MUMBAI : Jindal Steel and Power (JSPL) emerging as the highest bidder for developing the western dock of Paradip Port would mark the firm’s foray into the ports and shipping sector. The move is akin to that of other steel manufacturers who are betting big on captive ports and shipping to reduce logistics costs.
The Naveen Jindal-led company’s Rs 2,392-crore bid following a tender floated by State-owned Paradip Port Authority to build a 25-million tonne (mt) capacity dry bulk cargo terminal at the western dock of the port was adjudged the winner. The company is now awaiting an official letter, which is expected anytime soon.
“Today, JSPL is exporting about 3 million tonne of goods from India every year, while our imports including coking coal, steel coal and limestone amount to about 8 million tonne. We move this 11 million tonne through six ports — Haldia, Dhamra, Paradip, Gopalpur, Visakhapatnam and Gangavaram — which is a mammoth logistics task,” JSPL Managing Director VR Sharma said.
“So, we decided to have our own port and jetty. This would help in easing our operations. Today we are producing 9 million tonne, which will rise to 15 million by in 2025,” he added.
Following the development of the port, the company would “save a lot” on freight rates and time as Paradip Port is close to its Angul and Raigarh plants.
According to an analyst tracking the sector, JSPL’s move would help it synergise port operations with its manufacturing facilities, apart from the cost savings that include transportation charges. Steel firms without presence in ports, through group companies, would also look at making similar investments in the near future.
JSW Steel, the flagship company of industrialist Sajjan Jindal-controlled diversified JSW Group, also has a similar strategy.
To reduce logistics cost for JSW Steel, the group had set up port operation through JSW Infrastructure, which is now ranked among the top five port companies in the country. It operates seven port facilities across the eastern, western and southern regions.
JSW Steel moves nearly 4 tonne of inputs — coking coal, iron ore, thermal coal and limestone, among others — to produce one tonne of steel.
“By setting up our own shipping and logistics system we were able to bring down cost by 20-30%. This model is giving us a good advantage, and inland shipping would be the model for moving goods within the country,” JSW Steel joint MD & group chief financial officer Seshagiri Rao MVS said.
At present, JSW Infrastructure owns 110 mt of cargo handling capacity across ports including Jaigarh Port (Maharashtra), Dharamtar, Goa and Paradip. About 60% of this capacity is utilised by JSW Steel and JSW Energy, and the balance 40% is serviced by third-party customers.
The company uses barges for inland transportation such as moving goods from Paradip to Jaigarh. JSW Infrastructure used to take barges on rent, and now has begun procuring its own barges to further reduce logistics costs, Rao added.
According to Sumangal Nevatia, Senior Vice-President at Kotak Securities: “These companies have attractive expansion opportunities in steel and for steel-making they need to import a lot of raw materials including coking coal. At the same time these companies are also looking to expand their flat products portfolio, which have very strong export opportunities”.