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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 meansof 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

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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 ofoffshore 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

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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 significantshipbuilding 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 of47% 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.

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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.

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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.

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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

design

288

Construction of a dry dock 1499

Construction of Fabrication, Assembly Sheds and

Administrative Offices

319

Plant and Machinery 1021

Contingency 153

Pre-Operative Expenses 308

Working Capital Margin 412

Total 4000

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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

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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:

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Factors

Global Economic

Trends

Regulations

Transportation

cost:

Proximity to

markets

Availability of

skilled and cheap

labour:

Competition

status

Availability of

Power Supply:

Incentives and

Benefits:

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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 state-

supported 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

Infrastructures linkages and other facilities, at their cost.

Shipyard Company will furnish a Performance Bank Guarantee

to GMB for an amount as the GMB may decide based on the Project cost.

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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.

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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.

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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.

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Bibliography:

http://gmbports.org/showpage.aspx?contentid=1284

http://dare.co.in/opportunities/infrastructure-logistics/shipbuildingindia-aspires-to-

emerge-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

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

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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

http://www.gmbports.org/downloads/final_SHIPBUILDING_POLICY.pdfhttp://www.gmbports.org/downloads/final_SHIPBUILDING_POLICY.pdfhttp://www.gmbports.org/downloads/final_SHIPBUILDING_POLICY.pdfhttp://www.gmbports.org/downloads/final_SHIPBUILDING_POLICY.pdfhttp://www.gmbports.org/downloads/final_SHIPBUILDING_POLICY.pdfhttp://www.gmbports.org/downloads/final_SHIPBUILDING_POLICY.pdfhttp://www.gmbports.org/downloads/final_SHIPBUILDING_POLICY.pdfhttp://www.gmbports.org/downloads/final_SHIPBUILDING_POLICY.pdfhttp://www.gmbports.org/downloads/final_SHIPBUILDING_POLICY.pdfhttp://www.gmbports.org/downloads/final_SHIPBUILDING_POLICY.pdfhttp://www.gmbports.org/downloads/final_SHIPBUILDING_POLICY.pdfhttp://www.gmbports.org/downloads/final_SHIPBUILDING_POLICY.pdfhttp://www.gmbports.org/downloads/final_SHIPBUILDING_POLICY.pdfhttp://www.gmbports.org/downloads/final_SHIPBUILDING_POLICY.pdfhttp://www.gmbports.org/downloads/final_SHIPBUILDING_POLICY.pdfhttp://www.gmbports.org/downloads/final_SHIPBUILDING_POLICY.pdfhttp://www.gmbports.org/downloads/final_SHIPBUILDING_POLICY.pdfhttp://www.gmbports.org/downloads/final_SHIPBUILDING_POLICY.pdf