Bangalore : Larsen and Toubro Ltd opened its first container loading facility on Monday at Kattupalli port near Ennore in Tamil Nadu with rates that are on a par with those charged by the union government-controlled Chennai port just 25km away, as it looks to wean customers away in a market roiled by an economic downturn.
Chennai, India’s third biggest container port, has two container terminals, run separately by DP World Ltd and PSA International Pte Ltd. DP World and PSA charge customers about Rs.3,350 for handling a loaded standard container.
The two terminals can handle a combined 2 million standard containers a year. Between April and December, the two terminals at Chennai loaded a combined 1.17 million standard containers. In 2011-12, the terminals loaded 1.55 million standard containers.
“Our rates are benchmarked with Chennai port. We don’t want to be disruptive in a difficult market,” said K. Venkatesh, chief executive officer and managing director of L&T Infrastructure Development Projects Ltd, the infrastructure subsidiary of India’s biggest engineering and construction firm.
Kattupalli International Container Terminal is owned by L&T Ports, a unit of L&T Shipbuilding Ltd. The container terminal, with a capacity to load 1.2 million standard containers a year, is part of the shipyard-cum-port complex that L&T Shipbuilding has constructed at Kattupalli with an investment of Rs.3,989 crore.
L&T Shipbuilding is 97% owned by L&T with Tamilnadu Industrial Development Corp. Ltd holding the balance stake.
“We can’t afford to be highly priced,” said G. Gandhirajan, chief operating officer of L&T Ports. “Otherwise, nobody will come to our terminal.”
L&T’s decision to benchmark its rates to those prevailing in Chennai port comes at a time when private port operating firms have been clamouring for the de-regulation of tariffs at ports controlled by the Union government, such as the one in Chennai.
Kattupalli is a port owned by the Tamil Nadu government, but given to L&T for development and operations. L&T has the freedom to set its own rates at Kattupalli.
The terminal will be operated and maintained by Manila-based port operator International Container Terminal Services Inc. (ICTSI).
Port experts said L&T could be taking a hit in a bid to grow the terminal.
“They need market share to start with,” said S.N. Srikanth, founder and senior partner at Chennai-based port consultancy Hauer Associates.
“With the economy going down, L&T is not hopeful of demand exceeding capacity of the two terminals in Chennai port. Under the circumstances, the most sensible thing for them to do is to benchmark the rates with Chennai to start with. By doing so, they have also allowed themselves the flexibility to increase or decrease the rates depending upon the market,” Srikanth added.
Rates at new ports such as Kattupalli are typically higher than at facilities that have been in operation for many years, to recover the huge costs involved in setting up the facilities.
“L&T will not price themselves out of the market,” said a Chennai-based executive of a global container carrier headquartered in Geneva. He did not want to be named because of company policy on speaking to the media. “When there are two terminals operating nearby, they have to benchmark rates against these terminals.”
Despite opening its new terminal in a weak shipping market, L&T has drawn up plans to expand the capacity of Kattupalli port by adding two more berths to handle containers, a roll-on-roll-off facility to handle cars and berths to load liquid and general cargo. The expansion of the container berths would double the total annual capacity to 2.4 million standard containers.
“The timing of the expansion will depend on ramp up in volumes. When the market is ready, we will roll out these facilities,” Gandhirajan said.