Erasmus University Rotterdam MSc in Maritime Economics and Logistics 2009/2010 Optimizing and implementing Vessel arrival system for Coal vessels at Port of Paradip by Saurabh Bali Copyright © MSc Maritime Economics & Logistics Acknowledgement This Thesis has been one of the most significant and important academic challenge & experience for me. I would like to express my heartfelt thanks to all the people who provided guidance and support to me throughout my research and I am greatly appreciative to all of them for their patience and understanding throughout the time to complete and write the dissertation. I would like to express my deepest gratitude to Mr. Girish Gujar for his supervision and continuous guidance, without his support this study would not have completed successfully. His wisdom, commitment and knowledge to the highest standard inspired and motivated me and he had confidence in me and brought out the good ideas in me. I sincerely and very appreciatively extend my gratitude to MEL Director Prof Dr. Hercules Haralambides for providing the wonderful opportunity of being part of MEL and imparting his outstanding knowledge, skills and guidance in the course. Also I am indebted and grateful to all professors at MEL and business executives of MEL corporate network for their precious lectures which contributed greatly to my professional background. Anu, my wife & Arnav my son without them this effort would have no meaning. Their understanding, constant support, patience and profound love made this task progress successfully and worthwhile. Also my parents, who always supported, encouraged and believed in me and lovingly cared for me their sacrifices can never be overlooked. Lastly a special thanks to all my friends, colleagues and individuals who supported and appreciated my efforts always and spent wonderful times together. I Abstract The objective of this paper is to implement a Vessel arrival system for a major Indian port “Paradip” for minimizing waiting time of Coal vessels and reduce vessel operation and demurrage costs. As a result this will improve supply chain efficiency of coal transport. This study is carried out due to recent huge congestions observed at Port of Paradip due to surge in coal demand particularly for Power sector in India and due to lack of adequate handling facilities & productivity of ports in India. Moreover congestion in port attributes to fleet of vessels being held in port which means less utilization of vessels and as a result loss of earnings & demurrage costs. The method applied here requires adjustment of vessel’s speed to most economical speed for a targeted ETA in agreement with all concerned parties, matched with a berthing time of the vessel so as to minimize waiting period at anchorage prior berthing and cargo operations. While proceeding at slow speeds vessel save a lot in terms of fuel consumption and demurrage costs incurred. The factors which influence the decision of adjusting speed have been taken as independent variable with respect to speed and a multiple regression model is developed to see positive correlation of these factors with speed. For evaluation of cost saved another model under optimization process gives a function of speed. Results of cost savings is shown with economical speeds applied on actual case scenarios of vessels called at Paradip port. Apart from this analysis other inefficiencies and causes of demurrage costs incurred in supply chain have been discussed with possible solutions. However these solutions have been noted to be of long term planning and execution hence Vessel arrival system can be contributed as an only immediate solution to reduce waiting times and resulting cost savings which improve efficiency as well as profitability of supply chain of coal transport in Indian port of Paradip. II Table of contents Acknowledgement ............................................................................................................... I Abstract ................................................................................................................................. II Table of contents ................................................................................................................ III List of Tables ........................................................................................................................ V List of Figures ...................................................................................................................... V List of abbreviations ........................................................................................................ VIII Chapter 1 Introduction to Thesis .................................................................................... 1 1.1 Introduction ............................................................................................................. 1 1.2 Paradip at a Glance .............................................................................................. 1 1.3 Research Questions ............................................................................................. 3 1.4 Status of Study ....................................................................................................... 