The Hindu Business Line : Floating on profits...<br>Shipping lines plan major fleet expansion

PROPELLED by a hefty rise in net profit, despite a volatile freight market in the last quarter, Indian shipping companies have drawn up ambitious fleet expansion plans that should significantly prop up the country's tonnage in the next few years.

The state-owned Shipping Corporation of India (SCI), which posted a 111 per cent rise in net profit at Rs 280.15 crore the last quarter over the corresponding previous period, has drawn up a massive $1-billion capital expenditure programme. The company plans to acquire two cellular container ships with a capacity of 4,250 containers, six super handimax bulk carriers and six product tankers. Besides these, SCI will also be placing orders for two more VLCCs (Very Large Crude Carriers) and two cape-size vessels.

SCI had not been able to expand its fleet the last two years due to the uncertainty over its disinvestment proposal. Now that the proposal has been shelved, India's largest shipping company will be steaming ahead on its fleet expansion course to cash in on the strong freight market currents. The company has submitted its expansion plans to the Government for approval, even as it is getting ready with the global tendering process. After scrapping and selling two vessels in the last quarter and taking delivery of a VLCC of 3.16 lakh DWT late last month, SCI now has a fleet of 81.

Great Eastern Shipping, the country's largest private sector fleet owner, plans to invest about $350 million to add 15 ships, including offshore vessels, to its fleet between 2005 and mid-2007. Its current fleet of 70 vessels comprises 40 ships (with an average tonnage of 2.76 million DWT and average age of 14.5 years) and 30 offshore vessels.

GE Shipping recorded its highest every quarterly profit in the last three-month period, with its net profit touching Rs 287.50 crore against Rs 110 crore in the corresponding previous quarter, representing an increase of 161 per cent. During the quarter, the company's income was Rs 633.24 crore against Rs 354.59 crore in the corresponding previous quarter, up 78 per cent.

The company that recorded the highest percentage increase in the last quarter results was clearly Mercator Lines. The country's third largest private shipping company posted a whopping 316 per cent rise in net profit over third quarter of last fiscal to touch Rs 58 crore. Its income from operations was up 132 per cent at Rs 168.79 crore (Rs 72.53 crore.

Mr H. K. Mittal, the company's chairman-cum-managing director, attributes the increase in profit directly to fleet expansion. "During the last nine months we increased our fleet from 4.5 lakh DWT to 8.5 lakh DWT by adding one VLCC and an Aframax carrier. We will be having another 1.75 lakh DWT and 47,000 DWT vessels in February, when our fleet will touch one million DWT. In May, we will be acquiring another 1.10 lakh DWT vessel," he told Business Line. How do the industry captains read the growth in last quarter and project the market contours in the coming months? All shipping companies point out that higher tanker earnings, despite a fall in December 2004, was the main driver of growth during the quarter.

According to GE Shipping, crude carriers recorded an average TCY (Time Charter Yield) of about $40,592 a day against $22,600 a day in the third quarter of last fiscal, representing an increase of 80 per cent, while products carriers recorded an average TCY of $17,102 a day against $12,300 a day in the corresponding previous quarter.

The freight rates were, however, volatile during the quarter. After reaching a record WS (World Scale) 350 in November, which translates into earnings of more than $2 lakh a day, the VLCC earnings plunged by more than three-quarters in December.

Though expecting a steady market, shipping companies are not too willing to project the market contours over the next 12 months. Says Mr Bharat Seth, managing director, GE Shipping: "It's a bit difficult at this stage to talk over the next 12 months because we are operating in extreme volatility and we have seen markets in the span of three weeks change completely in certain sectors. For example, the VLCC market came off almost 80 to 85 per cent. But anything that comes down at that pace can also go up at similar speed and we did see that happen in September when the markets more than doubled in a span of just two weeks."

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