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Cost-based pricing to capture more cargo owners to India's Krishnapatnam port

INDIA's privately built port of Krishnapatnam in Andhra's Nellore district raised its market share to seven per cent in FY17 from four per cent in FY16. The success of the Navayuga Engineering-operated terminal is partly due to its aggressive marketing strategy to inform cargo owners that it is offering cost-based pricing.

"Cargo in Andhra-Telangana and north and east Karnataka which is currently going to other ports (like Chennai) have an instant cost advantage on distance if they switch to Krishnapatnam. So, the first leg of our marketing strategy is to bring this to the notice of cargo owners of this region," director at the port's container terminal, Vinita Venkatesh, told Delhi's Business Standard.

During FY15-17, the throughput of container ports on the east coast has moved in a narrow range of 3.1-3.9 million TEU, with utilisation at 42-48 per cent. Krishnapatnam saw port utilisation of 21 per cent in FY17 and is expected to see 45-50 per cent this year.

"We are aiming to hit 500,000 TEU this year from 255,436 TEU last year, a doubling of cargo," said director and chief executive officer, Anil Yendluri.

The company is offering a price which is a sizable discount to others in the region. "Our pricing is cost-based, not market-based. Since we have our own infrastructure from warehousing, transportation and customs licences, our price model is connected to the cost we incur, not demand and supply.

"The idea is to offer a price point which is commercially and economically rational for cargo owners to consider us," Mr Venkatesh explained, without divulging discount details. "Our price offerings are helping customers bring down their total logistics cost by 30 per cent."

It is also looking at drawing in large shipping lines, which typically prefer large city-connected ports. And, looking for new types of cargo - it has brought in cement, cotton yarn and shrimp.

"With the kind of cost-based pricing Krishnapatnam is providing, its profitability could be lower but sustainability would be higher, despite the heavy discounts it is offering as compared to its competitors," said manager of port & container research at Drewry Shipping Consultants, Subrata Behera.

Chennai, being a major port, has its pricing based on the Tariff Authority for Major Ports (TAMP) regulations, and does not enjoy the flexibility a private port does, added industry experts.