Port Material Handling Equipment Renting

Port Material Handling
Equipment Renting Company

Feasibility Report
August 2012

EMERGING KERALA 2012
DEPARTMENT OF PORTS, GOVERNMENT OF KERALA
KITCO LTD., PB NO 1820, RAVIPURAM, MG ROAD, COCHIN,
KERALA, INDIA-682016

Department of Ports, Government of Kerala
Port Material Handling Equipment Renting Company
Feasibility Report, August 2012
1

Contents

1. Summary .................................................................................................................. 3
2. Customer requirement.............................................................................................. 5
3. Growth drivers ......................................................................................................... 7
4. Focus and strategy ................................................................................................... 8
5. Current lease rates .................................................................................................. 10
6. Capex and Yield potential in Y1 ........................................................................... 10
8. Feasibility ............................................................................................................... 11
9. Target Hire rates .................................................................................................... 12
Annexure I Equipment Photographs ............................................................................ 14
Bibliography ................................................................................................................. 15

2

Executive Summary
Name of Project
Port material handling equipment renting
company
Project Details
Numerous port projects are under evaluation and
development in the state government administered
minor ports of Kerala. This is expected to lead to a
large increase in demand for material handling
equipment at the ports. While the fixed handling
infrastructure and quayside cranes will be part of the
ports inventory, demand will arise for portable
material handling equipment i.e forklifts, mobile
cranes for yard operations, etc. Many port operators
with low utilization levels will prefer to rent such
equipment instead of purchasing. The renting
company shall consolidate the requirements from all
the players and hold appropriate inventory to meet
this demand.
Location
Initially Beypore, Azhikal and Kollam
Proposed Capacity
Availability of mobile cranes, forklifts and container
stackers as per emerging need at each port.
Period of
Implementation
12 months and expansion as per emerging port
activity levels.
Financials

a Investment
Overall budget of Rs.700 Lakhs for one location.
b
Revenue
streams
Equipment hire charges.
The hiring activity in minor port is nascent and hire
rates will emerge as per emerging supply demand
equations
c RoI
18 % Targeted
Benefits
Better turnaround and increased competitiveness
of the port Direct employment for renting
company

3

1. Summary
The cargo that moves from the factory or mines through the
logistics chain and further through intermodal transfers onward
to its destination is handled by material handling equipment such
as conveyers, gantries and quayside cranes that are rubber tyred
or rail mounted, mobile cranes, container stackers, forklifts etc.
The conveyer systems, the rail mounted cranes, and the rubber
tyred large gantries are normally part of the port infrastructure
from its initial development over its entire lifecycle. However the
mobile crane, forklifts, container stackers etc may not necessarily
belong to the port and are often brought by stevedores or
provided by renting companies. This sector provides a very vital
link in the logistics chain. Often this sector develops in pockets,
with demand driven growth and mostly in the unorganized
sector.
The current level of port activity outside of the major port of
Kochi is low. The non-major ports in the region and the inland
waterways are underutilized and consequently have a high
growth potential given the right socio economic conditions. The
state governments plan to boost the cargo activity in the non-
major ports spurs a large demand for these equipments in the
near future.
The scope of this proposed port material handling equipment
renting company is to own port material handling equipment for
renting out to the non-major ports in the state. This company
shall focus on the material handling equipment needs in the non-
major port. This company operates within the following
parameters:

4

The inventory shall consist of suitable mobile equipment such as
forklifts, mobile cranes, and container spreaders.
It will not include quayside cranes on rails, rubber tyred gantries
and conveyer systems, since these equipment are not freely
portable and are normally part of development plans of a berth
for its entire lifecycle.
The growth and viability of this company depends on the growth
of the non-major ports.
The burden of underutilization of resources is now on this
company and not the end user entity.
The equipment is being rented out and not leased, (leasing
broadly refers to a comparatively long term arrangement).
The inventory will have to be located close to each port to be
available for short hire periods at short notice. This also means,
the inventory is spread out near each non-major port and not
optimized for the combined demand.
It may be noted that port requires equipment that meets certain
specifications of vessel freeboard and ability to plumb to the
offshore side of the vessel. The equipment quoted here are not
specifically from port sector but also include general cargo
handling equipment. These are indicative costs to illustrate the
principle of target returns pegged to the capex on each
equipment. The specification of the equipment finally procured
will be ordered to meet the specific jetty freeboard and the vessel
size in each port or jetty.

