INDIAN SHIPING INDUSTRY BY RASHMI NAYAR SENT ON 23 OCT 2009
Logistics Management Service information available at
Shipping plays an important role in the transport sector of India's economy. Approximately, 90 per cent of the country's trade by volume (70 per cent in terms of value) is moved by sea. India has the largest merchant shipping fleet among the developing countries and ranks 20th amongst the countries with the largest cargo carrying fleet with 8.83 million GT as on 01.06.2008 and the average of the fleet being 18 years. Indian maritime sector facilities not only transportation of national and international cargo but also provides a variety of other services such as cargo handling services, shipbuilding and ship repairing, freight forwarding, lighthouse facilities and training of marine personnel, etc.
Coastal Shipping
Coastal Shipping is an energy-efficient, environment-friendly and economical mode of transport in the Indian transport network and a crucial component for the development of domestic industry and trade. India, with her 7,517 km long cost line studded with 13 major ports and 200 non-major ports provides congenial and favourable conditions for the development of this alternate mode of transport.
Aids to Navigation
Since Independence, India has made rapid growth in aids to Marine Navigation. From 17 Lighthouses prior to Independence, the present strength of aids to Navigation consists of 171 Lighthouses, one Lightship, one Loran-C Chain Stations, 59 Racoons, 21 Deep Sea Lighted Buoys 01 wreck making and 22 installations under Differential Global Positioning System (DGPS). To cater the needs of light stations in the islands and for maintaining the buoys, the Directorate General of Lighthouses and Lightships is maintaining three launches, one mechanised board and two large ocean going vessels, M.V. Sagardeep-II ad M.V. Pardeep.
Maritime Training
The Director General of Shipping is responsible for creation of the trained manpower required for the merchant navy fleet of the country. This national obligation is being met through the Government training institutes and a number of other approved training institutes in the private sector. The importance of organised training was recognised in the year 1927 when the Training Ship "Dufferin" was established. Since then many highly skilled Indian seafarers have been trained in India who have earned commendable reputation at home and abroad.
The four training institutes, which were established by the Government, are:-
Training Ship 'Chanakya' which conducts
Three years B.Sc degree course in Nautical Sciences under the University of Mumbai
Pre-Sea training course for Deck Cadets.
Marine Engineering and Research Institute (MERI), Kolkata which conducts four years degree course in Marine Engineering under Jadavpur University.
Marine Engineering & Research Institute (MERI), Mumbai conduct
one year Training Marine Engineering Course for graduate Mechanical Engineering’s and
Three-year B.Sc. degree course in Maritime Sciences (polyvalent degree) under the University of Mumbai
LBS College of Advance Maritime Studies & Research, Mumbai, conducts almost 46 post-sea training courses for serving Marine Officers.
In addition to the above, there are about 124 training institutes in the private sector approved by the Director General of Shipping, imparting pre-sea and post-sea training in various disciplines.
Shipping Corporation of India Limited
The Shipping Corporation of India Ltd (SCI) was formed on 2nd October 1961. The present authorised capital of the Company is Rs. 450 crore and paid up capital is Rs 282.30 crore. The status of SCI has been changed from a private limited company to Public limited from 18 September 1992. The SCI was conferred 'Mini Ratna' status by the Government of India on 24 February 2000. At present, the Government is holding 80.12 per cent of share capital and the balance is held by financial institutions, public and others (NRIs, Corporate Bodies, etc.). SCI signed Memorandum of Understanding with the Ministry of Shipping, Road Transport & Highways, and Government of India on 27 March 2008.
On 8th March, 2007, SCI was awarded MOU Excellence Certificate for the year 2004-05 and 2005-06 by the Government of India, Ministry of Heavy Industry and Public Enterprises, Department of Public Enterprises. SCI was the winner of the best international solution award and the third annual HBSC global payments and cash management partnership award, which was posted in Bengaluru on 5th November 2007. The SCI won the "Shipowner/operator of the year 2007" at the sea trade middle east and Indian sub-continental award 2007, held in Dubai in November, 2007 SCI also won the "Shipowner of the year 2007" at Lloyds list Middle east and Indian Sub-continental award, held in Mumbai in November 2007
Cochin Shipyard Limited
Situated in the Western coast of India in the city Cochin, State of Kerala, Cochin Shipyard is the largest shipyard in the country. Incorporated in the year 1972, Cochin Shipyard can build ships up to 1, 10,000 DWT and repair ships up to 1, 25,000 DWT. The year has built varied types of ships including tankers, bulk carriers, ports crafts, offshore vessels and passenger vessels. The orders executed by CSL in recent past include carriers for M/s Clipper Group, Bahamas, fire fighting tugs for M/s ATCO, Saudi Arabia and Platform Supply Vessels for M/s Deep Sea Supplies, Norway. The yard is also a leading ship-repairer of the country and has repaired more than 1200 ships of all types. These include up gradation of vessels belonging to ONGC, periodical layup repairs and life extension of ships of Navy and Coast Guard. The yard had been consistently achieving profits for the last several years.
