From owning rail rakes and laying slurry pipelines to building greenfield ports, Tata Steel — the country’s oldest steel producer — is leaving no stone unturned to lower its logistics cost and make more competitively priced products.
With a total investment of close to Rs 5,000 crore, the company has drawn up a plan to lower its logistics cost in a phased manner. “The immediate plan is to own eight to nine rail rakes. This will be done in the next one year through Tata Martrade International Logistics (TMILL), our subsidiary,” T V Narendran, chief executive officer and managing director, Tata Steel, told Business Standard.
TMILL is a joint venture of Tata Steel, NYK Holding (Europe) BV, and Germany-based IQ Martrade Holding und Managementgesellschaft mbH. “It is not just about lowering logistics cost, but also about assuring reliable supplies,” said Narendran.
“Poor consistency in logistics leads to more inventory, which reflects in inventory-carrying cost and working capital rather than the cost of transportation. So the logistics parameter has an impact over other cost areas. Therefore, the effort is to smoothen logistics for the business,” added Narendran.
Of the total cost of Rs 70,000 per annum that the company incurs, Tata Steel’s logistics cost comprises 15 per cent. Apart from owning rakes via the arm, the steel producer will be building slurry pipelines from its mining locations to its steel plants to carry the raw material.
Tata Steel has mines in Jharkhand and Odisha, which supply iron ore to its plants in Kalinganagar and Angul in Odisha and Jamshedpur in Jharkhand. Tata Steel has a total capacity of 29 million tonnes (mt), of which its India operations are 19 mt.
At present, Tata Steel has no slurry pipelines, while its peer Essar Steel runs a 253-km slurry pipeline in Odisha, which carries ore from the mines to the port location.
Sajjan Jindal-led JSW Steel is also constructing a Rs 2,100-crore slurry pipeline project to transport iron ore and coal at competitive prices in Karnataka.
On the port front, Tata Steel has a detailed plan in place, where it is looking to build a greenfield port on the Subarnarekha river in Odisha, make use of its offtake agreement at Dhamra, and also invest in building a berth at the state-owned Paradip Port.
There is plan to ship 10-mt steel from each of the three port facilities, said Narendran.
Once owned jointly by L&T and Tata Steel, Dhamra Port was sold to the Adani Group in 2014. However, Tata Steel’s offtake agreement for Dharma is still in place.
The steel player had invested in the port facility to help it ship products from its plant in Kalinganagar. However, in a bid to cut its huge debt burden due to large borrowings after the acquisition of Corus in Europe, Tata Steel had to sell assets to reduce debt. Dhamra Port sell-off was one such asset.
“Currently, the land is being acquired for the Subarnarekha port, where we (Tata Steel) are in partnership and will develop the port, which will also be available for third-party cargo,” informed Narendran. “This port will cater to only the Jamshedpur plant of Tata Steel and nearby cargo as part of third party,” he explained.
JSW Steel and Essar Steel already have their port facilities in place at Jaigarh (Maharashtra) and Hazira (Gujarat), respectively.
“Since Tata Steel’s capacity has gone up significantly in the last three years and is expected to move up in the coming years, the company will have to invest sizeably towards logistics. It’s a timely move,” said Hitesh Avachat, group head-corporate ratings at CARE Ratings.