Tata Steel shipping arm to acquire 2 new ships

International Shipping and Logistics, a step-down subsidiary of Tata Steel, will soon buy two ships for about $50 million.

The Dubai-based company, a subsidiary of the Kolkata-headquartered TM International Logistics, in which Tata Steel holds 51 per cent stake, has been chartering vessels for its clients, but has now decided to own ships, the company's Director & CEO, Capt. S R Patnaik, told Business Line on Wednesday.

The capacity of each Handysize bulk carrier is around 35,000 dead weight tonne (DWT). International Shipping is evaluating shipyards in China, Japan and Korea to build the ships. “We should close the deal in six months,” he said.

International Shipping was formed mainly to handle cargo for Tata Steel. However, the focus gradually shifted towards other customers so much so that last year out of the 5.3 million tonne of cargo handled, nearly 98 per cent was handled for non-Tata Steel customers. The Tata group now has a separate joint venture with the NYK group to handle cargo for Tata Steel, he said.

International Shipping annually charters nearly 150 vessels, mainly of Handysize range, for duration ranging from one month to three months. Last year, the company's revenue was Rs 500 crore, which was double the previous year's revenue, he said.

Transchart

International Shipping also transports cargo for Indian public sectors companies such as the Indian Oil Corporation. It gets the order through Transchart, which is the ship chartering arm of the Government of India.

Capt Patnaik said the company's strategy to charter than own ships had worked out well in the past as it did not take undue exposure on vessel or on cargo side. There are a lot of lessons to be learnt from the downturn with respect to shipping as a core business.

“We were smiling in bad days while ship owners were bleeding,” said Capt Patnaik referring to the low freight rates. Companies without competency in shipping invested in ships. This resulted in oversupply and an adverse impact on the global industry, he said.

Imbalance

There is currently a huge imbalance between supply of and demand for ships. While the supply side is growing fast, the demand for carrying cargo is low. The year 2012 will see the highest number of ships coming into the market and nearly 40 per cent of the current fleet in terms of DWT.

Before 2008, the daily charter rate for a Capesize vessel used to be around $180,000, but now it is $15,000- 20,000. For Supramax, which was going at $80,000, the rate is down to around $10,000-15,000, he said.