When Kakinada Sea Port (KSP) was commissioned in 1997, it seemed destined for greatness. For some years, the government worked hand-in-hand with private players. But visible progress was short-lived. Today, the port's wrestle with time for growth is on. But the recent commissioning of a new container terminal seems to be good news for KSP. The Dollar Business surveys the new terminal to figure out how far KSP will go in serving India's exim community.
Sisir Pradhan | July 2016 Issue | The Dollar Business
Kakinada is a small town, known for its rich tradition of maritime trade, in the East Godavari district of Andhra Pradesh (AP). The fertile land on the riverbank of Godavari is known as the rice bowl of India and is home to some of the largest rice processing mills in the country. In olden days, traders used barges to transport rice from the shallow water port at Kakinada, also known as Anchorage Port, to the deep sea and load them into larger vessels. Apart from the Anchorage Port, Kakinada Ports governed by AP government, comprises Kakinada Fishing Harbour, Kakinada Deep Seawater Port (KSP) and a ship-breaking unit.
With a Silver Spoon
In the late 1990s the state government, in order to boost trade in the region and accommodate larger vessels, called private players to develop a deep water port and built KSP. The Port’s development coincided with the time when India’s coal imports were at a peak to feed the rising number of thermal power plants in the country – largely those that mushroomed near the coastal areas, due to ease of logistics. Alongside, the late 1990s was a golden period for bulk cargo trade in India as the rising coal imports and iron ore exports fuelled the growth of Indian Port sector, enhancing the growth of KSP.
In addition, the state government had announced sales tax benefits to companies putting up edible oil refineries in the state and a number of edible oil refineries came up near the port. Also, a good number of fertiliser plants are located in Kakinada, largely due to the presence of the port. As cherries for topping, in 2002, Reliance Industries Ltd. (RIL) announced the discovery of a big gas reserve in Krishna-Godavari Basin (KG), which brought Kakinada on the global radar. Soon, major companies involved in petroleum and gas exploration and marketing made a beeline to the small town for business opportunities. Meanwhile, RIL estimated the gas reserve to be 40 times higher than that of Bombay High, one of the largest single-location oil and gas reserves in India. Well, something significant is yet to happen, but it definitely heightened trade and business activity in the region.
A hiccup
The hope of a higher inflow of business, due to the oil and gas exploration activities by RIL, ONGC and a number of other companies, had inspired local businessmen to get ready to maximise profits from the natural gas boom. And it is apparent from the fact that the city where almost all major business establishments are confined to a single lane, Suryaraopeta Main Road, has a heavy concentration of luxury hotels as compared to its size. "However, the ‘go-slow’ attitude of RIL on gas production has disappointed many local business houses with interests in port and shipping operation," opines Sreeram Bagawathi, Director, Chandra Group of Companies, and Executive Committee Member, Federation of Freight Forwarders’ Associations in India (FFFAI).
Nevertheless, agro and seafood products are thriving in the nearby regions of Kakinada – the reason why PSA Singapore Terminals has decided to invest in developing a container handling facility at KSP. The Kakinada Container Terminal (KCT) has paved the way for large and small volume exports of agri-produce and seafood from the region.
Though KSP had been handling bulk cargo for long, the non-availability of a container handling facility was a missing link at the port. As a direct impact, exporters and farmers who wanted to ship small consignments, had to depend on large exporters. Not anymore. “The new container handling facility provides the option to exporters to ship any volume of cargo in a safe and cost-effective manner,” says M. Subramanian, Terminal Manager, Kakinada Container Terminal. For the uninitiated, KCT is a JV, with equal shareholdings between Kakinada Infrastructure Holdings, Singapore-based PSA Group, and Bothra Shipping Services. It started operations in November 2015.
A Twist in the Tale
The northern regions of coastal Andhra Pradesh generate a lot of agro and seafood export shipments and they largely move through the Visakha Container Terminal (VCT), which has been in operation for the last decade and a half. So, does it make sense to have one more container terminal within a distance of about 160 kilometres? A lot of cargo that moves through VCT is generated from Kakinada and its nearby regions such as Guntur, Vijayawada, Bhimavaram, Rajamundry, etc. Traders now have an option. But won’t the terminals compete against each other for the same cargo? No doubt, KCT being a new facility, lags frequency of vessel and its sea freight cost is also higher when compared to VCT. But KCT has an ace up its sleeve! The terminal compensates the additional cost by offering more personalised service, the flexibility of operation as per client requirement, and savings in terms of transportation due to proximity to its hinterland.