5

2. Customer requirement
The client will seek reliable equipment. This is possible if the
renting company has a robust inspection regime, spares inventory
and preventive maintenance regime.
The ability of a service provider to provide equipment early in
case of unanticipated demand, replace equipment in case if a
malfunction and keep a low minimum hire period will be high on
the wish list of equipment user. This is possible for an operator
who has high volumes of demand and hence more resources to
manage any situation.
The client will also seek to hire the services of operators who are
trained in this operation, since end user may not retain operators
on its rolls.
The Market
The ICTT at Kochi which is aimed to be the container
transhipment port of India shall be a focal point for a range of
port based activity ranging from feeder vessel operations, port
based processing factories, movement through inland waterways
and container stuffing/de-stuffing activities. The need for cranes,
forklifts, container spreaders, etc are going to increase in the ICDs
in the years to come.
The demand in Kochi or in the ICDs are not within the purview of
this proposed company. The growth of ICTT shall spur the growth
of the non-major ports in the state and thereby the need for such
infrastructure.
There are many local players who hire out cranes and forklifts in
every district, including some who serve the port sector.

6

The ports where cargo activity is taking place are Beypore and
Kollam. As per earlier studies commissioned by the state
government, and the ongoing plans, the port of Azhikkal, Beypore
and Kollam shall see high growth trajectory.
Beypore: The cargo being handled at Beypore are tiles, marbles,
granites, soda ash, wheat, rubber, plywood and cattle feed The
port has handled 120,000 MT of cargo in 2011.
The port has plans for dredging to increase the available depths
from 3.5 m to 6 m. This will make it possible for container feeder
vessels to carry containers via the sea to ICTT. This will
necessitate for providing forklifts for moving empty containers,
and 50 MT crane with spreaders to move, load or and stack
loaded and empty containers.
Kollam: There is cashew processing and fish processing industry
in Kollam. The raw cashew import and processed cashew export
from/to ICTT happens by containers. This port will be an
important feeder port for ICTT since it is located towards south
providing a gateway for hinterland from Trivandrum to Kollam to
move cargo along the sea, subject to developmental plans at
Vizhinjam.
There are many fish processing factories in the vicinity that send
reefer containers to Kochi. This is a potential port to cater to.
Azhikkal: There are plans to increase the port activity.

7

3. Growth drivers
The market segments and the growth drivers of this segment in
this geography are:
a. For port cargo handling equipment the trend is towards
landlord port, where the project proponent only owns the
land and subcontracts the services to various players. The
project proponent is able to reduce his capex by bringing in
equipment hiring companies until the demand steadies.
b. The feeder vessel cargo movement to ICTT represents an
area of growth for the non-major ports.
c. The coastal traffic may move away from Kochi to non-major
ports as port facilities and drafts increase.
Current equipment inventory
Beypore Azhikkal Kollam
Forklift 2-3
Tonnes
1 - 1
Fixed Crane 3-
5 Tonnes
5 - -
Mobile Crane 5
Tonnes
- - 1
Mobile Crane
12-25 Tonnes
3 1 1
40 Tonne
Container
Forklift
- - 1

8

4. Focus and strategy

The focus of this leasing company:
a. Achieve target IRRs: Considering that the product
(equipment) mix is varied, with varying capital costs,
maintenance demands, lifecycle and demand, it may be
simpler to have a target IRR which can be scrutinized
against prevailing capex and hire rates for each class of
equipment.
b. Maintain the inventory in pristine condition. The lifecycle of
the equipment and its condition being fit to hire is central to
this service model. The physical deterioration of the
equipment must be lesser than the book depreciation of the
equipment.
c. The scale of inventory purchase may not necessarily
translate into better procurement prices. It will be a prudent
strategy to procure minimum inventory and enhance
inventory as per emerging demands.
d. Risk management is an important part of this service. Since
assets change custody with different hands, the damage and
misuse is an issue to be resolved efficiently. Renting terms,
recourse to claims, 3
rd
party inspectors and insurance are
some of the means to protect the companys interests.
e. Most companies seeking to hire these equipments will not
keep operating staff on their rolls. The renting and operating
staff will go hand in hand.

9

Tariff strategy
Pricing Strategy
Due to lack of substantial activity in non-major ports in
equipment renting, there is no price trends in these non-major
port locations. However the prevailing renting rates at Kochi is a
good indicator for the rates as it may evolve in the non-major
ports.
The equipment mix is varied and the market scenario for various
equipments will be varied. A good strategy is to set a target tariff
as a percentage of the capex employed for particular equipment.
This is seen to be in the region of 40% per annum (refer section -
Target Hire rates). This revenue provides a WACC of 18.5% or in
other words a return of 15% to the debtors and 25% to the
investors with a financial leverage of 2. The prevailing equipment
hiring rates vary from 45% to 100% per annum for equipment in
the non port i.e construction sector. These are however average
yields and a utilization of 240 hours a month is required for
viabilities.

