724 = 72%

Financial Performance for the year 2014-15 The Kattupalli port’s revenue stood at Rs 18.44crore in 2014-15, while it reported a loss before interest and tax of Rs 113.52 crore[18]. A large part of it was due to depreciation, which was around Rs 80-100 crore given the asset base of Rs 2,000 crore[19].

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During the year 2014-15, KICT handled 29,000 TEUs which means the revenue per TEU of cargo handled is Rs.6358 (184400000/29000) Though the port on the whole has reported a loss for the two years, 196.53 crores and 113.52 crores respectively, the amount of loss has gone down by 83.01crores. The port also seems to achieve operating income higher than its operating expenditure. With increase in traffic the port would soon report a profit.

3. CONCLUSION The TEUs handled at Kattupalli port is much below its installed capacity which shows that it suffers poor patronage from the trading fraternity. Securing customers appear to be a big challenge for this port. Though the port is equipped with modern infrastructure it is underutilized. Having fulfilled the first two criteria of the differentiation strategy, the Kattupalli port is now badly in need of an effective marketing strategy to bring its uniqueness into prominence. Aggressive marketing is the need of the hour for this port. After being taken over by Adani group, there seems to be more emphasis on marketing. The port has organized its first trade meet ‘Konnect with Kattupalli’ in 2016. The port is now gradually succeeding in persuading customers and recently Maersk, one of the world’s largest shipping line has shifted its port calls to Kattupalli from Chennai. A few other shipping lines such as Evergreen and Shreya Shipping and logistics have also announced regular service to Kattupalli port. It is also slowly becoming the preferred port for exporters and importers particularly those involved in automobile due to its hinterland connectivity and availability of huge space. At this pace, it is expected that soon there would be an increase in the volume of operations for this port. Once it is achieved Kattupalli port would undoubtedly become the Modern Gateway in the East Coast region of Tamilnadu.

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[12] Akram Elentably, 2016, The Measurements Performance of Container Terminal Operations, American Journal of Pharmtech Research retrieved from www.ajptr.com/archive/volume-5/february-2015-issue-1/51003.html [13] Beckett Rankine Partnership, 2003, Benchmarking Container Terminal Performance, Container Port Conference, Rotterdam retrieved from beckettrankine.com/wp- content/uploads/2014/12/bct.pdf [14] Port Kattupali Brochure , LNT KICT retrieved from www.lntkict.com/images/KICT_Flyer.pdf [15] Ross Robinson. 1978,Size of vessels and turnaround time, retrieved from www.bath.ac.uk/e-journals/jtep/pdf/Volume_X11_No_2_161-178.pdf [16] www.marinetraffic.com [17] P.Manoj, 2014,Tamil Nadu says policy does not permit L&T to sell container terminal retrieved from www.livemint.com [18] Dr. Prafulla W Sudame and Pavan Nagorao Bahekar. A Study of Facilities Available with Respect To Port Operations at Major Port in India. International Journal of Management, 6(10), 2015, pp. 11-17. [19] Dr. J. Rengamani and V. Venkatraman A Study on the Performance of Major Ports in India, International Journal of Management, 6(10), 2015, pp. 48-55. [20] S. Hamsini Amritha, 2015, L&T Shipbuilding deal: Positive for Adani Ports retrieved from www.business-standard.com › Markets › Features ibid

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