Though Kakinada and Visakhapatnam, cities where KCT and VCT are located respectively, are not far from each other, the weather in Kakinada is far better because of lower humidity. However, Kakinada has a huge disadvantage because the Golden Quadrilateral National Highway No. 16 and Asian Highway No. 45 are far from the Port. Also, a part of the National Highway 216, which connects the port town to the Golden Quadrilateral, is a narrow double-lane stretch. Kakinada Port developer has proposed a four-lane road connectivity from the Port to NH16, connecting at Rajanagaram in East Godavari District. But that will imply an investment of $90 million.
The State Highway No. 40, which connects the port town to rest of the state, is also in need of a serious upgrade. And similarly, the Howrah-Chennai main-line rail network isn’t easily accessible from the town. Good news is, a broad gauge rail network connects Kakinada Port to the (Howrah-Chennai) main rail line at Samalkota. Kakinada is also close to two airports, Rajamundry Airport, a domestic airport about 60-km away and Visakhapatnam International Airport that is located at a distance of 160 km.
A natural barrier
The east coast is frequently disturbed by cyclones. However, the Port is calm and safe because Hope Island, a sand pit formed under the sea, is only a few hundred metres away from the Port, and it acts as a natural breakwater.
Installation, maintenance and running cost of quay cranes require hefty investments, and these cranes, whether in operation or not, are power guzzlers. Hence, PSA has played it safe by pressing heavy-duty Liebherr Mobile Harbour cranes owned by terminal partner Bothra Shipping Services into service and kept initial investment low.
The terminal spreads over an area of 2.3 hectare with a 23,000 sq. mt. container storage space with a provision to expand further. It has one berth with a quay that is 300 metres long and a maximum draft of 14.5 metres at the berth.
The terminal has nine rail sidings, while container handling equipment includes two mobile harbour cranes with a lifting capacity of 41 metric tonne, two reach stackers with a lifting capacity of 45 metric tonne, and eight internal container transit vehicles. Cargo stuffing and de-stuffing activities can be carried out inside the terminal, and the terminal has 90 refer points to power perishable goods carrying refrigerated containers.
Currently, the terminal is touched down by a domestic feeder vessel once in a month. It sails between Kakinada and Cochin and two exim feeder vessels that sail to Colombo twice a month. Since January 2016, the terminal has handled an average of 200-300 export containers. The port provides covered warehousing space for stuffing and de-stuffing of cargo, but traders opine that a dedicated ICD or CFS would further facilitate container movement in the region.
Siju John K., Manager (Shipping & Logistics) at Visakhapatnam-headquartered Devi Seafoods says, “We have factories both at Visakhapatnam and Kakinada, but due to the proximity to KCT, our containers from Kakinada plant are shipped through this port.” Subramanian, a KCT Terminal Manager is confident that due to service quality, many agro and seafood exporters from the region will soon start using his facility.
Man versus Machine
Rapid mechanisation of cargo handling operation has led to clashes between man and machine at many ports in India. When automation of cargo handling operation was introduced, it didn’t go down well with many. And labour politics at Kakinada is no exception.
When the AP government and private operators got into an agreement to build and run KCT, perhaps due to the lack of port operation know-how or labour voting system, it was agreed upon that rice will be handled only by machine-backed manual labour. But since change is inevitable, the ecosystem was auto-corrected to maximise profit for the investors. Also, from time to time, exporters opt for machines instead of manual labour, and that has triggered unpleasant situations in the past.
Future calling
The path to success lies on how efficiently the terminal can cope with the growing demand! The container terminal is a need in modern day trade, but there is a high imbalance in the volume of import and export of goods. “If the management can convince (ship)liners to bring empty containers and provide all other necessary services for the smooth operation of container shipment, the terminal has a very good future,” adds Dantu Suryarao, Chairman of The Cocanada Chamber of Commerce.
It is a fact that in these modern times, it’s not always the infrastructure but consistency in quality that defines success for any port, and KCT fares well on this factor. Approachability is another key to success in the freight forwarding business. “In our business we have to give equal importance and time to customers irrespective of their business sizes. If they are not given attention, they will move the business to some other freight forwarder. So it is one-to-one service that will help in gaining confidence and loyalty of clients,” says Nagawathi of Chandra Group.
Many traders in the region feel that Kakinada Sea Port (KSP) hasn’t been able to grow as it should have because of complacency and stingy market approach that did not allow multiple operators to develop and operate berths. However, now that Singapore based PSA International Pte Ltd., a terminal operator with deep and broad experience, is involved in its operations, the port can perhaps taste some success that it has waited for all these years. But can KSP successfully ride on a single wave called KCT? Time will tell.
TDB: Can you brief us about the terminals operated by PSA in India? How important is Kakinada Container Terminal (KCT) for PSA, from strategic as well as business point of view?