Garden Reach Shipbuilders & Engineers LTD. KOLKATA
The Garden Reach Shipbuilders & Engineers Limited was incorporated as a joint stock company in 1934, under the name M/s Garden Reach Workshop Limited (GRW). The Government of India acquired the company in 1960. It was renamed as "Garden Reach Shipbuilders & Engineers Limited (GRSE)" on 01 January 1977. The company builds and repairs warships and auxiliary vessels for the Navy and Coast Guard. Its present product range includes corvettes, frigates, fleet tankers, patrol-vessels, fast attack craft, high technology ship borne equipment, portable bailey type steel bridges, turbine pumps for the agricultural sector, Marine Sewage Treatment Plants, Diesel Engines etc. "Mini-Ratna Status Category-I" was conferred on GRSE on 5 September 2006.
Hindustan Shipyard Limited, VISAKHAPATNAM
Hindustan Shipyard Limited (HSL), Visakhapatnam as set up in 1941 in the private sector and was taken over by the Government in 1952. In 1962, the shipyard became a central public sector enterprise. The shipbuilding capacity of the yard is 3.5 pioneer class vessels of 21,500 DWT each. The maximum size of vessel that could be built is 50,000 DWT. HSL is the first shipbuilding yard in the country which was awarded ISO: 9001 certification by Lloyds Register of Quality Assurance, London for international standard of quality assurance. For ship repairs, the yard has facilities such as modern dry dock, wet basin, repair shops, etc., and it can undertake repairs of submarine, tankers and ships up to 70,000 DWT. HSL has an exclusive offshore platform construction yard capable of constructing two platforms per annum.
Hooghly Dock and Port Engineers Limited, KOLKATA
Hooghly Dock and Port Engineers Limited (HDPEL), Kolkata became a Central Public Sector undertaking in 1984. The company has two working units in Howrah District of West Bengal, one at Salkia and another at Nazirgunge. The installed capacity in shipbuilding is 1,100 tonnes per annum and in ship repairs 125 ships per annum. Apart from a dry dock and a jetty, it has six shipways. The yard is capable of constructing various types of ships (including passenger ships) and other vessels such as dredgers, tugs, floating dry docks, fishing trawlers, supply-cum-support vessels, multi-purpose harbour vessels, and lighthouse tender vessels, barges, mooring launches, etc., and undertaking repairs of different types of vessels.
INDIAN SHIPPING ON A NEW WAVE
With fleet acquisition by Indian shipping companies happening on a massive scale over the last year, the 10-million-GRT mark may be crossed soon.
A BOOMING freight market and the recent introduction of a Tonnage Tax regime have caught the shipping industry on a high wave, with the Indian fleet tonnage crossing the 7.6 million GRT (gross registered tonnage) mark for the first time ever.
Though the Ninth Plan target was 9 million GRT, only twice in the past has the tonnage crossed the 7 million GRT — once in 1995-96 when it nudged 7.1 million GRT and then in 1999-2000 when it touched 7.06 million GRT.
Says Mr P. K. Srivastava, chairman of the Shipping Corporation of India (SCI) and president of the Indian National Shipowners Association (INSA): "Just in the last one year alone, over 1.5 million GRT has been added to the Indian tonnage. Compared with the tonnage figure of 6.3 million GRT, which stagnated throughout the last decade, this growth is certainly impressive." Undoubtedly, it was the surge in freight markets that prompted Indian ship-owners to go on an acquisition spree.
Consider this: In the dry bulk sector, the Capesize rates hit an unprecedented $100,000 per day in January, before slipping to $68,000 in April and stabilising at $75,000 in October. Even more prominent were the Panamax earnings, which crossed $40,000 per day in January and remained more or less at that level thereafter.
The tanker market also witnessed a dramatic rise in rates, with VLCC (Very Large Crude Carrier) earnings touching $1 lakh per day and Suezmaxes lagging not far behind.
