As the largest producer of Aluminium in India, Vedanta exports Aluminium to over 50 countries across the six habitable continents. The freight however is different for each country from India, with highest freight being to the USA and the lowest to the Asian countries like Vietnam & Malaysia. The efforts of logistics teams go towards optimizing the total logistics cost, which is directly affecting the company’s premiums with the destinations and orders brought in by marketing team. Here’s an account of the team’s innovative strategy at play, which helped them identify the most feasible port to bring the vessels and minimize leakages as well as optimize total landed cost.
As one of the largest Manufacturing plants & Exporters in India, Vedanta requires raw materials in the similar scale as which they produce Aluminium. The major raw materials for Aluminium production are Coal & Alumina. For Alumina specifically, the company has acquired Lanjigarh Alumina refinery to cater to its raw material requirement. But the production Alumina from our refinery is not yet completely operational and they are required to import Alumina from multiple countries. “We are importing Alumina on a quantum of over 1.5 million Metric Tonnes. The problem that we are facing for importing the same, is to plan out our imports considering all the variables like plant stock, port stock, Material available from local sources & port berth availability along with the cost implications. Given our plant location based towards the eastern side of the country, we have ports on Eastern Coast Line like Paradip, Gangavaram, Vizag, Kakinada etc., The selection of the port of discharge is the point to contend with which would be the most financially feasible for us, considering transportation costs and leakages involved,” highlighted Ashish Khilnani, Head Logistics, Vedanta Ltd.
The logistics team deals with multiple liners daily, negotiating & finalizing contracts to reduce the costs along with execution of the agreed volumes through the liners & vessels. One example of this is when the execution is towards European or Latin American destinations, the company prefers to do the shipments through bulk mode directly chartering vessel instead of container mode & liners, which directly impacts the financials of the company. “Our logistics cost numbers are always the best amongst the peers dealing in similar destinations. Even in market outlook suggesting the costs increasing in FY’23, our Q3 Cost is 56% lesser than that of Q1. We have reduced the costs dealing through long-term contracts & Spot contracts,” informed Ashish Khilnani.
CHALLENGES
The first challenge faced was the selection of port of discharge for Alumina shipments. For bringing in shipments, the company is already using Kakinada and Gangavaram ports. Gangavaram port is the financially efficient port given the sea freight is lesser than that of Gangavaram port. So, they are using Kakinada port predominantly for berthing or chartered vessels carrying alumina. But that they are incurring leakages in the form of demurrage at the port. “When we bring a vessel at a given berth in a port, the vessel must arrive within a given period and unloading happens as per the contract. If the vessel gets delayed and unloading does not complete within the stipulated time frame as per contract, we incur demurrage to the vessel owner. This delay will then in turn rub off on the next 3 or 4 vessels that are planned after the delayed vessel to bring the timeline back to the planned one. Since we are importing such huge volumes, we are planning vessels continuously one after other. But another issue that has to be addressed is the total landed cost, which is still lower in the case of Kakinada port than that of Gangavaram, even when all the leakages are considered,” stated Ashish Khilnani.
APPROACH & METHODOLOGY
Vedanta team was looking to identify the most feasible port for it to bring the vessel to minimize leakages as well as optimize total landed cost. “The primary constraint we had was the operational capability at Kakinada port where we could not handle any more than four vessels in a month. Secondary constraint is the cost involved in bringing the alumina to the port of discharge and then from port to plant. With these two primary constraints, we have looked at the feasibility of using Gangavaram port for more vessels, we are already bringing at least one vessel a month, but that solution was not financially viable. Then we started looking at bringing the vessel to alternate ports. Paradip, Gopalpur are the options in front of us given the locational advantage the two ports provide being in the same Odisha state as our plant. We have considered the secondary constraint for both the ports where cost of bringing the vessel and then the material from port to plant. Upon the feasibility study, we understood that Gopalpur is both operationally and financially viable than Paradip. But then the infrastructure is not completely ready with Gopalpur port. We had prepared a makeshift Alumina storage shed and taken the necessary approvals for movement of Alumina to plant,” informed Ashish Khilnani.
OUTCOME
After the feasibility studies, the team identified Gopalpur port as a suitable port from where they can bring Alumina vessels to berth. But there was pertinent issue of infrastructure not completely ready with Gopalpur port to handle volume of alumina. Unloading could be carried out, but the storage was an issue. The team had prepared a makeshift storage shed and planned the vessel to be brought to Gopalpur port. The Vessel berthed and they could unload the first vessel at the port. The team successfully moved the material by road from the port and that too without incurring any demurrages. Looking at the promising result, next month the team brought in another vessel at Gopalpur port, after having taken all the necessary approvals for movement of material through rail. “We had moved our material on our BTAP without any demurrages. We are planning one rake to Gopalpur and reducing the load on Kakinada port so that the operational ease is improved. We are using synergies through three ports for our Alumina imports. Until our refinery in Lanjigarh becomes completely active and capable of catering to 100% of our Alumina requirement, we can use these three ports to optimize our supply chain network,” mentioned Ashish Khilnani.
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