The Hindu Business Line : Port constraints inflate freight bills of oil cos

Shortcomings in port infrastructure in India continue to shore up the crude and product transportation bills of domestic oil companies. With export and import of crude and petroleum products slated to further rise in the coming years, oil companies feel that Indian ports, as well as the shipping industry, should gear up to meet the growth in demand.

Representatives of oil companies highlighted this need at the just concluded two-day India Maritime Summit, organised by the CII, in Mumbai.

The biggest constraint is the draft limitations at ports, compelling oil companies to settle for dead freighting or lighterage (mid-sea ship-to-ship transfer of products to lighten the load of the mother vessel). This being a costly proposition, oil companies have to cough out inflated freight bills, reducing their competitiveness.

"Most of our major ports are old and do not have adequate draft for large size crude and product tankers. Indian ports need to develop deeper drafts and provide land for tankage at confessional rates and reduce the cost of operations," Mr A.B. Sathe, HPCL's Executive Director (International Trade and Supplies), pointed out in a presentation.

HPCL transports its crude on Indian-flagged vessels to the extent of 58 per cent (5.8 million tonnes) and 42 per cent (4.2 million tonnes) through foreign bottoms, while for products it entirely depends on foreign flag vessels.

The oil industry estimates that India's crude oil requirement would touch 148.5 million tonnes by 2007-08, out of which about 117 million tonnes would have to be imported. By 2010-11, the requirement would bloat up to 211 million tonnes.

Most of the ports that handle crude and petroleum products face constraints. For example, it has been pointed out that in Mumbai port, the permissible draft for crude tankers is 12.2 mts, while a fully loaded Suezmax tanker has a draft of 17 mts. At this port, oil companies have to incur an additional cost of $9 million per annum on account of dead-freight (lighterage). Similarly, an additional cost of about Rs 5.77 crore per annum is spent on account of dead-freighting for product tankers, due to the same reason.

As far as Vizag port on the east coast is concerned, fully loaded Suezmax tankers can be berthed during day only, with the additional cost due to non-availability of night navigation working out to $0.54 million per annum, Mr. Sathe pointed out.

Berthing delay

Delay in berthing at most ports is also causing concern for the oil companies. The delay in berthing ranges from 1-2 days at Kandla to 3-5 days at Haldia/Budge Budge, it was pointed out.

Mr C.K. Sengupta, BPCL's Executive Director (International Trade), said that the freight exposure of petroleum sector in India exceeded Rs 3,500 crore, with the freight market being highly volatile.

One way to handle freight risk management is the FFA (Forward Freight Agreement) route, which is a swap or contract for differences traded over the counter, priced against specific routes and settled at the end of the month. "FFA enables owners and charterers to hedge against freight market risk," pointed out Mr Sengupta.

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