But the real ballast was provided by the introduction of Tonnage Tax, which considerably reduced the tax liability of ship-owners. Just between April and August this year, the fleet increased from 6.9 million GRT to 7.4 million GRT, with eight oil tankers being added, including four by Great Eastern Shipping and one each by SCI, Essar Shipping and Sanmar Shipping, totalling 5.5 lakh GRT.
"With the massive fleet acquisition plans undertaken by the shipping companies, it is hoped that the Indian fleet would cross the 10 million GRT mark shortly and subsequently emerge as one of the top ten maritime nations," Mr Srivastava points out.
The shipping industry feels that with the next fiscal would see a significant jump in tonnage in the wake of the new tax regime.
Says Mr Yudhishthir Khatau, INSA vice-president: "We see lot of possibilities of FDI (foreign direct investments) coming into the Indian shipping sector as a result of the Tonnage Tax. Whether it would be in the form of foreign companies setting up shop here or forging strategic alliances with Indian companies will have to be seen."
According to the INSA's latest annual report, the average age of the Indian fleet was 16.9 years as on August 1. The age profile of the fleet in terms of GRT shows that over 31.2 per cent of the overseas fleet totalling 2.06 million GRT was over 20 years old, while another 26.1 per cent is between 15 and 19 years. "Thus, over 59 per cent of the Indian fleet needs to be replaced within the next five years," the INSA report says.
However, the share of Indian ships in the carriage of the country's overseas trade has been declining over the years, despite the total volume of cargo moving in India's trade expanding progressively. The share of Indian lines in India's overseas trade flagged from 17 per cent to about 15.1 per cent.
While the total volume of trade moving in India's overseas trade has slightly increased from 273.04 million tonnes to 280.34 million tonnes, the share of Indian ships came down from 46.3 million tonnes to 42.43 million tonnes. "One reason is that Indian ship-owners have begun to increasingly adopt a global approach by looking at trading outside," according to a shipping expert. In fact, the inadequacy of the national fleet to support the country's trade has been one of the major problems facing India and other developing countries. And as a result, India had to depend on foreign ships to a significant extent, leading to higher freight payments in the carriage of its trade.
Reports indicate a significant variation in the freight cost rations among the developed and developing maritime nations.
For example, against 6.11 per cent freight cost of the total CIF import value in the world trade, the share of freight costs in the imports of developing countries is about 8.70 per cent, which is significant higher than that of the developed nations' 5.12 per cent.
One aspect that continues to worry the industry is that in spite of the hectic pace of containerisation of cargoes in India, container shipping still faces "procedural irritants". Perhaps, the setting up of the National Coordinating Agency (NGA) to oversee all the activities connected with multi-modal transportation goods will iron out these problems.
The Indian shipping industry has a bright future. To put it in Mr Srivastava's words: "The golden era of Indian shipping is indeed upon us."
REQUIRED CHANGES IN INDIAN SHIPPING
The falling share of the Indian Shipping Industry in carriage of India’s total overseas sea borne cargo has been a cause of concern. The protection of Indian flag vessels carrying imported crude from other locations to Indian ports, strategic port locations in India, and offshore terminals and pipelines is essential from the point of view of energy and national security. There is a strong need for Indian flag vessels to carry imported crude, and maintain supply chains for all essential commodities in times of emergency. Essential support should be given to service the oilfields support sector and port services support sector to minimize risks. There is also an important need for presence of Indian flags for strategic reasons.
COMPETITIVENESS OF THE INDIAN SHIPPING INDUSTRY
SMARTING under a clutch of problems, including a debilitating tax regime, the domestic shipping industry is increasingly facing the threat of market erosion in the face of stiff competition from foreign companies.
Shipping analysts feel that if the Government does not create a conducive investment and operating environment so that it gets a level playing field, the industry's competitiveness in the global market will be severely blunted. Indeed, the industry is currently struggling to cope with the trend of flagging tonnage and thinning margins for the shipping companies, leading to increased deployment of vessels with foreign flags for carrying cargoes to and from India.
Says Mr Srivastava, Chairman of Shipping Corporation of India (SCI): ``It is clear that the shipping industry suffers from some inherent disadvantages, which is depriving it of a level playing field in the global market. This disadvantage is even greater for more capital-intensive segments like containers and tankers due to their higher financing costs.''