10

The current market in port sector
5. Current lease rates
These equipments are reportedly old
Equipment Model Capacity
Hire per month
(in Lakhs INR)
Forklift Not specified 3 T 0.48

Crane Not specified 20T 1.44

Tyre mounted
harbor crane
45 T 6.0

Mobile tyre
mounted crane
JCB 5 T 0.98

6. Capex and Yield potential in Y1
A good strategy is to get to a target tariff as a percentage of the
capex employed for particular equipment. This is seen to be in the
region of 40% per annum to provide the required returns. This
return has been taken as a WACC of 18.5% which gives a return of
15% to the debtors and 25% to the investors with a financial
leverage of 2. The prevailing equipment hiring rates on the
landside in construction and earthmoving applications vary from
45% to 100% of capex per annum. These are average yields.

The activity is very sensitive to utilization patterns and hence the
demand must be established and the business objectives are
served by a time lag between creation of demand and raising the
inventory to satiate this demand, and not too early.

11

8. Feasibility
Headcount of renting company

Management
CEO 1
CTC
100K/pm

12

Executive
Technical
maintenance 2
Avg CTC
25K/pm

Marketing 1

Admin and
accounts 1

12

Others Maintenance 0
Avg CTC
20K/pm 0

Total
headcount 5

Total Salary
budget p.a. 24.0
Lacs per
annum

12

9. Target Hire rates
There are reputed brands of material handling equipment makers
such as Gottwald and Kone.
A broad analysis of the financials of renting out such products was
done and the breakeven tariffs calculated. This was compared to
the currently prevailing market where the equipment is
depreciated and old.
The initial procurement cost of a 45 Tonne container reach
stacker is in the range of 350,000 Euros or 250 Lakhs INR.
WACC is taken at 19.5%; this is arrived by considering a debt
equity ratio of 2, cost of debt 14% and expected return on equity
25%.
DepreciationTaking the active life of the crane as 15 years, the
depreciation per annum will be 6.7% by straight line method.
Maintenance consumables and spares budget, pegged at 10 % of
capex.
Salary for operators at 5% of the capex.
The required hire rate per month for 9 months operation per
year, excluding fuel consumption or the contribution towards the
fixed cost is

13

Lakhs INR
Capex 250
Revenue expenses
(1
st
year) WACC 49
Operators 12.5
Maintenance and spares 25
Depreciation 17
Total 103.5

Breakeven tariffs per month for new
gear
11.5 pm

Daily rate at 20 days hire per month Rs.57,500/
Daily rate at 30 days hire per month Rs.38,000/

This rate i.e 4.6% of the capex per month will provide the required rates of
financial returns.
This can be the benchmark hiring rates and the potential of each
asset to be procured can be assessed against the acceptability of
this rate against in the prevailing market conditions.
The company can follow the prevailing market leasing rates over
and above this rate.
The pricing policy has to reflect the short term and long term hire
rates, where understandably the short term hire rate will attract a
substantial premium on the benchmark hire rates.

14

Annexure I Equipment Photographs

Empty container- side handling- forklift

www.nauticexpo.com
[3]

Reach stacker www.ja.wikipedia.org
[4]

15

Bibliography

Empty container-side handling-forklift photos www.nauticexpo.com
[3]
Reach stacker photos www.ja.wikipedia.org
[4]

KITCO Ltd.
Registered Office P.B.No. 1820, Ravipuram, M.G. Road
Cochin - 682 016.
Telephone : (91-484) 2357437 / 2357699 / 4129000/ 2357478 (CMD)
Facsimile : (91-484) 2357687
Telegram : CONSULTUS
E-mail : mail@kitco.in
Web site : www.kitco.in
Regional Office Old No.59, New No.8,
S-Block, 20th Street,
Annanagar,
CHENNAI - 600 040
Telephone : (044) 26220074/75
Fax:(044) 26220075
Branch Offices TC No.14/733, Nandavanam Road, Palayam, Vikas Bhavan,
TRIVANDRUM - 695 033.
Telephone /Fax: (0471) 2328956
E-mail: kitco-tvm@asianetindia.com
KITCO Placement Park
ATC Building, 2nd Floor
Mooleppadam Nagar Road,
Opp. Govt. Polytechnic College, HMT Jn.,
Kalamassery, Kochi 683 104
Telephone : (0484) 6453444/2550072
Fax : (0484) 2550072
E-mail : certification@kitco.in/placementpark@kitco.in
info@kitcoplacementpark.in

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