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Shipping Corp rethinks fleet expansion, scraps tender

Shipping Corp rethinks fleet expansion, scraps tender
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First Published: Tue, Feb 24 2009. 10 45 PM IST

Credit crunch: A file photo of Sinotrans Shipping dry bulk vessel. The rates for shipping dry bulk commodities such as coal, iron ore and steel have fell by more than 90% since September when the glob
Credit crunch: A file photo of Sinotrans Shipping dry bulk vessel. The rates for shipping dry bulk commodities such as coal, iron ore and steel have fell by more than 90% since September when the glob
Updated: Tue, Feb 24 2009. 10 45 PM IST
Bangalore: State-run Shipping Corp. of India Ltd (SCI), India’s biggest shipping company by fleet size and revenue, has scrapped a tender to buy four dry bulk cargo carriers as demand for ships declines in the face of a slowdown in global trade.
Credit crunch: A file photo of Sinotrans Shipping dry bulk vessel. The rates for shipping dry bulk commodities such as coal, iron ore and steel have fell by more than 90% since September when the global credit squeeze started pinching world trade. Bloomberg
“Demand has changed; supply has changed. The future looks uncertain,” said U.C. Grover, the Mumbai-based company’s technical and offshore services director. “We didn’t want to keep the tender open till eternity. It makes sense to scrap the tender now.”
In September, South Korea’s STX Shipbuilding Co. Ltd had offered to sell four so-called capesize ships at $94.10 million (Rs470 crore) each.
Capesize cargo ships are so huge they cannot negotiate the Suez or Panama Canals, and must traverse either the Cape of Good Hope or Cape Horn to travel between the oceans. Such vessels can typically carry as much as 175,000 tonnes of cargo, and are the largest vessels capable of carrying dry bulk goods.
The rates for shipping dry bulk commodities such as coal, iron ore and steel have declined by more than 90% since September when the global credit squeeze started pinching world trade.
Dry bulk cargo ship prices have plunged by as much as 70% since then.
“In such a scenario, there is no benchmark price available today for these types of ships,” said Grover.
SCI, 80.12% owned by the Union government, had got STX to extend the price bid validity date a few times since November.
Last week, the corporation decided not to seek more extensions and scrapped the tender.
Given the changed scenario, SCI will have to undertake a fresh market analysis to determine the internal rate of return (IRR) for buying capesize ships, Grover said.
SCI hopes to revisit the purchase plan when the market stabilizes. “At that time, we may go for a limited edition tender by inviting price quotations from all those who had participated in the September round,” said Grover.
Unlike earlier, when the tendering process had to start from scratch, SCI now has greater freedom from government control to take a call on its own.
Last year, the government granted so-called navratna status to SCI, enabling it to take quick decisions on ship purchases and other expenses without having to seek approval from the shipping ministry. The navratna status granted to select public sector enterprises, recognizing them as the most prestigious government-owned companies, allows them greater autonomy.
“The advantage of this is that when the market improves, we can swing into action very quickly. As the technical specifications are frozen and known to the bidders, we can ask for price quotations and finalise the tender in a month,” Grover said.
Typically, SCI takes four-five months to finalize a ship acquisition tender.
The company had announced plans to buy 72 new ships with an investment of $3.1 billion in the five-year period beginning 2007.
SCI has so far ordered 32 new ships worth at least $1.88 billion at various global yards to replace some of its ageing fleet, which has to be decommissioned in line with global maritime regulations.
It plans to buy the remaining 40 new ships worth close to $2.6 billion over the next four years.
p.manoj@livemint.com
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First Published: Tue, Feb 24 2009. 10 45 PM IST