Mumbai: Varun Shipping Co. Ltd, India’s biggest liquefied petroleum gas (LPG) carrier, will form a joint venture in Indonesia to be able to operate three of its ships in there.
The Indonesian government had in July changed rules, reserving LPG transportation on domestic routes for local shipping firms.
Varun Shipping moved almost half of Indonesia’s LPG cargo till July.
“We will convert three of our Indian-registered gas carriers to Indonesian-registered ships,” vice-chairman and managing director Yudhishthir D. Khatau said at a shipping summit in Mumbai on Wednesday.
“These three ships will be operated by a company registered in Indonesia in which Varun will hold 49% stake and the balance by a local Indonesian company,” he said. The company already has a subsidiary in Singapore.
Khatau said Varun Shipping has identified an Indonesian firm to become its joint venture partner, but declined to name the firm.
From July, the Indonesian government reserved all LPG shipments on domestic routes for ships under the Indonesian flag and majority owned by its citizens. In shipping, vessels fly the flag of the country where they are registered.
Varun Shipping’s move shows that fleet owners are willing to adapt to rules framed by maritime nations to do business as ship earnings globally remain depressed in all segments of the trade.
“Countries having cargo are attracting shipowners by placing restrictions on domestic trade based on flag and foreign direct investment,” Khatau said. Indonesia allows 49% foreign direct investment in its shipping sector.
“Shipowners are facing an extremely difficult situation,” said S. Hajara, chairman and managing director of state-run Shipping Corp. of India Ltd, India’s biggest fleet owner by fleet size and revenues.
Even when rates for moving dry bulk and container cargo crashed by 90-95% over the past 12 months, the tanker market had remained strong. The tanker rates were sustained by winter demand and also because many countries decided to build up strategic oil reserves, Hajara said.
“But, since April-May this year, the tanker market has also crashed,” he said. The decline in demand and rates had hit Varun Shipping’s profits in the April-June quarter of the fiscal 2010.
The firm’s net profit declined 91% during the first quarter to Rs1.84 crore from Rs21.33 crore a year earlier. Its first quarter revenues declined to Rs176.67 crore from Rs206.49 crore a year earlier.
Varun Shipping, which runs crude tankers and gas carriers, said it was hit by a 70% drop in freight rates in this segment quarter-on-quarter. The firm’s average freight earnings from crude tankers in the first quarter declined to $15,000 a day from about $45,000-50,000 a day in the preceding quarter, Khatau said.