Client Situation
Our client is a coal and oil company, which had a vision to emerge as an integrated energy supply conglomerate providing effective energy solutions. In pursuit of the vision, Cedar had previously formulated for the client, a five-year business plan encompassing the sales, sourcing, and key account management (KAM) strategies. Post this, the client wanted to develop strategies to expand its shipping business, which could prove profitable in the long-run.
Cedar’s Approach
Cedar was mandated to formulate a shipping and logistics strategy for the client to support its expansion plans. Cedar’s approach was as follows:
- Current state internal assessment of the client
- One-on-one interviews with relevant members of the company management team to understand their perspectives & key concerns
- External assessment of the market and competitors using the Cedar database, other sources of secondary research and primary interviews with stakeholders in the industry value chain
- Integration of the internal and external assessments and development of a summarised analysis
- Presentation of recommendations to senior management
Outcome
Some of the key outcomes of this program and Cedar’s strategic recommendations after detailed internal and external analyses were as follows:
- Cedar formulated a logistics strategy which entailed:
- Identification of 23 appropriate ports, out of which, key ports were determined based on KAM, Energen volumes, customer port alignment, aggregate outputs, and capacity utilization rates
- Development of strategic options for port utilisation across the 4 key ports
- Recommendation to continue with the existing model of hiring road transport on an as-needed basis, thereby requiring no investment or outsourcing
- Adopting a mixed model for east and west coast ports, ensuring lower costs and complexity
- Assessing the consolidation potential of smaller ports in Gujarat to maximise operational efficiency and minimise costs
- The key recommendations within the shipping strategy involved:
- Development of a selection framework based on future volumes, freight rates and market risk
- Recommendation to consider buying 1-2 ships because of increasing Energen volumes, to maintain flexibility on scheduling, control costs, and have a higher profitability margin during periods of high freight rates
- Introducing significant changes to the fleet mix, which would be implemented over four years
- Development of long-term strategy to de-risk the supply model by exploring strategic geographies for sourcing as there was overdependence on Indonesia; warranting an assessment of the use of Capesize vessels for economies of scale and cost competitiveness