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Shipping contracts lost as firms miss deadline, incur $21 mn loss

Shipping contracts lost as firms miss deadline, incur $21 mn loss
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First Published: Sun, Sep 20 2009. 10 32 PM IST

Big loss: A large crude carrier owned by Shipping Corp. of India (SCI). The company had agreed to rent out one of its oil supertankers to Hosco Group. SCI missed the deadline and the contract was canc
Big loss: A large crude carrier owned by Shipping Corp. of India (SCI). The company had agreed to rent out one of its oil supertankers to Hosco Group. SCI missed the deadline and the contract was canc
Updated: Sun, Sep 20 2009. 10 32 PM IST
Bangalore: Operational mistakes have led to two of India’s blue-chip state-owned firms losing contracts that would cost them at least $21 million (Rs101 crore).
Shipping Corp. of India Ltd (SCI), the country’s biggest ocean carrier by fleet size and revenue, recently lost a contract because it could not deliver an oil tanker to a hirer on time.
Big loss: A large crude carrier owned by Shipping Corp. of India (SCI). The company had agreed to rent out one of its oil supertankers to Hosco Group. SCI missed the deadline and the contract was cancelled.
Indian Oil Corp. Ltd (IOC), the nation’s largest refiner, failed to exercise an option in time to extend a shipping contract by six months, giving a Taiwanese shipowner an excuse to walk out of the deal. IOC was getting a discount on the contract.
In June, SCI had agreed to rent out one of its newly built oil supertankers to China’s Hosco Group for 19 months at a day rate of $37,500. The ship was to be delivered to Hosco in early September. SCI missed the deadline and Hosco cancelled the contract, said an SCI executive. He did not want to be named because of company policy on speaking with the media. SCI sought an extension of time, but was denied by Hosco.
A spokesman for SCI declined to comment.
With the rates for tankers showing no signs of improvement and employment opportunities looking bleak, SCI had to deploy the supertanker in the spot market where it is earning just around $3,000 a day, some $34,500 per day less than what it would have got on the Hosco contract.
“At a time when ship owners are idling their ships due to lack of work, the contract cancellation is a big loss to SCI,” said a Delhi-based ship broker, who declined to be named.
IOC signed a 12-month contract last year with TMT Co. Ltd to undertake three shipments of crude oil in a month from Iraq to India on supertankers. TMT is the world’s biggest owner and operator of oil supertankers.
TMT agreed to ship the cargo at a discount on prevailing rates on the route between West Asia and Japan. The ship was hired through tanker brokers ACM Shipping Ltd. IOC has a panel of ship brokers including ACM Shipping through which it hires ships.
Although the initial few shipments provided good returns to TMT because the rates were high, tanker rates later crashed to levels at which TMT found it unviable to execute the contract, according to shipping industry executives familiar with the deal, who did not want to be named. IOC benefited because it could ship some of its crude oil at very low rates.
During his visit to India a few months ago, TMT chairman Nobu Su asked IOC not to extend the contract beyond the initial period of 12 months because he was not recovering even the ship fuel costs at current rates, another person familiar with the matter said on condition of anonymity.
But when the time came to exercise the option to extend the contract by six months, IOC was late.
IOC has blamed ACM Shipping for the bungling and blacklisted the shipbroker from its panel for three months.
“IOC should have exercised the option much earlier instead of waiting till the last minute,” one of the industry executives said.
IOC would have benefited from the extension due to low rates prevailing now. The oil refiner stands to lose around Rs25 crore because it failed to extend the contract.
“If IOC hires a ship from the spot market, it will have to pay more than prevailing rates. Spot rates are always higher than long-term contracts,” said another shipbroker, requesting anonymity.
IOC and ACM Shipping declined to comment. TMT could not be reached for comments.
IOC spends around Rs1,500 crore annually to import around 40 million tonnes (mt) of crude. Out of this, about 24 mt is transported on supertankers to achieve economies of scale because larger quantities of crude can be moved at a time, leading to savings in freight.
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First Published: Sun, Sep 20 2009. 10 32 PM IST