Logistics

Let Indian lines carry more oil cargo

NK Kurup | Updated on December 16, 2014 Published on December 16, 2014

By admitting that he knew very little about shipping business, Minister Nitin Gadkari has put the ball in the ship-owners’ court. At the Inmarco-2014 dinner meet last week in Mumbai, Gadkari confessed that unlike in the case of construction of roads, highways and flyovers where he has firsthand experience, he is new to shipbuilding and shipping.

He wondered why Indian vessels carry only eight per cent of the country’s own international cargo. Why local shipyard account for only one per cent of the ships built globally? Why domestic shipping companies earning in dollars are finding it hard to raise foreign currency loans to buy ships?

However, the Minister was clear about one thing - that the maritime sector has been neglected for long, and it has a lot of growth potential. Now, the onus is on the captains of the industry to educate the Minister and get their problems resolved.

All players in the sector--be it ship-owner, shipper, shipbuilder or port operator - have one common grievance - apathy on the part of the policymakers; and they are not wrong. As the Minister pointed out, the previous regime in New Delhi did precious little for the development of the sector. Maritime sector is probably the best example of how unfinished sectoral reforms hurt the industry’s growth.

However, it is ironical that even the present regime has done little so far to win the industry’s confidence. The gap between talk and action is widening. As the Minister pleaded, he may need more time to learn; but surely he can begin with what he has already learnt: to help arrest the shrinking cargo share of Indian flag-carriers.

Here is a golden opportunity. Oil and petroleum products account for close to 40 per cent of the country’s sea-borne cargo. Currently domestic ships carry only about 14 per cent of the oil cargo, far below the 66 per cent a couple of decades ago. India imports nearly 85 per cent of its oil requirements and the volume has been expanding every year; and with it the freight outgo.

With oil prices declining, domestic consumption of petroleum products is bound to go up, leading to higher imports. Besides, local refiners would be importing more to fill their reserve tanks.

It could thus be an opportune time for domestic shipping lines and oil companies at least those in the public sector to enter into a long term arrangement for crude transport. With an assured long-term cargo, it would be easier for domestic lines to raise funds to acquire the type of vessels required by the oil importers.

Action lies with the government. The Minister should take the lead triggering a dialogue between shipping lines and oil PSUs. For this, he has the expertise within his own Ministry - the new Shipping Secretary has come from the Petroleum Ministry.

A long-term tie-up for oil shipment will not only help increase the cargo share of national bottoms but also cut the forex outgo on account of freight paid to foreign ships.

With crude prices breaching $ 60 a barrel, as a long-term policy, oil companies could also consider chartering Indian tankers even for storing crude. We can learn from Japan’s experience. Of course, there could be the risk of oil price falling further. It is a question of taking a commercial call with a long-term view.

Published on December 16, 2014
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