Shipping industry still in choppy waters: Ministry

TE Raja Simhan Chennai | Updated on August 01, 2019

The shipping industry continues to be affected by chronic problems related to ageing fleet, inability to participate in critical sectors and large-ticket contracts of LNG trade and carriage. There is a need to augment Indian tonnage and increase the quantity of EXIM and coastal cargo carried on Indian ships, said the Ministry of Shipping.

Shipping companies face restricted cash inflows due to very low charter hire and freight rates in all segments. The challenges include regulations framed to meet tighter environmental requirements (which would mean huge upfront costs for shipping companies); continued supply of new tonnage leading to depressed freight rates and shortage of trained and qualified seafarers at optimum pay scales. The Ministry’s 2018-19 annual report said that these factors eventually impact transportation cost.

India’s overseas seaborne trade growing exponentially over the years but carriage of overseas cargo by Indian ships declined sharply to 6.4 per cent in 2016-17 from a peak of 40 per cent in late 1980s. Indian shipping tonnage was 12.69 million tonne (MT) as on December 31, 2018, with state-owned Shipping Corporation of India having 25 per cent market share. India has a meagre 1.13 per cent share of global tonnage.

Nearly 41 per cent of Indian fleet is over 20 years and 13 per cent 16-20 years old. The growth in global economy in first half of 2017 brought signs of recovery to the shipping industry, but excessive capacity hurts the industry, says the report. Indian flag vessels are trying, with limited success, to tap more cargo from road and rail to coastal shipping. In 2018-19, the Cabotage Law was relaxed for coastal transportation of EXIM but its impact will take some time.

Investment woes

Anil Devli, CEO, Indian National Shipowners’ Association, said the first step government should take is to make shipping competitive, as operating an Indian flag vessel is at least 25 per cent costlier than a foreign vessel. The recent relaxation of licensing for container vessels led to Indian companies chartering container tonnage, which otherwise they could have possibly purchased. Shipping has had 100 per cent Foreign Direct Investment for over two decades but this is yet to translate in to major investment.

There is lack of specialised funding to Indian shipping companies. The cost of borrowing of an Indian company is higher by an average of 8-9 per cent compared to foreign companies while funding a 10-year-old oil tanker costing ₹280 crore.

In 2018-19, shipping received 11.06 per cent of Shipping Ministry’s total budget allocation with bulk of the resources devoted to ports and inland waterways, he said.

Major Indian shipping companies are not doing well. Some are bankrupt, while others are in insolvency process.

There is excess capacity in the market and ship demolition has not been very large for replacement, said K Ravichandran, Senior Vice President, ICRA.

Published on August 01, 2019

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