The major disadvantage that confronts the industry pertains to ship finance, with lack of adequate price-competitive sources for financing ships posing an awesome challenge and resulting in postponement of ship acquisition programmes — companies are today forced to go in for older and cheaper vessels, which are less cost efficient. As ship acquisition costs are financed primarily through ECBs up to a level of 60 per cent to 80 per cent, ship owners belonging to countries with higher sovereign rating are in a better position to access the ECB market as compared to their Indian counterparts. To make matters worse, the Government has made ECB costlier by about 20 per cent with the withdrawal of the exemption on withholding tax on interest payment on such loans, with this burden resting entirely on the Indian shipping companies as they cannot pass on the increased costs to the users of their services.
A study by Tata Energy Research Institute (TERI) recently has shown that to procure an Aframax tanker, the Indian flag registry will be at a disadvantage of 7.4 per cent of the cost of the vessel as compared to the free flag registry.
To add to the woes of the industry, Indian ship owners are statutorily required to insure their fleet for hull and machinery with domestic insurance companies, with the premium rates, fixed by the tariff advisory committee, having been traditionally much higher than those prevailing internationally. To top it all, the shipping industry, despite being an indispensable sector, has not been given the status of an infrastructure industry, not given any export industry benefits. This has resulted in low depreciation rate at 25 per cent, while transport vehicles like trucks and cars are permitted 40 per cent rate of depreciation.
The biggest problem that the industry faces is the tax regime, which is considered to be among the highest in the global shipping industry. At present, the Indian shipping companies come under the purview of the 35 per cent corporate tax regime, while 94 per cent of the world shipping is under a very low tax structure. Points out the TERI report: ``About 70 per cent of world shipping is owned by a group of countries following the conventional tonnage tax system, under which ship owners have the benefit of paying a very low and fixed amount of tax based on their tonnage.''
The TERI analysis shows that the profitability of operating a 75,000 dwt Panamax bulk carrier aged less than five owned and registered in India is significantly lower than the one owned and registered outside India. The profit after tax for such a vessel owned and registered in India comes to about $405 as against $888 that would come from the same vessel owned and registered outside India.
In fact, after facing an exodus of a large number of ships from their National Registers, major European maritime countries such as Norway, the Netherlands, UK and Germany had modified the tax structure — it was actually Greece which first introduced the tonnage tax regime in 1975.
According to the TERI report, a number of countries have benefited from the tonnage tax regimes. ``For example, in the UK in 2001, 47 companies opted for a TT regime which resulted in 598 ships getting added to the fleet. Similarly, in Norway, in a two-year period under TT regime, 5.5 million GRT (229 ships) were added to the fleet; while in the Netherlands 1.1 million GRT (142 ships) were added within two years of introduction of TT. In Germany, TT has had a stabilising effect on shipping industry with a 2.1 million GRT increase in 2001, while in Greece it stemmed flight of ships being registered abroad.''
What would be the implications of introduction of TT regime in India? The Working Group on Shipping for the Tenth Plan has estimated that about 2.75 million GRT would be deleted by 2007, given the age of the Indian fleet, and to maintain a steady growth an additional tonnage of 3.25 million GRT (156 ships) would be needed, which would require an investment of $3.3 billion. Based on these assumptions, TERI has projected that the tonnage would decline to 5.6 million GRT by 2007 and 4.6 million GRT by 2027.
It has been estimated that as per the tonnage tax rates proposed, a 45,000 GRT ship would attract a tax of about Rs 9.64 lakh, based on the vessels income for the entire year. Based on this, it has been shown that the TT that the entire industry would have to pay would first decrease from Rs 163 million in 2003 (fleet size of 6.87 million GRT) to Rs 147 million by 2010 (6.20 million GRT) and then begin to rise from Rs 150 million in 2011 (6.31 million GRT) to touch Rs 160 million in 2017 (6.71 million GRT) and Rs 180 million lin 2024 (7.56 million GRT). This is based on the assumption that introduction of TT regime would result in addition to the Indian tonnage, as shipping companies would go in for fresh acquisitions.
RECENT DEVELOPMENTS:-
Shipping industry seeks Rs 10 crore bailout ON 3RD APRIL 2009.
Thanks to global recession, the Indian Shipping industry is in dire consequences. Now the Indian Shipping Industry is seeking a bailout package to the tune of Rs 10,000 crore.The credit crisis is the biggest issue for the shipping industry as nobody is willing to lend, lamented S Hajara, chairman and managing director of Shipping Corporation of India."The bulk carrier business has declined by about 95 per cent, container sector is affected badly and rates are down by about 40 to 60 per cent and the least-affected tanker market also has suffered by about 25 to 30 per cent," he said.However, in spite of recession Industry did not witness job cut downs. Reason: There is already acute shortage of manpower.Speaking at a press conference on Thursday, Apr 2 he elaborated on the credit crisis. "For shipping companies, external commercial borrowing was the main funding source, which has dried up completely." he said.He said: "Indian banks are also not interested in lending to shipping companies. We have urged the government to ask banks to provide credit to the shipping companies."
