1. 12thJune, 2016 Science City, Kolkata.
“Managing cost & taking successful business decisions – Best Practices”
12thJune, 2016
Science City, Kolkata.

2. Management Accounting System
Management Accounting Systems have become an effective foundation for management in private as well as public sectors and Manufacturing as well as Service sector
It provides the basic platform to the top managers for achieving satisfactory results through cost reduction and cost control

3. Management Accounting System in Ports
In the context of ports, such system ensures effective utilization of the oceanic resources for economic development of the country.
The oceanic shipping consists of two main participants namely the carriers and sea – ports which are influenced by the requirements of transportation for various commodities.

4. Management Accounting System in Ports (contd.)
The operational cost structure of sea- ports covers the infrastructure, superstructure, port labours and other enabling functions.
An effective management accounting system will be able to reflect on such operational and cost structure towards improving port operations and meeting the stakeholders’ interest.

5. Overview: India’s Port Sector
95% of country’s trade by volume & 77% by value moves by sea
Length of the coastline 7,517 km
- 9 maritime States & 4 UTs ( including 2 island groups)
13 Major ports – 12 under Port Trust and 1 (Ennore) under Companies Act.
200 notified Minor and Intermediary ports
Port legislation & Structure
- Indian Ports Act, 1908 allows Maritime States to set up their own port systems
- Major Port trust Act, 1963, regulates 12 major ports.
Major Ports fall under operational & financial control of Ministry of Shipping and subject to tariff regulation by Law
Minor ports: under State Maritime Boards & free from formal tariff regulation

6. Port Infrastructure
The basic port infrastructure requires huge amount of fixed costs which is sunk cost
It is indivisible and long lived
It is constructed in a specific space for specific use
The infrastructure provides a service which is chargeable

7. Chennai Port
Chennai Port has 5 Docks of which Two Docks handle Containers and one has railway track
There are 24 Berths in these 5 Docks
Two Docks which handle containers are outsourced to third parties and the port gets revenue share
Except these two Docks, other three Docks suffer losses

8. Chennai Port (contd.)
However all the Berths have positive contribution
Their Operating expenditure was Rs crores and their non-operating expenditure was Rs crores (under the head Finance & Miscellaneous expenditure) in 2015
After distribution of Finance and Miscellaneous expenditure, most of the Berths suffer losses.

9. Chennai Port (contd.)
Chennai Port calculates Operating Income under the following five heads:
Cargo Handling and Storage Charges
Port and Dock Charges
Railway Earnings
Estate Rentals
Revenue Share from Container handling

10. Chennai Port (contd.)
It’s Operating Expenditures are calculated under the following heads:
Cargo Handling and Storage Charges
Port and Dock Facilities for shipping
Railway Workings
Rentable Land & Buildings
Container Handling
Management and General Administrative Expenses

11. Chennai Port (contd.) Non-Operating Income consists of
Finance and Miscellaneous Income
Non-Operating Expenditure consists of
Finance and Miscellaneous Expenditure

12. Chennai Port (contd.)
Their Budgets are prepared under the above mentioned heads which is used both as an estimate and as a control tool
Apart from that, Commodity wise traffic projections for Import and Export budget is also prepared
They also prepare Variance Analysis internally but it is not presented to Board of Trustees

13. What we have done

14. What we have done (contd.)
First we identified Birth wise revenue as well as cost
The common variable expenditure are distributed under different Births on a suitable basis
Then we calculated contribution of different Births
For Births handling Containers, we calculated contribution per TEU and for others contribution per tonne
All the Berths have positive contribution

15. The Key Performance Indicators of a Port
Tonnage worked
Berth occupancy revenue per ton of cargo = (Total birth occupancy revenue produced)/ Tonnage worked
Cargo handling revenue per ton of cargo
= (Total revenue produced from transferring cargo to or from ships from or to storage areas)/Tonnage worked

16. The Key Performance Indicators of a Port (contd.)
Labour expenditure per ton of cargo
= (Total direct labour expenditure for transfer of cargo to or from ships, from or to storage areas)/ Tonnage worked
Capital equipment expenditure per ton of cargo
= (Total depreciation and interest allocated to and maintenance and operating costs incurred for the berth group, excluding the costs of transit sheds and warehouses)/ tonnage worked

17. The Key Performance Indicators of a Port (contd.)
Contribution per ton of cargo
= (Total contribution)/Tonnage worked
Total contribution
In case of berths handling containers, instead of per ton, we can calculate contribution, revenue and cost per TEU.

18. The Key Performance Indicators of a Port (contd.)
The above KPIs will answer the following two questions:
How much revenue is produced from a service
What is the cost of the service

19. Suggestions for improvement
Identification of profit making resources/ entities
Identification of loss making resources/ entities
Identification of idle resources which will lead to improvement of productivity
Identification of overutilised resources which will lead to necessity of further investment
Fixation of port tariff/ pricing
Presentation of perspective plans