Mumbai: It’s now the turn of India’s shipping companies, hit by the sudden downturn in global trade, to ask for a bailout from the government. In a letter to Prime Minister Manmohan Singh, who is also in charge of the finance ministry, they have asked for access to low-cost funds, incentives for exports, and lower taxes.
India’s shipping firms were looking to raise around $20 billion (Rs94,200 crore) over the next four years to replace some or all of their ageing fleets and expand capacity to tap into the boom in global trade, but their efforts have run aground in the wake of the global economic slowdown and the accompanying crash in freight rates.
“We are seeking a stimulus package from the government to maintain the current share of Indian vessels carrying international cargo of around 12-15%,” said Atul J. Agarwal, managing director of Mercator Lines Ltd, India’s second largest private sector shipping company.
Need incentives: The Jawaharlal Nehru Port in Mumbai. Shipping firms need to replace some or all of their ageing fleets and expand capacity to tap into the boom in global trade, but their efforts have run aground in the wake of the global economic slowdown and the accompanying crash in freight rates. Ashesh Shah / Mint
The request for a lifeline went out in a 12 December letter addressed to Singh from industry lobby group the Indian National Shipowners’ Association (Insa).
Agarwal said there was enough reason for the government to keep Indian shipping firms in business. “Considering the current security concerns, Indian ships are easily traceable compared with foreign ships,” he said.
In the wake of terror attacks in Mumbai in November, India has become more conscious of the need to monitor shipping traffic to and from the country. The terrorists involved in the November attacks entered India through the sea route.
In the letter, the shipping firms also claim that while it is tough to run ships at a time when freight rates are low, it is also a good time to buy ships—provided the government makes money available at the right cost. “The crazy premium on ships has come down. Though it is good time to buy ships, there is no money to buy that,” said a senior executive at a shipping firm who did not wish to be identified.
The Baltic Dry Index, a measure of cost for shipping dry bulk commodities such as coal, iron ore, steel and grains, has fallen about 93% to 663 points, a 22-year low, after rising to a record 11,793 points on 20 May this year. The tanker market, on the other hand, has shown signs of relative strength after plunging in August.
Shipping companies have also asked the government to channel foreign exchange reserves to shipping sector as well rather than restricting it to infrastructure companies.
“We have asked for opportunities to raise rupee denominated resources on the lines of power bonds and to allow the shipping sector to avail external commercial borrowings,” said S.S. Kulkarni, secretary general, Insa.
Insa has also sought concessional yard credit as incentives for placing shipbuilding orders on Indian yards.
“The government should extend certain schemes allowing tradable duty free licences on exports made to shipping. Taxes also should be rationalized for shipping to create a level playing field,” added Kulkarni.
Another senior executive at a shipping company who did not wish to be identified said shipping companies need to be protected from foreign shipping firms quoting low prices.
“Foreign shipowners, who are enjoying lower taxation, are competing with Indian shipping companies by quoting lower rates and using older ships. Therefore, the need for matching of freight rates by Indian flag vessels to be reconsidered since shipping industry does not enjoy any import duty protection.”