BIBLIOGRAPHY
EXPORT –IMPORT AND LOGISTICS MANAGEMENT BY USHA KIRAN RAI
www.google.co.in
www.indiashippingsummit.com
Coastal Shipping
Coastal Shipping is an energy-efficient, environment-friendly and economical mode of transport in the Indian transport network and a crucial component for the development of domestic industry and trade. India, with her 7,517 km long cost line studded with 13 major ports and 200 non-major ports provides congenial and favourable conditions for the development of this alternate mode of transport.
Aids to Navigation
Since Independence, India has made rapid growth in aids to Marine Navigation. From 17 Lighthouses prior to Independence, the present strength of aids to Navigation consists of 171 Lighthouses, one Lightship, one Loran-C Chain Stations, 59 Racoons, 21 Deep Sea Lighted Buoys 01 wreck making and 22 installations under Differential Global Positioning System (DGPS). To cater the needs of light stations in the islands and for maintaining the buoys, the Directorate General of Lighthouses and Lightships is maintaining three launches, one mechanised board and two large ocean going vessels, M.V. Sagardeep-II ad M.V. Pardeep.
Maritime Training
The Director General of Shipping is responsible for creation of the trained manpower required for the merchant navy fleet of the country. This national obligation is being met through the Government training institutes and a number of other approved training institutes in the private sector. The importance of organised training was recognised in the year 1927 when the Training Ship "Dufferin" was established. Since then many highly skilled Indian seafarers have been trained in India who have earned commendable reputation at home and abroad.
The four training institutes, which were established by the Government, are:-
Training Ship 'Chanakya' which conducts
Three years B.Sc degree course in Nautical Sciences under the University of Mumbai
Pre-Sea training course for Deck Cadets.
Marine Engineering and Research Institute (MERI), Kolkata which conducts four years degree course in Marine Engineering under Jadavpur University.
Marine Engineering & Research Institute (MERI), Mumbai conduct
one year Training Marine Engineering Course for graduate Mechanical Engineering’s and
Three-year B.Sc. degree course in Maritime Sciences (polyvalent degree) under the University of Mumbai
LBS College of Advance Maritime Studies & Research, Mumbai, conducts almost 46 post-sea training courses for serving Marine Officers.
In addition to the above, there are about 124 training institutes in the private sector approved by the Director General of Shipping, imparting pre-sea and post-sea training in various disciplines.
Shipping Corporation of India Limited
The Shipping Corporation of India Ltd (SCI) was formed on 2nd October 1961. The present authorised capital of the Company is Rs. 450 crore and paid up capital is Rs 282.30 crore. The status of SCI has been changed from a private limited company to Public limited from 18 September 1992. The SCI was conferred 'Mini Ratna' status by the Government of India on 24 February 2000. At present, the Government is holding 80.12 per cent of share capital and the balance is held by financial institutions, public and others (NRIs, Corporate Bodies, etc.). SCI signed Memorandum of Understanding with the Ministry of Shipping, Road Transport & Highways, and Government of India on 27 March 2008.
On 8th March, 2007, SCI was awarded MOU Excellence Certificate for the year 2004-05 and 2005-06 by the Government of India, Ministry of Heavy Industry and Public Enterprises, Department of Public Enterprises. SCI was the winner of the best international solution award and the third annual HBSC global payments and cash management partnership award, which was posted in Bengaluru on 5th November 2007. The SCI won the "Shipowner/operator of the year 2007" at the sea trade middle east and Indian sub-continental award 2007, held in Dubai in November, 2007 SCI also won the "Shipowner of the year 2007" at Lloyds list Middle east and Indian Sub-continental award, held in Mumbai in November 2007
Cochin Shipyard Limited
Situated in the Western coast of India in the city Cochin, State of Kerala, Cochin Shipyard is the largest shipyard in the country. Incorporated in the year 1972, Cochin Shipyard can build ships up to 1, 10,000 DWT and repair ships up to 1, 25,000 DWT. The year has built varied types of ships including tankers, bulk carriers, ports crafts, offshore vessels and passenger vessels. The orders executed by CSL in recent past include carriers for M/s Clipper Group, Bahamas, fire fighting tugs for M/s ATCO, Saudi Arabia and Platform Supply Vessels for M/s Deep Sea Supplies, Norway. The yard is also a leading ship-repairer of the country and has repaired more than 1200 ships of all types. These include up gradation of vessels belonging to ONGC, periodical layup repairs and life extension of ships of Navy and Coast Guard. The yard had been consistently achieving profits for the last several years.
