Tuesday, April 30, 2013

“70-80% of the investment will be from private players”

Rajiv Agarwal, MD & CEO, Essar Ports, on how ports can be run profitably and the growing private participation in the sector

B&E: Essar Ports has plans to be the second-largest port in the country in terms of capacity by FY2013. How do you plan to achieve that?
Rajiv Agarwal (RA): The development of Essar Ports is based on the cargo demand from our anchor customers. We have been lucky that most of our anchor customers are from our own group’s other businesses. They need a dedicated, world-class port facility. So we provide that service, and based on that we build an asset and then the facility is made available for use by everyone. That is how we are moving on our expansion. We are building this 160 million tonnes of capacity port, out of which we expect that at least 100 MT shall be used by the group and some companies with which we have signed the contract, while the balance will be available for third party users.

B&E: While your in-house intra-group business will ensure demand to a large extent, how will you ensure efficiency for your port?
RA: It’s the way we have designed the port that will make a huge difference towards the port’s profitability. What determines profitability is the kind of draught a port has, the extent of its mechanization and the evacuation capabilities that really brings down the cost of transportation for the customer. Ports can operate efficiently without having a pre-berthing time, which is possible if you have a traffic optimisation of 65-70%. The moment you go above that level or touch 90% there’s a huge waiting time involved, which affects efficiency. Our aim is to ensure that we operate at a level that maximises efficiency and profitability.

B&E: Why do you say that greater efficiency at lesser traffic is better than higher traffic at the cost of efficiency?
RA: That’s because greater efficiency directly impacts your margins in port fees. The customer always looks at the all-in-cost. So the ideal way to go forward for any port operator is to reduce the customer’s cost in areas like shipping company fees or other payouts like stevedore charges etc. At the same time pulling a larger chunk of the customer’s overall cost can help the port operator to increase his own business. If you allow others to take more of your own business, then you will of course get a lesser share of the pie. If, as a port operator you cannot ensure quick turnaround of ships then it’s the shipping lines that get to earn more.


Source : IIPM Editorial, 2013.
An Initiative of IIPM, Malay Chaudhuri
 
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