4 1.5 Thesis Structure ..................................................................................................... 5 Chapter 2 A Global Overview of Coal & its supply chain at Paradip ..................... 6 2.1 Coal Situation Overview - World .............................................................................. 6 2.2 Coal Situation Overview - India ................................................................................ 9 2.3 Role of Coal supply chain in Paradip ..................................................................... 10 Chapter 3 Literature Review ........................................................................................... 12 3.1 Literature on Vessel Arrival System Implementation .......................................... 12 3.2 Literature on Berth Allocation and scheduling problem ...................................... 12 3.3 Literature on service time and delay time objective ............................................ 13 3.4 Literature on solving scheduling & Cargo routing problem simultaneously ..... 14 3.5 Literature on Tanker Vessel scheduling problem ................................................ 14 3.6 Literature on Bulk carrier Vessel arrival & Queuing problem ............................. 14 3.7 Literature on Ship arrival time distribution & queuing theory applications ....... 15 3.8 Literature Optimum capacity of a port applying queuing theory ....................... 15 3.9 Literature on Vessel arrival planning strategies using simulation .................... 16 3.10 Literature on Demurrage reduction in hinterland transport of Coal ............... 16 3.11 Literature on congestion problems at Paradip ................................................... 17 3.11.1 Lack of berthing capacity ............................................................................... 17 III 3.11.2 Shortage of manpower & Lack of mechanical equipments ...................... 17 3.11.3 Scarcity of Railway rakes ............................................................................... 18 3.11.4 Accumulated stock .......................................................................................... 18 3.11.5 Delayed Projects ............................................................................................. 19 3.11.6 Paradip port projects waiting for eco clearances ....................................... 20 3.12 Summary on Application of Literature findings .................................................. 20 Chapter 4 Research Methodology & stages of Vessel arrival system ................ 21 4.1 Paradip’s market share ............................................................................................ 21 4.2 Projected Growth of Coal at Paradip & Challenges ............................................ 22 4.3 Implementation of Vessel Arrival System ............................................................. 23 4.3.1 Stage 1 ................................................................................................................ 25 4.3.2 Stage 2 ................................................................................................................ 25 4.4 Strategic Factors of Implementation process ....................................................... 26 4.5 Operationalising the concept .................................................................................. 28 4.6 Commercial understanding of charter parties important clauses ...................... 29 4.6.1 Lay days& cancelling date ............................................................................... 29 4.6.2 Demurrage & Dispatch ..................................................................................... 29 4.6.3 Notice of readiness tendering terms ............................................................... 30 4.6.4 Delivery / Redelivery clauses and duration of time charter ......................... 30 4.7 Charter hire rates ...................................................................................................... 31 4.8 Coal Price................................................................................................................... 32 4.9 Coal Freight rates ..................................................................................................... 33 4.10 Bunker Prices .......................................................................................................... 34 4.11 Cargo handling at Paradip .................................................................................... 35 4.12 Cargo handling at major Indian ports .................................................................. 37 4.13 Average Demurrage costs .................................................................................... 38 4.14 Regression Analysis approach ............................................................................. 40 4.15 Modelling Approach for waiting line and Optimization ...................................... 43 Chapter 5 Analysis & Results ........................................................................................ 