Garden Reach Shipbuilders & Engineers LTD. KOLKATA
The Garden Reach Shipbuilders & Engineers Limited was incorporated as a joint stock company in 1934, under the name M/s Garden Reach Workshop Limited (GRW). The Government of India acquired the company in 1960. It was renamed as "Garden Reach Shipbuilders & Engineers Limited (GRSE)" on 01 January 1977. The company builds and repairs warships and auxiliary vessels for the Navy and Coast Guard. Its present product range includes corvettes, frigates, fleet tankers, patrol-vessels, fast attack craft, high technology ship borne equipment, portable bailey type steel bridges, turbine pumps for the agricultural sector, Marine Sewage Treatment Plants, Diesel Engines etc. "Mini-Ratna Status Category-I" was conferred on GRSE on 5 September 2006.
Hindustan Shipyard Limited, VISAKHAPATNAM
Hindustan Shipyard Limited (HSL), Visakhapatnam as set up in 1941 in the private sector and was taken over by the Government in 1952. In 1962, the shipyard became a central public sector enterprise. The shipbuilding capacity of the yard is 3.5 pioneer class vessels of 21,500 DWT each. The maximum size of vessel that could be built is 50,000 DWT. HSL is the first shipbuilding yard in the country which was awarded ISO: 9001 certification by Lloyds Register of Quality Assurance, London for international standard of quality assurance. For ship repairs, the yard has facilities such as modern dry dock, wet basin, repair shops, etc., and it can undertake repairs of submarine, tankers and ships up to 70,000 DWT. HSL has an exclusive offshore platform construction yard capable of constructing two platforms per annum.
Hooghly Dock and Port Engineers Limited, KOLKATA
Hooghly Dock and Port Engineers Limited (HDPEL), Kolkata became a Central Public Sector undertaking in 1984. The company has two working units in Howrah District of West Bengal, one at Salkia and another at Nazirgunge. The installed capacity in shipbuilding is 1,100 tonnes per annum and in ship repairs 125 ships per annum. Apart from a dry dock and a jetty, it has six shipways. The yard is capable of constructing various types of ships (including passenger ships) and other vessels such as dredgers, tugs, floating dry docks, fishing trawlers, supply-cum-support vessels, multi-purpose harbour vessels, and lighthouse tender vessels, barges, mooring launches, etc., and undertaking repairs of different types of vessels.
INDIAN SHIPPING ON A NEW WAVE
With fleet acquisition by Indian shipping companies happening on a massive scale over the last year, the 10-million-GRT mark may be crossed soon.
A BOOMING freight market and the recent introduction of a Tonnage Tax regime have caught the shipping industry on a high wave, with the Indian fleet tonnage crossing the 7.6 million GRT (gross registered tonnage) mark for the first time ever.
Though the Ninth Plan target was 9 million GRT, only twice in the past has the tonnage crossed the 7 million GRT — once in 1995-96 when it nudged 7.1 million GRT and then in 1999-2000 when it touched 7.06 million GRT.
Says Mr P. K. Srivastava, chairman of the Shipping Corporation of India (SCI) and president of the Indian National Shipowners Association (INSA): "Just in the last one year alone, over 1.5 million GRT has been added to the Indian tonnage. Compared with the tonnage figure of 6.3 million GRT, which stagnated throughout the last decade, this growth is certainly impressive." Undoubtedly, it was the surge in freight markets that prompted Indian ship-owners to go on an acquisition spree.
Consider this: In the dry bulk sector, the Capesize rates hit an unprecedented $100,000 per day in January, before slipping to $68,000 in April and stabilising at $75,000 in October. Even more prominent were the Panamax earnings, which crossed $40,000 per day in January and remained more or less at that level thereafter.
The tanker market also witnessed a dramatic rise in rates, with VLCC (Very Large Crude Carrier) earnings touching $1 lakh per day and Suezmaxes lagging not far behind.
But the real ballast was provided by the introduction of Tonnage Tax, which considerably reduced the tax liability of ship-owners. Just between April and August this year, the fleet increased from 6.9 million GRT to 7.4 million GRT, with eight oil tankers being added, including four by Great Eastern Shipping and one each by SCI, Essar Shipping and Sanmar Shipping, totalling 5.5 lakh GRT.
