Role of port pricing Essay


Port pricing dramas of import function in the growing and prosperity of the ports. It influences larboard competition, investing determinations, development scheme etc. This paper presents the current pricing system of Kandla Port Trust and its impact on the traffic, intensecompetition,fiscal additions etc.

Kandla Port Trust ( KPT ) is one of the 12 major ports of India under the Ministry of Shipping, Govt. of India ( Location at Annexure I ) . Besides there are 187 minor ports under the control of assorted State Maritime Boards. Kandla Port faces terrible competition from 20 such minor ports ( Gujarat Maritime Board Ports ) and private ports around it on the 1600 kilometer coastline of Gujarat ( Annexure II ) whose entire traffic during 2009-10 is 2.59 times of Kandla Port ‘s traffic and 36.73 % of the entire traffic handled by all the major ports of India.

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The present duty construction of Kandla Port Trust had undergone its last alteration in 2005 which is taken as a base for showing the pricing system for this paper. Consequently the information presented is related to the twelvemonth from 2002-03 to 2004-05 and projections from 2005-06 to 2007-08.

Current Pricing System

1. Kandla Port has fixed the duty for the assorted services which are classified as under:

  1. for the usage of belongingss belonging to the port such as lading handling, repositing, storage, supply of equipments, drifting trades, dry moorage and assorted charges etc.
  2. The fees for the services such as navigation, position hire, trucking, moorage and other services rendered to the vass and
  3. Port Dues on the vass come ining the port.

Based on the above, the Scale of Rates of KPT ( KPT web site ) has been divided into 4 Chapters. Chapter I-Definitions ; Chapter II- Vessel related charges ; Chapter III- Cargo related charges & A ; Chapter IV – assorted charges.

2. Pricing Scheme:

“There are four usual duty attacks for the finding of the port charges: Cost-based duty, investing based duty, comparative duty, flexible and publicity duty. Cost based and investing based duty purpose at accomplishing the fiscal aims whereas comparative and flexible and promotional duty are suited for accomplishing the market needs” ( Cariou Handout 2010 p-16 ) .

Pricing scheme is based on the aim that a port aims at: may it be the net income maximization, throughput maximization, trade publicity or minimisation of the ships ‘ clip in the port

The Kandla Port has adopted a ‘cost plus return on capital employed ‘ attack while repairing the duty to accomplish the fiscal aim of the port. However, congestion pricing ( for the precedence berthing and throw outing precedence for berthing ) and the other schemes such as comparative duty and flexible and promotional duty has besides been adopted for certain trade goods to pull the lading. Thus the net income maximization and throughput maximizationarethe aims of Kandla Port.

Measuring and Forecasting Port demand:

Traffic projections are one of the influential factors in make up one’s minding the duty construction. It gives thebasis to make up one’s mind whether the duties fixed are adequate to cover the cost and the investing. Therefore, correct traffic prediction is important in any port pricing system.

In KPT, traffic projections made are in line with the projections in the five twelvemonth / one-year programs and the current / expected growing. ( Annexure III ) These projections are made after taking into consideration the assorted factors such as tendency of lading handled during old old ages, capacity addition, economic growing, traffic handled by the nearby competiting ports, market study based on the indicants given by the port users, studies of the assorted associations such as Agricultural Product Export Development Authority ( APEDA ) , Timber Association, Indian Farmers Fertilizer Co-Operative Ltd. ( IFFCO ) , Oil Coordination Committee ‘s study ( OCC ) , studies from the of import importers and exporters, Expert sentiments, authoritiess policies etc.

The demand is besides studied on the footing of size of the vass handled at port ( Annexure IV ) based on the bill of exchange limitations and future dredging programs of the port.

Competition degree

Kandla Port Trust handles about 80 million dozenss of lading and has a straggling backwoods of 1 million square kilometres right from the province of Gujarat to the Jammu and Kashmir. ( MAP of backwoods and location of other major ports is placed at Annexure V ) . Port faces terrible competition from nearby State owned 20 minor ports and private ports which handled 205.98 1000000s metric dozenss during 2009-10. The Herfindahl Index ( H ) calculated comes out 1 and clearly shows the monopoly form of these ports. Traffic comparing of Kandla Port and 20 minor ports of Gujarat and Herfindahl Index is placed at Annexure VI. There is besides an acute competition faced by KPT from the Port of Mundra, a private port which is in the locality and handled about 40 million dozenss of lading during 2009-2010. Port takes this terrible competition into consideration while repairing the duty construction. Duty rates are besides made concessional and promotional if ashipper commits major volumes. Therefore, duty has been fixed sing the emerging competition by the private ports in the close locality in footings of traffic, duty rates and the likeliness of losing of lading.