45 5.1 Applying Queuing model for ships arrival time and service times ..................... 45 5.3 Optimization of Vessel arrival time & evaluation of Optimal speed .................. 53 5.4 Application of optimal speed & evaluation of Vessel operation costs .............. 60 IV Chapter 6 Conclusions .................................................................................................... 62 6.1 Final interpretation of results ................................................................................... 63 6.2 Impact of Optimization of vessel arrival time and system .................................. 64 6.3 Commercial and standard safe working issues for vessel arrival system........ 65 Bibliography ....................................................................................................................... 69 Appendices ......................................................................................................................... 75 Appendix 1 Traffic Handled at Major Indian Ports ....................................................... 75 Appendix 2 Vessel Arrival System Process Flow Chart ........................................... 757 Appendix 3 Variable Data Table ..................................................................................... 75 Appendix 4 Evaluation of Vessel operation cost savings .......................................... 75 V List of Tables Table 1: Growth of seaborne trade of coal ….…………………………………..…….. 6 Table 2: World Coal Demand ………………………...…………………………………. 8 Table 3: Coking coal imports for major Indian ports ..……………………………….. 11 Table 4: Standard Charter party & commonly used Coal charter party forms ….... 30 Table 5: Baltic Dry Index Change ………………………………………………..….... 32 Table 6: Australian Coal price Index ………………………………………………….. 32 Table 7: Indonesian Coal price reference ……………………………………………. 33 Table 8: Panamax Average Freight rates …………………………………………..... 33 Table 9: Supramax Average Freight rates ….……………………………………….. 34 Table 10: Average Bunker price at Singapore ………………………………………. 35 Table 11: Daily Average Berth Productivity for coal cargoes ………………………. 36 Table 12: Average Annual growth rates of major Indian ports on east coast …..… 37 Table 13: Commodity wise projected traffic in major Indian ports for 2012 ………. 38 Table 14: Regression Analysis results ……………………………………..………… 42 Table 15: Annual number of vessels ……………………………………….………… 48 Table 16: Ship arrival distribution in an observed period …………………………… 49 Table 17: Ship service distribution in an observed period …………………..……… 49 Table 18: Poisson arrival distribution results ………………………………………… 50 Table 19: Erlang distribution model results ………………………………………..… 51 Table 20: Arrival rate & Expected number of days …….……………………….….... 52 Table 21: Service rate & Expected number of days ……………………………….... 53 VI List of Figures Figure1: Paradip – Coal Vessels congestion index …..………..…………………….. 3 Figure 2: World Primary Energy Supply by Fuel-2007 ……………………………..... 7 Figure 3: Electricity generation by fuel 1973 & 2007 ………………………………… 8 Figure 4: Electricity generation by Fuel in India ……………………………………... 10 Figure 5: Market share of Major ports in India for handling coal ……….………….. 21 Figure 6: Paradip Port Trust (PPT) Coal demand projection ………………………. 22 Figure 7: Charter Hire rates …………………………………………………………… 31 Figure 8: Singapore - Bunker Prices …………………………………………………. 34 Figure 9: Paradip – Traffic handled in last 5 years ……..…………………………… 35 Figure 10: Paradip – Commodity wise cargo volumes ……………………………... 36 Figure 11: Principal commodity wise cargo handled at Indian major ports ………. 37 Figure 12: Demurrage costs in a coal supply chain ………………………………… 40 Figure 13: Probability Distribution number of customers ….…………………..….... 51 Figure 14: Waiting time distribution …………………………………………………... 52 VII List of abbreviations AMWELSH Americanised Welsh Coal Charter Party Form (BIMCO-1993) BARECON General Bareboat Charter Party Form (BIMCO-1974) BDI Baltic Dry Index BIMCO The Baltic & International Maritime Council BOT Built-Operate-Transfer C/P Charter Party CEC Central Electricity Company DSOL Distributed Simulation Object Library (A Java based library) DWT Dead Weight Tonne ECI East Coast India ETA Estimated Time of Arrival GENCON General Charter Party Form (BIMCO) GENTIME General Time Charter Party Form (BIMCO-1999) HVCCLT Hunter Valley Coal Chain Logistics Team ( Australia) IEA International Energy Agency IFO Intermediate heavy Fuel Oil IMF International Monetary Fund INMAR SAT-C International Maritime Satellite Aided Tracking- Standard C KPMG Klynveld Peat Marwick Goerdeler (A Global audit, Tax service & Advisory company) LP Linear Programming MCR Maximum Continuous Rating MDO Marine Diesel Oil MEL Centre for Maritime Economics and Logistics MIP Mixed Integer Programming VIII MT Metric Tonne Mt Million tonnes OECD Organisation for Economic Co-operation and Development OR Operational Research PDPR Per Day Pro Rata POLCOAL-VOY Polish Coal Voyage Charter Form (BIMCO-1997) PPT Paradip Port Trust PWCS Port Waratah Coal Services PWWD Per Weather Working Day UNCTAD United Nations Conference on trade & Development WW SHEX Weather Working days Sundays & Holidays Excepted IX