"With the massive fleet acquisition plans undertaken by the shipping companies, it is hoped that the Indian fleet would cross the 10 million GRT mark shortly and subsequently emerge as one of the top ten maritime nations," Mr Srivastava points out.
The shipping industry feels that with the next fiscal would see a significant jump in tonnage in the wake of the new tax regime.
Says Mr Yudhishthir Khatau, INSA vice-president: "We see lot of possibilities of FDI (foreign direct investments) coming into the Indian shipping sector as a result of the Tonnage Tax. Whether it would be in the form of foreign companies setting up shop here or forging strategic alliances with Indian companies will have to be seen."
According to the INSA's latest annual report, the average age of the Indian fleet was 16.9 years as on August 1. The age profile of the fleet in terms of GRT shows that over 31.2 per cent of the overseas fleet totalling 2.06 million GRT was over 20 years old, while another 26.1 per cent is between 15 and 19 years. "Thus, over 59 per cent of the Indian fleet needs to be replaced within the next five years," the INSA report says.
However, the share of Indian ships in the carriage of the country's overseas trade has been declining over the years, despite the total volume of cargo moving in India's trade expanding progressively. The share of Indian lines in India's overseas trade flagged from 17 per cent to about 15.1 per cent.
While the total volume of trade moving in India's overseas trade has slightly increased from 273.04 million tonnes to 280.34 million tonnes, the share of Indian ships came down from 46.3 million tonnes to 42.43 million tonnes. "One reason is that Indian ship-owners have begun to increasingly adopt a global approach by looking at trading outside," according to a shipping expert. In fact, the inadequacy of the national fleet to support the country's trade has been one of the major problems facing India and other developing countries. And as a result, India had to depend on foreign ships to a significant extent, leading to higher freight payments in the carriage of its trade.
Reports indicate a significant variation in the freight cost rations among the developed and developing maritime nations.
For example, against 6.11 per cent freight cost of the total CIF import value in the world trade, the share of freight costs in the imports of developing countries is about 8.70 per cent, which is significant higher than that of the developed nations' 5.12 per cent.
One aspect that continues to worry the industry is that in spite of the hectic pace of containerisation of cargoes in India, container shipping still faces "procedural irritants". Perhaps, the setting up of the National Coordinating Agency (NGA) to oversee all the activities connected with multi-modal transportation goods will iron out these problems.
The Indian shipping industry has a bright future. To put it in Mr Srivastava's words: "The golden era of Indian shipping is indeed upon us."
REQUIRED CHANGES IN INDIAN SHIPPING
The falling share of the Indian Shipping Industry in carriage of India’s total overseas sea borne cargo has been a cause of concern. The protection of Indian flag vessels carrying imported crude from other locations to Indian ports, strategic port locations in India, and offshore terminals and pipelines is essential from the point of view of energy and national security. There is a strong need for Indian flag vessels to carry imported crude, and maintain supply chains for all essential commodities in times of emergency. Essential support should be given to service the oilfields support sector and port services support sector to minimize risks. There is also an important need for presence of Indian flags for strategic reasons.
COMPETITIVENESS OF THE INDIAN SHIPPING INDUSTRY
SMARTING under a clutch of problems, including a debilitating tax regime, the domestic shipping industry is increasingly facing the threat of market erosion in the face of stiff competition from foreign companies.
Shipping analysts feel that if the Government does not create a conducive investment and operating environment so that it gets a level playing field, the industry's competitiveness in the global market will be severely blunted. Indeed, the industry is currently struggling to cope with the trend of flagging tonnage and thinning margins for the shipping companies, leading to increased deployment of vessels with foreign flags for carrying cargoes to and from India.
Says Mr Srivastava, Chairman of Shipping Corporation of India (SCI): ``It is clear that the shipping industry suffers from some inherent disadvantages, which is depriving it of a level playing field in the global market. This disadvantage is even greater for more capital-intensive segments like containers and tankers due to their higher financing costs.''
The major disadvantage that confronts the industry pertains to ship finance, with lack of adequate price-competitive sources for financing ships posing an awesome challenge and resulting in postponement of ship acquisition programmes — companies are today forced to go in for older and cheaper vessels, which are less cost efficient. As ship acquisition costs are financed primarily through ECBs up to a level of 60 per cent to 80 per cent, ship owners belonging to countries with higher sovereign rating are in a better position to access the ECB market as compared to their Indian counterparts. To make matters worse, the Government has made ECB costlier by about 20 per cent with the withdrawal of the exemption on withholding tax on interest payment on such loans, with this burden resting entirely on the Indian shipping companies as they cannot pass on the increased costs to the users of their services.
