‘Worst is not over for the shipping industry’

The shipping industry is still under recession and the worst-hit appears to be the dry bulk rates with Baltic Index hovering over the 600+ level. Are there any chances of an early recovery? Sunil Thapar, CEO of Allcargo Shipping Co, a leading Indian logistics company, says growth in the sector will depends on the revival of Chinese and European markets. Thapar, who has been in the shipping industry for more than four decades, headed the bulk and tanker division of the public sector Shipping Corporation of India before joining Allcargo a year ago.

In a conversation with BusinessLine , Thapar spoke about the potential of coastal shipping in India, impact of GST on the logistics sector and the Allcargo’s plans to expand the shipping business. Edited excerpts:

When do you expect a recovery in the freight market?

As you know, there are several factors like economic slowdown, oversupply of ships and changing trade pattern that continue to push the freight rates down. The present circumstances worldwide have put many of the bulk ship operators to bleed as they procured many ships during the good times.

The shipping industry is cyclic in nature, witnessing ups and downs in its fortunes. However, the recession this time lasted for a longer period. Today, the Baltic Dry Index is hovering at 600+ level from 11,000+ level in May 2008, which shows that the shipping market has not improved in the last eight years.

The growth in the sector will depend on the revival of Chinese and European markets. It may take time, though there could be temporary spike in rates.

What about the growth potential of coastal shipping in India?

Coastal shipping is the buzzword in India’s logistics sector due to its cost-effectiveness and eco-friendliness. Today only about six per cent of the domestic cargo is moved by coastal shipping despite its price advantage in moving cargo to longer distance. Roads are cheaper for cargo movement up to 500 km, railway network will benefit goods movement up to 1,500 km, and beyond that, coastal shipping is the ideal mode.

However, coastal shipping in India is facing stiff competition from the aggressive road and rail sectors due to good infrastructure improvement in highways and a pro-active policy of railways with abundant rake availability. Though there has been a volume wise growth in coastal mode, its share in the overall cargo remains the same.

Globally, the logistics cost is only 3-4 per cent against the sale price of goods, while in India it is 14-15 per cent. This is because of various tax structures in different states coupled with the inefficiency in the system. This needs to be tackled. Besides, the geographical structure of India is also adding to the cost of coastal ship movement from west to east. Once the cargo movement becomes cheaper, it will automatically bring down the prices of several commodities.

Right now, thermal coal is the major chunk of the volume moved through coastal shipping. The reduction in the transportation cost will benefit utility industries. Once these rates decline, automatically the cost of power will be cheaper and benefit consumers in a big way.

Keeping this in mind, the government is now targeting coal movement through coastal shipping route by offering incentives to shippers as part of reducing the cost. The authorities have also identified 12 other commodities, which are eligible for incentives to be routed through coastal shipping.

The Kerala government has already chalked out plans to promote coastal shipping. Your views?

Kerala has the maximum number of inland waterways, which is a good advantage. The inland water transportation in the State is well advanced, but it is confined only to a localised movement without any connection to sea route. The State has to promote both the means to take full advantage of the benefits of coastal shipping.

What will be the impact of GST on the logistics sector?

GST is a welcome move as far as the logistics industry is concerned, but it all depends on the rate of taxation. If the tax rate is below 20 per cent, the transportation cost will be lower and help increase more volumes. This will benefit the sector.

However, nothing has been finalised so far on the tax structure and we hope that the rates will be below 20 per cent.

What are Allcargo’s plans to expand shipping service? Will you be acquiring more tonnage?

We have already streamlined our services. However, the prolonged downward trend in global shipping has forced the company to be cautious on ship acquisition plans. We have plans to acquire two more ships. We are keeping an eye on the market and will enter once the situation becomes conducive. The market must be favourable for any investments, as the industry is yet to recover from the recession that began in 2008.

The billion-dollar Allcargo is said to be looking at doubling the business by 2020. What would the plans to achieve this growth?

The company has drawn up definite plans, which include enhancing the existing business of CFS, ICD facilities, expanding shipping services and exploring growth potential in related areas.

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