The Hindu Business Line : SCI's proposed $500-m expansion may be delayed

Sources said that the expansion programme will have to remain on the drawing board for at least 2-3 years, as SCI is hard put to find a shipyard that can accept any new building order till 2007.

And to make matters worse, the shipping company, being Government-owned, usually avoids picking up second-hand vessels.

Thus, SCI will not be able to dip into its bulging cash reserves to make any significant expansion of its fleet capacity.

SCI has drawn up a fleet expansion plan that involves buying 14 vessels, including two container ships and six product tankers of 65,000 DWT each.

The company's board has approved the plan, which was recently sent to the Government for final clearance.

"Even if the approval comes immediately, SCI will not be able to go ahead with the plan," the sources said.

In the aftermath of strong sentiments sweeping the global freight market, shipyards the world over experienced a flood of orders.

According to some reports, up to 45 per cent of the world's container fleet and 20-25 per cent of the world's cape size fleet will be added in new capacity by 2008.

"Shipyards can only start accepting fresh orders after 2008. Even if SCI manages to find a new vessel for sale, the cost will be prohibitive," a shipping analyst said.

SCI appears stuck with its expansion plan, especially as it does not go in for second-hand vessels.

"Although there is no written rule that SCI cannot tap the second-hand ship market, it usually avoids this route, as such acquisition may come under the Government's microscope," the sources said.

"Another factor is that to buy a second-hand vessel, one should be quick to decide on the purchase. And this is not the case with SCI."

It is not known whether SCI will wait for new vessels or tap the second-hand market, as even the prices of second-hand vessels have hit the roof.

In fact, there have been instances in the last two months when ship owners purchased five-year old vessels at a price greater than the cost of a new building order.

The reason is the same - as there is no room for shipyards to take up new orders, ship owners are willing to pay as much even for second-hand vessels.

Sample this. In November last year, ship owners placed an order for a new very large crude carrier (VLCC) for $105 million, while in the same month five-year old VLCCs in the second hand market were picked up for $112 million.

Last month, the price of a new building order rose to $110 million, against a second-hand price of $109 million.

Similar was the case in the Suezmax and Aframax segments. In November and December last year, shipyards took new building orders for Suezmax vessels for about $68 million, while the cost of a five-year old vessel in the same category was $73 million.

In January this year, the price of a second-hand vessel in this segment was about $3.5 million more than the new building price of $70 million.

Against this background, SCI is now exploring ways to get over the situation, with chartering being one of the options being considered.

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