Mike Formoso (MF): PSA entered India in 1998. We currently operate four container terminals at Chennai (CITPL), Kolkata (BKCT), Kakinada (KCT) and Tuticorin (PSA-Sical), with a total annual handling capacity of 2.7 million TEUs. Our flagship Bharat Mumbai Container Terminal (BMCT) is under construction and upon completion, it will raise PSA’s combined annual handling capacity in India to about 8 million TEUs. BMCT represents one of PSA’s largest commitments of resources outside its home base of Singapore.
And as for KCT, it commenced operations at the end of 2015, and whilst at an early stage of development. In fact, Kakonada terminal has the potential to become a gateway port for exports of rice, seafood, pharmaceuticals from India and can serve the special economic zones (SEZs) of South East India.
TDB: KCT is situated in the vicinity of some already-established container terminals such as Krishnapatnam, Vizag, etc. How do you view this?
MF: KCT aims to serve the growing volume of containerised cargoes that are exported as break-bulk from the region, including commodities such as rice and sugar. It also aims to support activities of Kakinada SEZ and provides a gateway to Hyderabad and Nagpur regions. We have already seen some large containerised shipments of rice and sugar being handled through KCT. Apart from this, seafood exports in refrigerated containers is also on the rise from KCT.
TDB: What is your outlook on the terminal's future?
MF: We hope that KCT can achieve higher growth rates because of increasing containerisation of break-bulk cargoes.
TDB: What about the overall growth in container cargo on the east coast?
MF: India is one of the world’s fastest growing economies and its east coast has been recording double-digit growth rates in container traffic since the beginning of 2016. So, things do look bright.
TDB: What impact will swings in commodity and crude oil prices have on the Indian port sector?
MF: Large swings in commodity and crude oil prices are undesirable for most companies and something we continue to monitor closely. Equally, if not more, what concerns us are the provision of adequate supporting infrastructure to enable efficient access to ports and a business-friendly regulatory framework.
TDB: BMCTPL is also developing the fourth container terminal of Jawaharlal Nehru Port Trust (JNPT)? Can you throw some light on the project?
MF: BMCT’s Phase 1 is under construction and on schedule. It will complete by the end of 2017. BMCT will be completed in two phases, each comprising 1-km-long contiguous quay. Each phase will have an annual handling capacity of 2.4 million TEUs and will be equipped with 12 quay cranes, 36 rubber-tyred gantry cranes and support equipment. Phase 1 encompasses 90 hectare of land, but after the completion of Phase 2 we will have a total area of 200 hectare. Something specific to mention is the four rail-mounted gantry cranes that will arrive in Phase 1. It will enable the terminal to handle the 1,500-metre-long Dedicated Freight Corridor (DFC) trains that will call BMCT’s dedicated railhead. On completion of both phases, BMCT will be India’s biggest container terminal with a total capacity of 4.8 million TEUs.
TDB: KCT is a part of PSA's global network of ports and terminals. How does this put it at an advantage over peers?
MF: PSA brings with it over 40 years of experience and expertise in developing and managing busy hub ports and terminals around the world. We always aim to translate our expertise in areas such as management, operations and commercials into best-in-class services at all our terminals across the globe.
TDB: What potential does coastal shipping hold in India?
MF: There is a huge potential for coastal shipping in India. India has a vast coastline and coastal shipping can provide an efficient transport system with huge savings over rail and road transport, both on a direct and indirect cost basis, particularly when benefits of coastal shipping such as reduced environmental impact are considered. KCT is already handling regular coastal shipments.
TDB: What are some of the most pactical decisions taken by the current government that have been or will be beneficial for the port sector?
MF: The government has recognised the importance of the port sector under ‘Make in India’ campaign. It has translated into a number of policy initiatives, which we hope will help boost the sector's growth and benefit the people. On the issue of tariff rationalisation, there has been some progress as well. Post 2013, tariffs are becoming more market-oriented. However, we suggest revolution rather than evolution. The earlier rationale for regulation is no longer valid, thus, deregulation should take place quickly and market forces should be allowed to work and bring about not just reduced prices but also increased efficiency. This argument is especially relevant given the non-level playing field that exists in a number of regions.
TDB: What can users expect from KCT, in terms of services?
MF: KCT is strategically located on the east coast of India’s agricultural and commodity hinterland and well connected by national highways and rail to key cities in the region. Coupled with benefits of an efficient terminal operation and high quality of service, in time, KCT should become a natural choice for exporters and importers who want to save on transportation cost and as well as on time.
Sreeram Bhagawathi, Exec. Committee Member, FFFAI & Director, Chandra group of COS.
