The Hindu Business Line : Indian shipping on a new wave

A BOOMING freight market and the recent introduction of a Tonnage Tax regime have caught the shipping industry on a high wave, with the Indian fleet tonnage crossing the 7.6 million GRT (gross registered tonnage) mark for the first time ever.

Though the Ninth Plan target was 9 million GRT, only twice in the past has the tonnage crossed the 7 million GRT — once in 1995-96 when it nudged 7.1 million GRT and then in 1999-2000 when it touched 7.06 million GRT.

Says Mr P. K. Srivastava, chairman of the Shipping Corporation of India (SCI) and president of the Indian National Shipowners Association (INSA): "Just in the last one year alone, over 1.5 million GRT has been added to the Indian tonnage. Compared with the tonnage figure of 6.3 million GRT, which stagnated throughout the last decade, this growth is certainly impressive."

Undoubtedly, it was the surge in freight markets that prompted Indian ship-owners to go on an acquisition spree.

Consider this: In the dry bulk sector, the Capesize rates hit an unprecedented $100,000 per day in January, before slipping to $68,000 in April and stabilising at $75,000 in October. Even more prominent were the Panamax earnings, which crossed $40,000 per day in January and remained more or less at that level thereafter.

The tanker market also witnessed a dramatic rise in rates, with VLCC (Very Large Crude Carrier) earnings touching $1 lakh per day and Suezmaxes lagging not far behind.

But the real ballast was provided by the introduction of Tonnage Tax, which considerably reduced the tax liability of ship-owners. Just between April and August this year, the fleet increased from 6.9 million GRT to 7.4 million GRT, with eight oil tankers being added, including four by Great Eastern Shipping and one each by SCI, Essar Shipping and Sanmar Shipping, totalling 5.5 lakh GRT.

"With the massive fleet acquisition plans undertaken by the shipping companies, it is hoped that the Indian fleet would cross the 10 million GRT mark shortly and subsequently emerge as one of the top ten maritime nations," Mr Srivastava points out.

The shipping industry feels that with the next fiscal would see a significant jump in tonnage in the wake of the new tax regime.

Says Mr Yudhishthir Khatau, INSA vice-president: "We see lot of possibilities of FDI (foreign direct investments) coming into the Indian shipping sector as a result of the Tonnage Tax. Whether it would be in the form of foreign companies setting up shop here or forging strategic alliances with Indian companies will have to be seen."

According to the INSA's latest annual report, the average age of the Indian fleet was 16.9 years as on August 1. The age profile of the fleet in terms of GRT shows that over 31.2 per cent of the overseas fleet totalling 2.06 million GRT was over 20 years old, while another 26.1 per cent is between 15 and 19 years. "Thus, over 59 per cent of the Indian fleet needs to be replaced within the next five years," the INSA report says.

However, the share of Indian ships in the carriage of the country's overseas trade has been declining over the years, despite the total volume of cargo moving in India's trade expanding progressively. The share of Indian lines in India's overseas trade flagged from 17 per cent to about 15.1 per cent.

While the total volume of trade moving in India's overseas trade has slightly increased from 273.04 million tonnes to 280.34 million tonnes, the share of Indian ships came down from 46.3 million tonnes to 42.43 million tonnes. "One reason is that Indian ship-owners have begun to increasingly adopt a global approach by looking at trading outside," according to a shipping expert. In fact, the inadequacy of the national fleet to support the country's trade has been one of the major problems facing India and other developing countries. And as a result, India had to depend on foreign ships to a significant extent, leading to higher freight payments in the carriage of its trade.

Reports indicate a significant variation in the freight cost rations among the developed and developing maritime nations.

For example, against 6.11 per cent freight cost of the total CIF import value in the world trade, the share of freight costs in the imports of developing countries is about 8.70 per cent, which is significant higher than that of the developed nations' 5.12 per cent.

One aspect that continues to worry the industry is that in spite of the hectic pace of containerisation of cargoes in India, container shipping still faces "procedural irritants". Perhaps, the setting up of the National Coordinating Agency (NGA) to oversee all the activities connected with multi-modal transportation goods will iron out these problems.

The Indian shipping industry has a bright future. To put it in Mr Srivastava's words: "The golden era of Indian shipping is indeed upon us."