Macro Economy

Indian shipping industry losing steam

Arvind Jayaram BL Research Bureau | Updated on June 24, 2014


India has one of the largest merchant shipping fleets among developed countries and is ranked 16th in the world in terms of gross tonnage under its flag. But the overall share of Indian ships in the carriage of the country’s overseas seaborne trade has been declining over the years. From about 31.5 per cent at the turn of the 20th century, this has shrunk to around 10.9 per cent in just over a decade. Approximately 95 per cent of the country’s total trade by volume and 70 per cent by value is done using ships.

What is more, despite its significant fleet size in terms of gross tonnage, India only accounts for 1.1 per cent of total global trade by sea.

Restrictive regime

The trend can be largely attributed to the greater tax advantages available to a majority of foreign players vis-à-vis Indian flag vessels, particularly with respect to the current treatment of service tax on voyages and time charters, which make Indian shipping more expensive. This restrictive regime has resulted in an uneven playing field for national shipping lines in the country, resulting in stagnation of capacities and increased reliance on foreign flag vessels.

Indeed, the gross tonnage of India’s shipping fleet has seen meagre growth from 6 million tonnes in 1980 to 10.4 million tonnes in December 2012. In comparison, a small city state like Singapore has transformed itself into a global cargo hub over the same period, with its gross tonnage rising from 8 million tonnes to 54 million tonnes in the corresponding period. Even arch-rival China, which had just 7 million tonnes of shipping capacity in 1980, has ramped up its fleet to gross tonnage of 38 million tonnes.

The poor state of the Indian shipping industry can also be seen in the fact that it is clearly over-aged, with more than 39 per cent of the fleet above 20 years old and just 26 per cent in the age group below give years. In contrast, the age profile of the world fleet reveals that 40 per cent of global tonnage is less than nine years of age and the share of vessels in the age group 20 years and above was around 37 per cent. Given that a younger age profile leads to higher efficiency and productivity of tonnage, the aged Indian ships are clearly at a disadvantage against the foreign competitors.

As a consequence, “flagging out” − the licensing of Indian flag vessels for use under another flag or open registries − has been limited. The share of vessels under foreign flags in the Indian fleet was around 19 per cent as of January 2012, compared to 85 per cent for Taiwan, 82 per cent for Japan, 45 per cent for China and 40 per cent for Korea.

What’s required

Out of India’s fleet, 70 per cent of the vessels with 10 per cent of the total gross tonnage are devoted to coastal operations, while the remaining 30 per cent with 90 per cent of gross tonnage are deployed for overseas trade. While 53 per cent of Indian tonnage is in the oil tanker category, 32 per cent was accounted for by dry cargo bulk carriers and 11 per cent by dry cargo liners, with offshore supply vessels making up the rest.

The National Transport Development Policy Committee has indicated that assuming that India intends to occupy the same position in the global shipping industry, at 1.1 per cent of total trade, an estimated investment of ₹2,500 crore needs to be made in the 12th Plan (2012-17) to create new capacities. But if the country seeks to expand its share of tonnage to 2.5 per cent of global capacity, it would have to spend ₹32,000 crore, while the requirement would be ₹80,000 crore for a 5 per cent share. But for this to occur, the government would also have to promulgate appropriate policies to assure cargo tie-ups under long-term charters. In addition, the restrictive policies impacting the sector would have to be rationalised. At the same time, internal administrative capacity would have to be created.

Published on June 24, 2014

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