Introduction

The Shipbuilding Industry mainly focuses on manufacturing, repair and dismantlement of ships as well as making marine structures and ship equipments. The industry is composed of two sectors, including front industry and backward industry. The front industry includes marine transportation business, fishery, and defense industry. Backward industry means machinery, steel, non-metal, electric and electronic industry. Shipbuilding industry requires gigantic production facilities such as dorks, goliaths, and cranes which requires hefty initial investment capital. With limited production automation format, the industry features labor-intensive. On the global basis, the shipbuilding industry is characteristic of single market system and directly affected by the global economic growth rate, changes of marine trade volume, cost trends and various regulations and laws. Accordingly, when going through the evaluation process on the shipbuilding industry, following elements should be given consideration: individual corporate elements, including the market share, profitability and financial flexibility, the analysis of other external effects such as global economy fluctuation, foreign exchange rate, interest rates, regulations and legal bindings.

Shipping Industry vital to Indias economic interests Shipping continues to remain unchallenged as the worlds most efficient means of transportation. With a long coastline of about 7517 km, spread on the western and eastern shelves of the mainland, shipping forms an important natural resource for Indias trade. In view of its importance, the Indian government has recognized the need to promote this industry including ports, harbours and new technologies to be developed in this emerging scenario. The Ministry of Shipping

has finalized a National Maritime Development Programme (NMDP) to implement specific schemes for the development of this vital sector. The total investment involved for the projects identified under this programme for the period up to 2014-15 is Rs. 1,00,339 cr. Out of this, Rs. 55,804 cr is for the port sector and the balance is for shipping and inland water transport sectors. NMDP has envisaged setting up of 2 international standard shipyards in India, one on the west coast and the other on the east coast. For this, the government has nominated, Ennore Port and Mumbai Port Trust to function as nodal agencies. Expressions of interest received in this regard are being processed. Further, the government has established Indian Maritime University (IMU) in Chennai in the year 2008 with campuses at Chennai, Kolkata, Mumbai and Vishakhapatnam. It will promote advanced knowledge by providing research facilities in the emerging areas of marine science & technology, maritime environment and other related fields. Indias share in the world shipbuilding market has gone up from an insignificant 0.1% at the beginning of 10th Plan (2002-2007) to 1.44% of the global order book with 2.2 mn CGT (Compensated Gross Tons) of vessels on order, as on December 31, 2009. The Indian shipbuilders specialize in the construction of offshore vessels. However, the expansion of shipyards to the extent of constructing bigger vessels such as dry bulk carriers has enabled the Indian shipbuilders to attract new-build orders in the said vessel segment. Importantly, the Indian yards reported no major instance of order cancellation during 2009 as compared to their peers in South Korea and China, primarily owing to no speculative orders placed with the Indian yards and majority of the orders being received from repetitive clients, post 2008. With global shipping industry pitching for an unprecedented demand for new shipbuilding, a window of opportunity which was not available earlier has been created for the Indian shipbuilding industry. Thanks to the gradual shift of shipbuilding from Europe to Asia, today contrary to expectations the Indian shipbuilding order books indicates a healthy

trend with a strong future outlook. Both foreign/Indian shipping companies are coming forward to place new orders on Indian yards. The Indian shipbuilding Industry is on a high growth trajectory and is expected to grow at a compounded growth of 30% going forward. Though India has not yet become a significant player in the global shipbuilding business, it has gained a strong foothold in the niche offshore segment. Hence from an inward looking industry dependent on government orders, the Indian shipbuilding industry is emerging as internationally competitive export led industry. The Indian shipbuilding industry has been dogged by low capacity, poor productivity and lack of modernization in the past. But now that the shipbuilding industry is witnessing a growth phase after a gap of almost 25 years, it is an opportunity for India to revive its shipping industry and bring it at par with the rest of the world.

Shipbuilding With the continuous penetration of economic globalization, Gujarat shipbuilding industry, whose share has kept rising in recent years, is becoming the significant shipbuilding centers of the world. The State is strongly emerging as a new shipbuilding destination in South Asia with many projects in pipeline. Gujarat boasts a share of 47% of Indian shipbuilding order book with 3.92 Million DWT order book as on June 2008. Presently, Gujarat has six shipbuilding yards in operation, three under execution, eight under the process of approval and Gujarat Maritime Board (GMB) has envisaged for thirteen more notable projects. With Indian companies planning to drop anchors on Gujarats shores, the State is likely to harbor huge investments in the development of shipyards. The sector has witnessed a major thrust with 45 proposed projects with an envisaged investment of INR 15,000 Crore by well established private players.