A study by Tata Energy Research Institute (TERI) recently has shown that to procure an Aframax tanker, the Indian flag registry will be at a disadvantage of 7.4 per cent of the cost of the vessel as compared to the free flag registry.
To add to the woes of the industry, Indian ship owners are statutorily required to insure their fleet for hull and machinery with domestic insurance companies, with the premium rates, fixed by the tariff advisory committee, having been traditionally much higher than those prevailing internationally. To top it all, the shipping industry, despite being an indispensable sector, has not been given the status of an infrastructure industry, not given any export industry benefits. This has resulted in low depreciation rate at 25 per cent, while transport vehicles like trucks and cars are permitted 40 per cent rate of depreciation.
The biggest problem that the industry faces is the tax regime, which is considered to be among the highest in the global shipping industry. At present, the Indian shipping companies come under the purview of the 35 per cent corporate tax regime, while 94 per cent of the world shipping is under a very low tax structure. Points out the TERI report: ``About 70 per cent of world shipping is owned by a group of countries following the conventional tonnage tax system, under which ship owners have the benefit of paying a very low and fixed amount of tax based on their tonnage.''
The TERI analysis shows that the profitability of operating a 75,000 dwt Panamax bulk carrier aged less than five owned and registered in India is significantly lower than the one owned and registered outside India. The profit after tax for such a vessel owned and registered in India comes to about $405 as against $888 that would come from the same vessel owned and registered outside India.
In fact, after facing an exodus of a large number of ships from their National Registers, major European maritime countries such as Norway, the Netherlands, UK and Germany had modified the tax structure — it was actually Greece which first introduced the tonnage tax regime in 1975.
According to the TERI report, a number of countries have benefited from the tonnage tax regimes. ``For example, in the UK in 2001, 47 companies opted for a TT regime which resulted in 598 ships getting added to the fleet. Similarly, in Norway, in a two-year period under TT regime, 5.5 million GRT (229 ships) were added to the fleet; while in the Netherlands 1.1 million GRT (142 ships) were added within two years of introduction of TT. In Germany, TT has had a stabilising effect on shipping industry with a 2.1 million GRT increase in 2001, while in Greece it stemmed flight of ships being registered abroad.''
What would be the implications of introduction of TT regime in India? The Working Group on Shipping for the Tenth Plan has estimated that about 2.75 million GRT would be deleted by 2007, given the age of the Indian fleet, and to maintain a steady growth an additional tonnage of 3.25 million GRT (156 ships) would be needed, which would require an investment of $3.3 billion. Based on these assumptions, TERI has projected that the tonnage would decline to 5.6 million GRT by 2007 and 4.6 million GRT by 2027.
It has been estimated that as per the tonnage tax rates proposed, a 45,000 GRT ship would attract a tax of about Rs 9.64 lakh, based on the vessels income for the entire year. Based on this, it has been shown that the TT that the entire industry would have to pay would first decrease from Rs 163 million in 2003 (fleet size of 6.87 million GRT) to Rs 147 million by 2010 (6.20 million GRT) and then begin to rise from Rs 150 million in 2011 (6.31 million GRT) to touch Rs 160 million in 2017 (6.71 million GRT) and Rs 180 million lin 2024 (7.56 million GRT). This is based on the assumption that introduction of TT regime would result in addition to the Indian tonnage, as shipping companies would go in for fresh acquisitions.
RECENT DEVELOPMENTS:-
Shipping industry seeks Rs 10 crore bailout ON 3RD APRIL 2009.
Thanks to global recession, the Indian Shipping industry is in dire consequences. Now the Indian Shipping Industry is seeking a bailout package to the tune of Rs 10,000 crore.The credit crisis is the biggest issue for the shipping industry as nobody is willing to lend, lamented S Hajara, chairman and managing director of Shipping Corporation of India."The bulk carrier business has declined by about 95 per cent, container sector is affected badly and rates are down by about 40 to 60 per cent and the least-affected tanker market also has suffered by about 25 to 30 per cent," he said.However, in spite of recession Industry did not witness job cut downs. Reason: There is already acute shortage of manpower.Speaking at a press conference on Thursday, Apr 2 he elaborated on the credit crisis. "For shipping companies, external commercial borrowing was the main funding source, which has dried up completely." he said.He said: "Indian banks are also not interested in lending to shipping companies. We have urged the government to ask banks to provide credit to the shipping companies."
BIBLIOGRAPHY
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