TDB: What is your observation of the overall business environment and facilities at the port?
Sreeram Bhagawathi (SB): Since K. V. Rao took over as Chairman & Managing Director of Kakinada Seaports Ltd., there have been a lot of changes in the management and overall operations of the port. There were issues related to exports of iron ore, clinker and other bulk items, but under the new management, besides expansion, the port has partnered with some major players who are capable of investing in port development projects. And with an increase in new initiatives, imports of coal, fertilisers and edible oil have increased simultaneously. Also, a lot of companies have benefited from new facilities at the port. For instance, while Coromandel International (Murugappa Group) have benefitted from the liquid bulk cargo import facility at the port, EID Parry has managed to increase exports to 4-6 lakh tonne a year through the port.
Edible oil imports, however, has decreased at Kakinada Port, while import of the product through Krishnapatnam Port has increased – it's because Kakinada Port authority has failed to lay a common edible oil pipeline from the port to the edible oil corridor. Another drawback is that the port does not have built-in on-premise tanks to store edible oil and liquid bulk cargo. Thus, importers who are interested in importing bulk liquid and storing it inside the port for a couple of weeks are not able to do so. They have to move the liquid cargo outside the port, which is a time-consuming activity and also requires permission from the Customs.
Oil and gas exploration is also a major business activity in the region and we are a major service provider to oil and gas companies in the region. The Customs officials at the port are also very co-operative, and due to increase in the volume of business, a Joint Commissioner of Customs has been deputed at the port.
Kakinada comes under Vijayawada Customs Commissionerate and Customs Commissioner S. Khader Rehman is easily accessible to address any issue faced by the trade. Container handling operation at the port has started recently, and Kakinada Port largely handles agro products. The city has also been selected for the smart city development project, and we expect a lot of growth for container traffic and other cargo in
the region.
TDB: The biggest draw for a container handling port is the balance of import and export containers, whereas Kakinada terminal largely receives export containers. Do you think the lack of import containers might discourage shipping lines?
SB: With regard to the repositioning of containers, the balance between export and import volume will stabilise over a period of time because there are many industries like paper and ceramics, which are located close to the port. These industries will soon use the port to import raw materials – currently, the terminal handles more export cargo like reefer containers, rice and sugar. However, there are many proposals for large-scale investments in the region – for example, the Rs.35,000 crore investment plan by ONGC, which will lead to an increase in project cargo imports through the Port.
TDB: Kakinada is one of the first few seaports in the country to be developed with private investment. However, the growth of the port has not been at par with its peers. What is the reason for the sluggish growth?
SB: Kakinada Deep Water Port is a state built port, however, there is an MoU between the state government and the private operator to run the port on a revenue-sharing basis. If we compare Kakinada to other private ports on the east coast like Krishnapatnam, that port was developed by private operators with a land bank of 6,000 acre. On the contrary, Kakinada Port has a land bank of only about 250 acre. Even the proposed Port at Machilipatnam has a land bank of 2,000 acre – and we all know that land bank allows development of industries around a port.
With that said, Kakinada Port has some strategic advantages. The Director of Ports at Kakinada controls all the ports in Andhra Pradesh, except Visakhapatnam Port, as it is a major port. Going forward, container handling facility at Kakinada Port will also encourage small traders to export; small exporters who can’t afford to call a vessel can ship as little as 100 tonnes of cargo through containers.
However, one major bottleneck in Kakinada is issues created by labour unions which don’t take into consideration the interests of traders. This port is reeling under legacy issues. For many decades, the fishing community was involved in sea trade activities. And even today, it claims a stake in each and every developmental project of the port.
Another major issue is handicapped logistics. Better connectivity and congestion-free movement of trucks and trailers is a major concern. Though the Asian Development Bank has financed a project to improve road connectivity between Kakinada and NH5, the proposed road infrastructure is not adequate for cargo carriers.
TDB: How do you see the Port’s future growth on the east coast?
SB: The city is growing and most of the warehouses are located far from the port, which causes logistics-related challenges. Speaking of Krishnapatnam Port, the fact that it has a huge land bank and a single-window mechanism, the port operator controls everything. Thus, there is a very little scope for an entrepreneur to extend any service related to port operations – the ecosystem is designed in such a way that it will always benefit the port operators.
Kakinada provides a flexible business environment. Except for Visakhapatnam Port, other ports are not governed by any Tariff Authority, so they can dictate their own term. For instance, there were times when traders had to pay anchorage charge to Krishnapatnam Port as due to technical errors in communication server or other reasons they could not submit the documents related to port and customs on time. Ports shouldn’t levy any charge except for a nominal fee and try not to encash on such situations.
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