Reduction of own costs is a key to competitive advantage of the port operator – Brooklyn-Kiev
Since the beginning of 2017, transshipment of grain cargoes by the port terminals demonstrated a constant reduction of rates. A surplus of the shipment capacities became the main reason for such development, due to the boom in construction of new terminals for 2 recent years. But the marginality of any business has its limits. Even in terms of fierce competition, the price shall not fall below a certain level, which is formed by its prime cost. The First Deputy General Director on business processes of the company Brooklyn-Kiev, Elena Alieva told APK-Inform journalists about the main components of the prime cost of transshipment services of grain terminals and possibilities of reduction of the shipment rates.
- Elena, would You tell us the history of the terminal development, what successes did Your company achieve?
Brooklyn-Kiev LLC is a stevedoring company which has been working in renting relationship with SE Odessa Commercial Sea Port since 2003. Taking into account the functional and physical obsolescence of the port facilities, it is necessary to create modern transshipping complexes to increase the turnover rates and capture new customers. Such complexes will use energy-efficiency technologies, provide environmental safety, meet the international labour protection requirements, etc. It is the main reason of investments by our company, which is not only own development, but also development of the infrastructure of the Odessa port, in combination with creation of modern transshipment terminals for various types of cargoes.
Construction of the grain shipment complex UkrElevatorProm in 2003 is the first example of such work, with the simultaneous storage capacities at 240 thsd tonnes of grain cargoes. The famous company Toepfer became our partner in realization of the project. The cargo turnover of the terminal totals 3 mln tonnes per a marketing season.
Another large-scale project of our company is construction of a transshipment grain complex in the rear of the berth 1-z nearby the Androsovsky pier of the Odessa port, which realization began in November 2012. The project cost totals 103.8 mln USD. The European Bank for Reconstruction and Development (EBRD) is financing construction works of the complex. The project includes five lines. The company Louis Dreyfus Company Suisse S.A. is the project partner.
To date, we have already realized and put into operation three lines of the complex. The simultaneous storage capacities total 175 thsd tonnes, which allows shipping nearly 220 thsd tonnes of grains per month, or 2.5 mln tonnes of grains per marketing season. After a complete realization of the project, the complex will be able to transship nearly 4.5 mln tonnes of grain cargoes per marketing season.
- What did caused the delay in commissioning of two remaining lines of the project?
Unfortunately, we can not complete the second part of the project, because it requires the construction of the berth 1-z by SE Ukrainian Sea Ports Authority (USPA), with the depth of adjacent waters at 13.5 m, which is not finished yet. But we still continue actively working for the third year, and gradually put into operation our shipment capacities. So, in 2016/17 MY we shipped 1.86 mln tonnes of grain cargoes.
- Your company shows high results and remains competitive. How has competition fight in the sphere of port terminals changed?
All specialized information sources already widely highlighted the issue of number of constructed grain port terminals, as well as number of the terminals which are in the phase of completion of construction, and the terminals to be constructed only. Even 3 years ago, there was a significant deficit of grain terminal capacities in the deep-water Black Sea ports. But taking into account the construction rates of grain terminals in the ports, we can forecast the gradual movement of the market to the stage of surplus.
According to experts, the harvest volumes of 2017 are expected at the level of 62 mln tonnes, while the export potential – 40 mln tonnes. At the same time, the general transshipment capacities in the deep-sea ports of Ukraine total nearly 45 mln tonnes of grains, therefore the supply already exceeds the demand. It is one of the fundamental reasons of formation of reduction of rates on grain cargoes transshipment in the ports.
The competition already significantly intensified, and in the future we can expect for even more toughening struggle for the client.
- What does form the competitiveness of the terminal, and what allows Your company to remain competitive in such tough market fight?
There are several components of the terminal's competitiveness. It is both the shipment rate and the speed of vessel loading, and provision of the qualitative safety of cargoes. Everyone knows that any grain cargo is a fragile cargo. They require very careful treatment during shipment operations, and attention during storage. Therefore, the terminal requires establishment of modern technologies, provision of services for cargo treatment, optimization of cargo logistics, etc.
In our grain shipment terminal Brooklyn-Kiev, we optimized the logistics and started applying the simultaneous loading of accumulated volumes to vessels from silos, as well as partial loading of vessels, bypassing silos, to keep grains in good condition. It allows to reduce breakage of grains to 5%, and equipping of the laboratory with modern equipment, and highly skilled staff, allow accumulating high-quality grains by its selection from the general mass at the stage of grain acceptance.
And the third main component of the terminal's competitiveness is its rate, which directly depends on the prime cost. Our grain shipment terminal was built taking into account the components of prime cost and possibilities of further cost minimization.
- Elena, would You tell us about the main components of the grain rates at terminals, how does it form?
The issue of rates formation in any grain terminal is quite sensitive, but the main components of prime cost of any services are rather standard. As for our grain terminal, operating in terms of renting relationship with SE Odessa Commercial Sea Port and the USPA, the key costs for grain cargo shipment can be divided into two parts.
The first is the obligatory payments to the port and the USPA, because the terminal is located at their territory. The costs include payments of the port operator's access to the berth, the usage of rail cars (their supply and cleaning), electric power, water supply and drainage. Generally, in the prime cost structure of our services the reporting part totals nearly 31%. It is necessary to add the expenses on renting of the real estate of the port, land tax compensation, and mandatory insurance. If one adds all above-mentioned components, they will form the costs of more than 50% of the rate.
The second part of the prime cost is formed by the expenses of the enterprise, which includes
- transportation and forwarding services, which in fact take the minimum share in the general structure of expenses;
- direct expenses of the grain shipment terminal. Generally, they cover nearly 70% – costs for electric power, maintenance works and management of the elevator;
- other operational expenditures.
The last ones form nearly 47% of the general expenses in the structure of the services prime costs.
- Do operators have an opportunity to reduce the prime cost of their services and propose more favorable rates to its customers?
If ones analyzes the above mentioned cost items in terms of their possible reduction, then the terminal can not influence at the level of major components.
Power energy charges is the first article, which plays a key role in formation of the prime costs of services of the port operator, and it is impossible to change the charges.
Also, the rent payment is the second key article, which forms the prime cost of services of the grain terminal, and which the enterprise can not influence.
Payments of to the administration of a certain seaport and the USPA is the third article of the costs, which is not influenced by the operator. The share exceeds 30% of the prime costs.
The basic components of the prime cost of services of port terminals are not subject to the operator. At the same time, the market dictates its terms, and we have to constantly reduce the tariffs. In addition, in future the competition between the port operators will continue intensifying, which is confirmed by the export forecasts and the current transshipment capacities, as well as new projects planned for the nearest future (3-4 years).
- It turns out that the operators do not have an opportunity to reduce the costs of services and propose more favorable conditions their customers, or what?
We cannot say that there is no such opportunity. As for the tax burden, high energy rates, etc., the terminal can increase the transshipment volumes and increase the base for distribution of the permanent components of its costs. But there are some nuances, not everything depends on the efficiency of the operator. The situation with our project on construction of the transshipment grain complex in the rear of the berth 1-z nearby the Androsovsky pier of the Odessa port is a direct confirmation of the fact. If the port administration had completed the construction of the berth with the depth of 13.5 m, we would have started realizing transshipment of large-tonnage vessels of Panamax type, and already reached the turnover of 4-4.5 mln tonnes. As a result, we would have revised our tariff policy and proposed more favorable terms of cooperation.
Interviewed by Constantine Zejkin, magazine "Grain storage and processing"
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