More than infrastructure superiority and spare capacity, a strategic pricing policy appears to be the “X factor” that has enabled the Krishnapatnam Port to grab a larger share of transhipment freight moving to and from South India.
Located 112 miles north of Chennai, Krishnapatnam Port is an alternative, privately operated minor harbor.
A study by global consulting firm McKinsey & Co. found that ocean carriers using Krishnapatnam as a “relay point” have a slight economic advantage over other hub ports in the region, due to lower port charges.
“Krishnapatnam Port is giving a 40 to 50 percent discount on vessel-related charges to incentivize mainline calls,” the report stated. Officials at Krishnapatnam were unavailable for comment regarding price adjustments.
The agency said the incentive plan has proved to be an “alluring” factor for mainline carriers targeting the South Indian container trade, which is largely transhipped.
When compared with its peers, average voyage costs for a call at Krishnapatnam hover at $183 per TEU on the eastbound leg, for example to Shanghai in China, and at $297 per TEU on the westbound direction, for example to Le Havre in France. In contrast, those costs are pegged at $186 and $298, respectively, for transhipment via Chennai, according to the report.
More importantly, McKinsey also found that transhipment through Port of Colombo in Sri Lanka and Port Klang in Malaysia cost 2 to 3 percent more, compared with Krishnapatnam and Chennai.
Krishnapatnam’s goal — become a South India transhipment hub: Krishnapatnam’s steep tariff reduction, intended to transform itself into a South India transhipment hub, appears to be paying off, as it substantially increased its transhipment volume in fiscal 2017-2018, to about 200,000 TEU.
“This is resulting in Rs. 100-crore [$15 million] additional annual revenue for Krishnapatnam Port,” McKinsey said.
However, the consulting firm said Chennai should be able to capture a sizeable portion of freight transhipped at rivals through service and tariff rationalizations — meaning the public handler needs to simplify customs procedures, expand port calls, restructure vessel-related charges, and renegotiate sharing of revenue with private concessionaires regarding container-related fees.
If those measures are effectively implemented, Chennai has the potential to shift roughly 900,000 TEU to its favor, out of the 2 million TEU South India transhipment cargo currently handled via Southeast Asian ports annually.
That possible gain can fetch Chennai about Rs. 900 crore in additional revenue per year, according to McKinsey.
Like other minor ports in the country, Krishnapatnam has the freedom to adjust its service rates, depending on demand and by virtue of it being outside the purview of the port regulator Tariff Authority for Major Ports (TAMP), whereas terminals at Chennai do not have that luxury.
Still, although Krishnapatnam ended fiscal 2017-2018 with an impressive 89 percent year-over-year increase in volume, largely on the back of that transhipment surge, the road ahead is unlikely to be smooth. Its rivals — Adani Group-owned Kattupalli and the new Dakshin Bharat Gateway Terminal (DBGT) at the Tuticorin Port (V.O. Chidambaranar) — are making rapid inroads into the market. The Statistics shows DBGT and Kattupalli also registered strong volume growth last fiscal year — 83 percent and 42 percent, respectively, from the prior year.