Comparison of duty is of import peculiarly so when the port compete for the same backwoods. It is observed from the comparing that all charges are terribly low at Kandla Port Trust except the port dues, navigation and position hire charges which are small higher than the GMB Ports ( GMB website ) , due to the immense outgo of dredging cost.

Kandla Port has less competition with the major ports as each major port has distinct backwoods without muchoverlap. Herfindahl Index ( H ) for these ports shows form of equality in the market portion i.e. moderate concentration of competition with the Index of 0.09868. Traffic of all other major ports of India along with Herfindahl Index is placed at Annexure VII. However, Kandla Port puts batch of attempts to pull lading from the nearby major ports such as Mumbai Port and Jawaharlal Nehru Port by supplying the competitory rates.

Cost Structure

Attempts are made in Kandla Port Trust to evaluatecost of each constituent of port operations. It provides the consciousness that the inefficiencies are non passed on to the users.

For the intent of arrested development of the duty, it is necessary to cognize the operating cost of the port. Operating cost includes labour cost, stuff cost, care cost, fuel cost and other outgo such as direction and disposal, insurance, security. Expenses such as retirement benefits, write off of losingss are besides considered for the intent of arrested development of the duty.

For this intent, the operations of the Kandla Port are classified into five chief activities such as Cargo handling, Port and dock installations, Railway working, Estate Rental and Township. ‘Caro managing Activity ‘ comprise sub-activities such as lading handling, warehousing and storage, nomadic Cranes etc. and ‘Port and Dock installations Activity ‘ comprise sub-activities such as Stephen cranes, position hire, port dues, navigation, H2O supply, dry moorage, dredging, flotilla etc. These activities and sub-activities are once more divided into assorted cost Centres where in the cost is booked.

Based on these cost centres the ‘Direct Cost ‘ of each activity is booked/allocated under that sub-activity. The ‘Indirect Cost’/overheads such as Departmental overheads, direction and general disposal operating expenses ( such as shop maintaining disbursals, labour public assistance and medical disbursals, technology disbursals, work store operating expenses, insurance etc ) , security disbursals, societal public assistance disbursals, fire combat disbursals et. Al are besides booked under different cost Centres and so they are apportioned to all the sub-activities. Therefore based on the Direct and Indirect Cost, Total Operating Cost has been arrived at. To this operating cost, as stated above, the cost such as retirement benefits/ex-gratia payment, composing off losingss etc. ( which are called Finance and Miscellaneous outgo ) is added to get at the Entire Cost.

To the Entire Cost arrived at, Return on capital employed ( ROCE ) calculated @ 15 % is added to acquire the Price/Tariff of that activity. ( Rate of return is calculated on the footing of CAPM ) .

Specimens of the Cost Statement of Cargo managing sub-activity is placed at Annexure VIII which gives an thought as how the costs are booked under different caputs.

Based on all the above factors, the transcript of the cost statement for the Port is placed at Annexure IX.

Capital Employed comprises Net Fixed Assets ( Gross Block minus Depreciation subtraction Works in Progress ) plus Working Capital.

Capital employed for each activity, return on capital employed ( Annexure X ) and hard currency flow statement ( Annexure XI ) are placed merely for 2004-05. ( Such computations are done for 2002-03 and 2003-04 besides ) .

Cost statement besides shows future projections. For income projections, traffic projections and present duty rates are considered. Wherever the rates are mentioned in the dollar footings, the consequence of foreign exchange fluctuation is given. For outgo projection, latest outgo is adjusted to the Wholesale Price Index for All Commodities announced by the Ministry of Finance, Govt. of India and applied to the traffic projections to get at the outgo projections.

Present Duty Proposal

As revealed from the duty order for KPT ( TAMP website ) the duty proposal is as below:

“Based on the cost construction, the fiscal place reveals how much duty is required to bring forth the return @ 15 % and to do the activities self sustained. However, Port finds that such recovery of return will non be possible as it demands about 38 % hiking and traffic can non bear such immense hiking. Hence Port decided to retrieve merely the short recovery/deficit of 286.40 1000000s ( Annexure IX p-17 ) . While making so, nevertheless, port has considered assorted factors such as ( I ) terrible competition by the nearby province owned and private ports on history of better installations such as deeper bill of exchanges, rapid lading managing systems ( impacting ship ‘s bend around clip which was the chief grounds for acquiring diverted the Kandla Port ‘s traffic ) ( two ) heavy capital outgo incurred by the ports by add-on of substructure such as quay, heavy responsibility Cranes, godowns, road-rail web etc. since last alteration and like outgo in the coming old ages ( three ) significant care dredging cost to the melody of Rs.400 1000000s p.a. ( four ) addition in the operating cost by 23.68 % etc. .