Among the players who have shown interest in developing shipyards in the state includes ABG Shipyard, Dolphin Offshore Enterprises (India), AFCONS Infrastructure, Bharati Shipyard, Jindal Shipyard and Pipavav Shipyard etc. Make hay while the sun shines going with the quote Gujarat Maritime Board (GMB) is expecting to reap maximum benefit from the emerging Shipbuilding industry and as a result is formulating an independent policy for the Shipbuilding industry in Gujarat. Cluster Development Model of Shipbuilding / Marine Shipbuilding Park: Gujarat Maritime Board has envisaged developing a cluster based shipyards or Marine Shipbuilding Park (MSP) within a stretch of 5 to 8 km along the waterfronts of Gujarat coasts. For the development of the cluster, GMB will assist the private developers for getting Clearances and other statutory approvals. The waterfront will be provided for development on a long-term basis. Government has also taken initiative to establish /upgrade training institutes to provide training for specific skill required for the Ship Building Industry.

Facility Location Planning for Shipbuilding Industry:

Facility location Planning: Facility location is the process of identifying the best geographic location for a service or production facility. Facility location or plant location planning may be defined as the function of determining where the plant should be located for maximum operating economy and effectiveness. The basic purpose of the facilities location planning is to make product competitive by reducing cost of production and maximum utilization of resources to increase profit. We identified 5 green field sites for development of our company, that is, RLT Shipyard. These sites have been identified taking into consideration the availability of skilled and cheap labor, transportation costs, proximity to customers, etc.

We also considered the cost estimates for various purposes which would play a crucial role in setting up of our new ship-building company, which is shown in the table below, and we possess the financial resources to bear them: (Rs. In Millions) Particulars Estimated Costs

Land, dredging, land reclamation, protection work and 288 design

Construction of a dry dock Construction of Fabrication, Assembly Sheds

1499 and 319

Administrative Offices

Plant and Machinery Contingency Pre-Operative Expenses Working Capital Margin Total

1021 153 308 412 4000

The following ports are identified and short details of draft condition, cargo and nature of the port are given below: 1. DHOLERA Dholera is situated on existing short route form Ahmedabad to Bhavnagar and is 30 kms, away from the nearest town of Dhandhuka. This port, in the Malclon channel, can be developed for general cargo. At the suggested location, a draft of 10 mtrs, is available within a distance of 3 kms, from the off-take point on the shore- near village Jaswantpur. This will be an all weather direct berthing port for general cargo. 2. MAROLI This is a virgin site, north of Bombay, having favorable features for development as an all weather port with protective structure like breakwater. The development plan envisages the port facilities in 10 mtrs. depth at 3 kms. from the shore to handle industrial and general cargo. The major portion of the approach is running on high bank and shallow waters. 3. VANSI-BORSI The location is identified for handling petroleum and liquid chemical cargo of immediate hinterland. It is suggested to provide adequate matching port facilities in 10mtrs. depth at 5 kms. from the shore with break water arm. The proposed site is 13 kms. from the nearest broad gauge railway link at Navsari, and is 30 kms. south of the industrial town of Surat. 4. HAZIRA Magdalla (Surat), located on the bank of river Tapi, is an existing intermediate port handling general cargo. On the right bank of this river and near Hazira lighthouse, Mega Industrial Houses have established their own captive port facilities. On the western side of these facilities, and near Suvali point, a deep draft port is suggested. The berthing facility for industrial cargo will be provided in

15 mtrs. contour at a distance of 3 kms. from the shore. A protective structure in form of a breakwater will also be necessary. 5. DAHEJ Dahej, 42 kms. from the District Headquarters of Bharuch, is witnessing a massive industrialisation with substantial capital investments. It is suggested to develop an all weather port for large ocean-going vessels at a location 2 kms. from the shore, where an adequate depth of 18 mtrs. is available. The port development envisages handling industrial cargo. Alternatively a `lagoon port is also possible with excavation on land and dredging of the channel for a 10 mtr. deep harbour. We selected Magdalla Port near Dumas, Surat for setting our ship building company after considering the following factors:

Factors
Availability Power Supply: Competition status Global Economic Trends Availability labour: of of

skilled and cheap

Regulations

Proximity to markets

Transportation cost:

Incentives and Benefits:

1. Global Economic Trends Mainly based on orders, shipbuilding industry is directly influenced by marine transportation business market trends. Considering the volume of marine traffic which determines the marine industry trends are heavily swayed by the global economic growth, the shipbuilding industry is no exception for the global economic landscape. In evaluating shipbuilding industry, the forecast on the global economic trend should be preceded. Globally shipbuilding is a USD 20 billion industry. The global shipbuilding order book recorded a 29% CAGR over the period of 2003 06. An upward trend has been witnessed in the world order book as a percentage of worldfleet indicating a strong demand outlook. Today shipbuilding has become an attractive industry for developing nations. Japan used shipbuilding in the 1950s and 1960s to rebuild its industrial structure, Korea made shipbuilding a strategic industry in the 1970s and China is now in the process to repeat these models with large statesupported investments in this industry. The tidal shift in shipbuilding activities, from Europe to Asia, has opened up huge opportunities for Indian yards, and both public and private ship-builders are capitalizing on them. 2. Regulations Shipbuilding is a highly labor intensive industry, contributing 60% of total share of major industries. Hence, GMB (Gujarat Marine Time Board) with its vision for economic development of the coastline is formulating shipbuilding policy for Gujarat, which will also be applicable to our RLT Shipyard company located at Magdala port Surat. GMB will acquire back up Government land and allot on lease basis. Shipyard Company shall be responsible to provide required Shipyard Company will furnish a Performance Bank Guarantee Infrastructures linkages and other facilities, at their cost. to GMB for an amount as the GMB may decide based on the Project cost.

The Shipyard Company will adhere to the performance milestones.

As the GMB may fix, failing which, GMB at its discretion may cancel the permission without paying any cost / compensation whatsoever and forfeit the Bank Guarantee. At the end of the license period, the Shipyard Company shall return Clear possession of the land to GMB by removing the movable assets with in the time limit as the GMB would specify. Thereafter, GMB will takeover possession of the land along with remaining Fixed assets at no cost/compensation payable to the Shipyard Company. Terms and Conditions stipulated by the GMB as may be amended from time to time will be binding to the Shipyard Company. 3. Transportation cost: Transportation cost plays a vital role in selection of facility location. The location with least transportation cost will be selected. As RLT is located in Magdala port in Surat which is directly connected to National Highway 8 the transportation cost for procuring raw material would be less. 4. Proximity to markets: When customers are located near the plant, products can be easily supplied to them. Proximity to markets allows companies to meet any sudden spurt in demand, thus providing an advantage over competitors located at far of places. RLT ship building is located on the water front in Surat and is connected via Tapi to Arabian sea which is the largest hub for waterways transportation.

5. Availability of skilled and cheap labour: Magdalla Port, where the ship building facility of RLT Shipyard is located, lies in the industrial zone, near Surat city which will help avail skilled labor at a cheaper rate. 6. Competition status As there exists only one ship building company in Surat, that is ABG ship yard, there is lack of strong competition which would ultimately benefit our company. 7. Availability of Power Supply: Uninterrupted power supply is a basic requirement of most industries. RLT has got the privilege of HBJ (Hazira-Bijaipur-Jagdishpur) pipeline which is the longest gas pipeline in India which is 1700 km long. It connects Hazira in Gujarat, Bijaipur in Madhya Pradesh and Jagdishpur in Uttar Pradesh connecting Mumbai high oil fields to fertilizer, power and industrial complexes in western and northern India. 8. Incentives and Benefits: RLT Shipyard will be covered under GMB (Gujarat Marine Board), and will accordingly receive incentives as under: GMB will acquire Government land and in turn will allot plots to the company on lease basis for shipbuilding/repair purpose for the license period. GMB will develop basic infrastructure in the form of road, water supply,

power, drainage, capital dredging, navigational aids, gas and power supply etc. for the MSP/cluster development. GMB would also ensure that the key aspects like national security,

defense, environment and economic development are safeguarded and addressed, appropriately at each shipbuilding location.

Additionally, GMB will also permit the Shipyard Company to construct

outfitting jetty of their own for outfit purpose specifically for the ships under construction. GMB will provide complete operational autonomy to the Shipyard

company (with in the framework of relevant legislations) in respect of the operation of the Shipyard. GMB will recommend notifying Marine Shipbuilding Park (MSP) as SEZ

Fiscal and other benefits extended by Government of India under its various schemes would also be extended to Shipbuilding Company.

Bibliography: http://gmbports.org/showpage.aspx?contentid=1284 http://dare.co.in/opportunities/infrastructure-logistics/shipbuildingindia-aspires-toemerge-as-a-leading-player.htm http://www.sebi.gov.in/dp/abgship.pdf http://breport.myiris.com/BCL1/ABGSHIPY_20110628.pdf http://www.gmbports.org/downloads/final_SHIPBUILDING_POLICY.pdf

S.R. Luthra Institute of Management

Production and Operations Management Facility Location Planning for Shipbuilding Company Sem 2 Shift 1/1B Group 7 Ojal Mistry (01) Divya Bajaj (31) Dimpi Mehta (33) Krutika Maiwala (35) Madhvi Mehta (37) Submited to: Mrs. Ranjan Sabhaya On 19/03/2012