Financial Daily from THE HINDU group of publications
Monday, Dec 30, 2002
`The worst is over for shipping' Mr P. K. Srivastava, President, Indian National Shipowners Association and Chairman, SCI
THE first three quarters of 2002 were depressing for Indian shipping companies. However, since October, freight rates, particularly for tankers, have picked up and shipping lines are expected to report better earnings in the current quarter. Mr P. K. Srivastava, President, Indian National Shipowners Association (INSA) and Chairman, Shipping Corporation of India (SCI), thinks the worst is over for shipping, and hopes the New Year will bring more cheer to shipowners. But there are other issues worrying the industry. Mr Srivastava spoke to Business Line.
Excerpts from the interview:
How do you see the shipping industry faring in the coming year?
Actually, the worst is over. The first six months were very bad for the industry. But rates have picked up due to a number of reasons, including the new international regulation on phasing out of single-hull tankers. There was a spurt in the time-charter rates. Other rates are also following suit. The future can only be better. I think the industry should be able to match at least last year's performance; it may not be able to better it as we have to make up for the first six months.
Are tanker rates alone driving the market?
Tankers rates have appreciated significantly. But other sectors such as bulk rates have also improved. Even container rates have stabilised. Overall, the market is gaining in strength.
Will the improvement in rates reflect on the companies' bottomline?
Yes. It should. If we are able to get the tonnage tax in place, our financial costs will also come down.
Do you think the Government will accept the tonnage tax proposal?
I am very hopeful. The Government has recognised the importance of shipping. From whatever signals we are getting, it is clear that the Government is listening to our views.
Do you think the Government will agree to both your demands for tonnage tax as well as tax exemption under Section 33 AC?
We are not asking for something different. You see the great advantage of 33 AC for existing companies. But it does not apply to new companies because they will not have resources to fall back on. The Government brought down taxes by expanding 33 AC last year. Tonnage tax gives the same benefit in a different form. Also, it gives us the option; depending on whether the company is an existing or a new one, the choice can be made. But the end result will be the same.
But the Kelkar Committee has recommended removal of Section 33 AC...
The very basis of the Kelkar panel is to adopt best international practices. We are telling the Government that the best international practice in shipping can be achieved through lower tax. So, whether it is given by way of 33 AC or by tonnage tax, by reducing the level of taxation, the best practices for shipping can be followed.
If the Government accepts tonnage tax, how long will take it to implement it?
It may take time. In the UK (which had introduced tonnage tax) they had to introduce a set of rules. I believe the same has to be done in India too.
Some Indian shipping lines are thinking of flagging out their fleet. How do you view this trend?
You see, they are flagging out primarily because of the high level of taxation in India. In fact, tonnage tax would be a step in that direction (to prevent it). In some European countries, most of the additional tonnage that came in was not their own, but flagged out of British tonnage.
Once they found that the local (British) tax regime was as good as that which prevailed in other countries, they came back.
I think if some lines flag out for taxation reasons, they will come back. However, if they flag out for diversifying, or for taking advantage of some local subsidies or cargo, or for having a better resale value, they may not come back even when taxes are brought down.
Do you think tonnage tax will really help boost the tonnage?
I feel that if the Government accepts our proposal, the current decline in Indian tonnage can be arrested. There would be an addition to tonnage, both by existing shipowners and through FDI.
You will see more foreign capital coming into Indian shipping. And, therefore, the net addition to tonnage will be both by expanding Indian tonnage and setting up new companies.
What percentage of the Indian fleet will have to be replaced in the near future?
Nearly 35 per cent over the next five years.
This will call for a massive investment...
Yes. Basically, capital for shipping comes from private investment, which will only come if there is profitability.
What about cargo support for Indian companies?
I think in the days to come there cannot be any policy regarding cargo preference. Indian companies are getting cargo only at the market price. There is no price preference. Once they are given a level-playing field, their capacity will increase and they will be able to compete. We have been competing with this adverse cost against us.
Can you compete in freight terms as well?
Even today, I am facing competition nationally and internationally. The only thing is that our margins are lower because our costs are higher. Capacity can be increased if margins are improved. Today, companies (Indian importers) are getting foreign ships, not because of the price but because Indian ships do not have the required capacity. For instance, IOC is importing five-six parcels in VLCCs every month. There is not a single VLCC in the Indian fleet. The declining share of tonnage of the Indian cargo is because they lack capacity, not competitiveness.
Even SCI is thinking of acquiring two VLCCs. What is the progress?
We are following that procedure. Our Ministry has approved it. Now, the proposal is with PIB.
But how can you make investments when disinvestment is taking place in the company?
It is a commercial decision. If SCI has to survive as a shipping company, it needs ships.
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