Over the current rates, Tariff Revision considered a hiking of 15 % in lading handling & A ; storage, navigation, port dues and assorted charges and 50 % in the position hire charges. Port has besides considered cross subsidisation in other the excess activities while make up one’s minding to travel for recovery of merely the shortage. However, port farther gives specific justification as below for the upward alteration of duty.

For port dues, port considered the immense outgo on history of care dredging. Ratess of the navigation charges of the nearby ports which were 82 % higher than the Kandla Port ‘s rate justified 15 % hiking. Huge investings by developing substructure like position and heavy responsibility Cranes which benefitted the port users by decrease in bend around clip of the ships & A ; decrease in the no. of packs justified the hiking of 50 % in the position hire charges. For navigation, port dues and position hire the GRT slab of 10001-30000 is focused more as 56 % of the vass sing port falls in this class. For the storage activity besides likely investing in the unfastened storage country justified 15 % hiking. For the lading handling activity nevertheless, it is observed that Port alternatively of giving level 15 % hiking to the bing rates, used the proactive pricing by increasing the rate of those trade goods in which port has monopoly in managing such as nutrient grains, bit, lumber, salt and sugar and cut downing the rates of the lading such as ores & A ; minerals, metals, oil bars etc. which was acquiring diverted.

Kandla Port expected extra gross coevals of approx. 304.30 1000000s p.a. after the duty revision.” ( Annexure XII )

Recommendations on as to ho w the current pricing system could be changed to increase a ) attraction of the port ; b ) the net income of the port.

Emerging growing of the GMB ports during thelast decennary in footings of capacity creative activity and speedy lading handling has posed a terrible competition to Kandla Port. Further, duty of the State owned ports are non capable to blessing of any Tariff Regulatory Authority like Major Ports and therefore really flexible and attractive.

With this background, thefollowing recommendations are made to increase the attraction every bit good asprofit of the port by the cost control and cost decrease steps:

  1. Port should believe ofworkingon the ‘normative costing ‘ principlewhere by standard costs and standard tariffscan be derived which could be bench-marked for pitchingthe right existent duties for each sub-activity and chief activity. This will give a rigorous control over inefficiencies and therefore will assist to cut down the duty.
  2. Attempts are required to be concentrated in the countries where the possible nest eggs are likely to bemaximum.
  3. Execution of the cost effectual systems will decidedly assist the port to get the better of the redundant costs. Developing ‘satellite ‘ ports at new location with slimstrength of man-power and cost-efficient systems can besides be thought of by the port. Best solutions in footings of doing a larboard cost-efficient and pulling traffic is to develop the terminuss under public-private participationmodel wherein the hazards are optimally shared/distributed and costs are brought down witha right blend of public direction and private direction.
  4. Port, by taking up assorted productiveness steps and specifically adding substructure, can cut down the bend around clip of the ships and acquire benefitted by adjustment of the big no. of vass. This will increase traffic at the port and therefore through the economic systems of graduated table the monetary value at the port gets reduced. Of class, coefficient of snap of duty on traffic is to be found out to find to what extent the duty is to be reduced. ( Generally ports in India are in oligopoly market and coefficient of snap of duty on traffic is less than one )

For cost decrease and adding substructure, Kandla Port has to work on the assorted countries such as monolithic mechanisation through high capacity Cranes, Marine unloaders, transfer nomadic equipments and commissioning ofspecialized terminuss such as coal terminus, auto terminus, container terminal etc. for rapid handling of the lading. Increase in the capacity of the port is desperately required as the position tenancy at the port is 89 % ( Ministry of Shipping, India web site ) which is much on the higher side impacting the bend around clip of the ship which is about 3.09 yearss ( KPT website ) . Though Port has prepared dredging program, it is required to cut down the clip span so that larger vass get accommodated within a short period. Port requires to work on procedural holds and believing on modernizationin footings of ‘modern Gate-in & A ; Gate-out systems ‘ and web-based port community systems etc. , in order to cut down dealing clip and cost.

  1. Port can besides take up the value adding services and ‘door-to-door solutions ‘ tobuild -up confined customer/clientele base.


Pricing plays a outstanding function in any organisation. It is one of the finding factors to bring the traffic at the port. As it is said that monetary value makes and monetary value makes, Port has to take into considerations holistic position before taking any pricing determination.


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