The Hindu Business Line : SAIL to own bulk carriers thru tie-up with Shipping Corp

Chennai, June 6 Steel Authority of India Ltd through a joint venture with Shipping Corporation of India may own a few bulk carriers to have continuous availability of vessels, according to Mr S.K. Roongta, Chairman, SAIL.

“By having our own vessels, we will also have security in case of extreme situations and non-availability of vessels in the market,” he told journalists of The Hindu group of publications. Own vessels will also act as a hedge. If the freight comes down, there is advantage of lower freight. If the freight goes up, the company will make money through its own ships.

In 2007-08, SAIL imported nearly 10 million tonnes of cargo, especially coking coal, from countries such as Australia, China, Russia and Egypt, and will continue to be a large importer in future.

For SAIL, the total logistics cost is around 10 per cent of its revenues, which were Rs 45,555 crore in 2007-08, he said.

Ocean freight

Mr Roongta said ocean freight has gone up tremendously in the last three years. The Baltic Exchange Dry Index, an index covering dry bulk shipping rates, used to be about 2000 two years ago, but is 10,000 plus now.

A couple of years ago, SAIL used to import coal from Australia at a lower side of $15-16 a tonne and at $20-22 a tonne on the higher side. Last year, on the higher side it was $80 a tonne, and today it is hovering at $65-70 a tonne.

The steep increase in ocean freight was mainly due to rise in crude oil prices and consequently led to higher bunker oil prices.

But, ultimately it is demand from countries like China for dry bulk vessels that drives the ocean freight. It is believed that by 2009 there will be substantial addition in dry bulk carriers, he said.

Backward integration

On steel companies moving into backward integration, Mr Roongta said this is a global practice.

Most steel companies are trying to have control on their inputs. For instance, Arcelor-Mittal plans to increase its captive resources, and other companies also plan to do this.

While admitting that owning ships was a little “way off” in backward integration, Mr Roongta said that steel companies desired to have some control over any major component of costs.