Santanu Sanyal

Paradip port... High inland transportation and port handling costs hinder iron ore exports.

A FEW weeks back, iron ore exporters, particularly those located in eastern region and routing their shipments through the ports of Haldia and Paradip, had a difficult time with fewer rakes being available for transportation of the mineral from the mines. In fact, the non-availability of sufficient rakes for exports was the last in the series of developments that hindered iron ore exports through these ports.

First, road-bridging — movement of ore by road from the pithead to nearest railhead — was hit because of the agitation in the mine areas following Kalinga Nagar firing in the first week of January. Second, there were accidents causing dislocation in normal rail movement and, finally, the decision of the zonal railways to cut down on the wagon allotment for iron ore exports.

The decision, it was reported, was taken at the behest of the Rail Board, which had no other option but to order such cutback in the face of mounting pressure from the domestic secondary steel producers for allotment of more wagons to meet their ore demand.

The first two problems were contingencies while the third has almost become an annual feature. In the third and fourth quarters of every fiscal, the sponge iron and secondary steel producers, all in the private sector, pressure the Railways to allocate more wagons and the latter would often bow down to such pressures.

Interestingly, most of these steel producers do not have any railway siding nor are they keen to spend money on creation of rail infrastructure.

But, then, this is not the only problem facing the iron ore exporters from the eastern region. There are several others on the logistics and transportation front. High inland transportation and port handling costs and the not-so-competitive shipping freight render the Indian iron ore uncompetitive vis-a-vis that from Australia, Brazil and South Africa.

According to one estimate, the landed cost of per tonne of India's high-grade ore (65 per cent Fe) at a Chinese port is $65 compared to Brazil's $62.9 and Australia's $50.99 (63.5 per cent Fe). Although, location-wise, India is much closer to China compared to Australia, the shipping freight from Australia to a Chinese port is $10 per tonne compared to $13 per tonne from India to China.

The inland transportation and port handling cost, particularly in respect of Haldia and Paradip, presents a more dismal picture.

In Australia, the inland transportation and port handling cost is $2.27 per tonne, in Brazil it is even lower at $2.22 per tonne whereas at Paradip and Haldia, it is $27.5 per tonne. The Bailadila ore, transported through the Visakhapatnam port, however, has a lower cost at $12.3 per tonne. It may be noted that the three east coast ports account for nearly 22 per cent of the country's total iron ore exports of about 78 million tonnes (2004-05), likely to be up by another 10/12 mt this fiscal.

Road bottlenecks: An estimated eight to 10 mt of iron ore for exports are transported by road from the mines to Haldia and Paradip ports, out of a total shipment of about 14/15 mt through these ports and, yet, the condition of the roads connecting the ports with the mine areas beggars description. As a result, the cycle time is high.

According to one estimate, to cover a distance of 325 km to Paradip port, the cycle time is often as high as seven/eight days. Next, the restriction on overloading has pushed up the cost in the sense that for transportation of the same volume of goods, more trucks are now required and, therefore, more time.

Earlier, a nine-tonne truck used to load 22 tonnes; such overloading is not allowed anymore.

The cartel formed by the transporters association too is proving to be a major hindrance. First, the members would not allow new operators to come in. Worse, they would suspend movement from time to time on one pretext or another.

Thus, in January, there was total suspension of road movement to Haldia/Paradip for nearly two weeks; between October and December last year, the road movement to Haldia remained suspended for 50 days and between May and July last year to Paradip for 60 days. The transporters also charge abnormally high freight. For example, for covering a distance of 325 km to Paradip, they charge Rs 1,550 per tonne — almost four times the rail freight.

Railway bottlenecks: The list of woes is fairly long: A large number of indents are pending for periods ranging from six to 18 months, the line capacity in the mine area is extremely limited and there is preferential allotment in rake allotment — first priority is given to committed block traffic, commonly known as CBT, then integrated steel plants, followed by domestic sponge iron producers and, finally, exporters. In other words, the exporters get the lowest priority.

The transportation to Paradip is undertaken though a circuitous route covering a distance of 665 km. The Keonjhar and Nayagarh sidings have not been in operation for a long time due to local agitation. In case of sidings at Tomca, Nirgundi, Sambalpur and Hirakund, the road-bridging is more, entailing longer transportation by rail-road and, therefore, a higher logistics cost, as high as $28 per tonne.

Port bottlenecks: Neither Haldia nor Paradip can handle Capesize vessels (capacity upwards of 125,000 dwt). The poor navigability of the Hooghly river forces Haldia to handle vessels with an average parcel load of 25,000-30,000 tonnes.

At Paradip, the situation is slightly better as the port can handle Panamax vessels (capacity 65,000 tonnes) with full load.

But the advantages of handling Capesize vessels are not available to these ports. Visakhapatnam port can handle Capesize vessels but the huge inland transportation cost incurred for transportation of the mineral over a distance of 800 km negate the advantages.

Also, in all these ports, the berth capacity is limited entailing higher pre-berthing detention; the level of mechanisation is inadequate and, capping it all, rail-road connectivity far from satisfactory.

All thee factors have become crucial for iron ore exporters from the east, more so because their profit margin is now under pressure due to the drop in international prices of the ore — from $74 per tonne (FOB) to $52 per tonne in past 10 months and the virtual disappearance of the premium in spot market sale.

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