BackDomestic shipping firms seek 25% reservation in cargo imports
At present, over 90% of India's foreign trade by volume is carried by foreign-registered ships
PremiumPhoto: Reuters
Indian shipping firms, hit by the downturn in the trade cycle, are asking that 25% of the country’s imports of crude oil, liquified petroleum gas (LPG) and dry cargo be reserved for them.
At present, more than 90% of India’s foreign trade by volume is carried by foreign-registered ships.
In a letter to the ministry of shipping last week, industry lobby group the Indian National Shipowners’ Association (INSA) sought 25% reservation in cargo for domestic shipping companies, which he said was “critical" in order to minimize the incidence of Indian flag ships lying unutilized.
Mint has reviewed the letter, which was written by Atul J. Agarwal, INSA president and managing director of shipping company Mercator Ltd.
“Earlier, where one segment of shipping faced bleak prospects, the other segments would usually do well. This fact is no more valid and currently every segment of shipping has seen a downward spiral and is testing new lows daily. Further, with world trade shrinking and global oversupply of shipping assets, opportunities for employment for Indian flag ships, as with others, is getting tougher by the day," Agarwal wrote.
On Friday, Union shipping minister Nitin Gadkari, in an interview, said his government is doing its best to come up with measures to revive the shipping industry. He declined to detail the measures that are being considered.
INSA, referring to imports in the hydrocarbon sector, said that the government must mandate that an additional 25% of such imports should be reserved as “long term cargo contracts for carriage by Indian flag ships".
“In the LPG segment, the current Indian participation is close to 35%. On the same lines as above, it is our view that an additional 25% cargo should be reserved as long term cargo contracts for carriage by Indian flag ships and the balance 40% for FOB (free on board) imports with a continuing ROFR (right of first refusal) to Indian shipping companies," INSA said.
A fall in global oil prices is set to impact tanker shipping rates adversely, which are likely to decline due to ample stocking of crude oil, according to the December edition of the Tanker Forecaster, published by global shipping consultancy Drewry.
For instance, the freight rate quoted for a large panamax vessel is $1,200 a day while the cost of operating such a ship is $4,500 a day. A panamax is a mid-sized cargo ship capable of passing through the Panama Canal.
The Shipping Corp. of India Ltd, Great Eastern Shipping Co. Ltd, Varun Shipping Co. Ltd, Chambal Fertilisers and Chemicals Ltd and Mercator Ltd are some of the listed Indian companies that have exposure to the tanker industry.
In December, Chambal Fertilisers decided to sell its shipping business, given the bleak outlook for global trade, including the tanker segment.
INSA also asked for reservation in the dry bulk cargo segment. On the dry bulk sector, where the two principle commodities being imported are coal and fertilizers, Indian participation is currently at just under 5%.
“It is pertinent to note here that since a large portion of this trade is imported on CIF (carriage, insurance and freight) basis, the participation in this trade by Indian flag ships is poor. Here, therefore, the first step should be to encourage more imports on FOB basis and reserve additional 25% cargo on a “long term cargo contracts for carriage by Indian flag ships", INSA noted.
Mercator decided last week to exit the dry bulk cargo business conducted by its Singapore unit, Mercator Lines (Singapore) Ltd. The bulk cargo-carrying business has been the worst-hit by the downturn in the shipping cycle, with the Baltic Dry Index, or BDI, collapsing from a level of 11,793 in 2008 to an all-time low of 354 on 22 January.
BDI is a measure of shipping rates and its fall signals that the recovery of the world economy is some distance away. The index measures costs of shipping commodities such as coal, iron ore, steel and grain.
However, a person close to the development said that Indian charterers including oil public sector undertakings (PSUs) are not keen to give business to Indian shipping companies.
“Oil PSUs are looking at better rates irrespective of the flag of the ship," he said, requesting anonymity.
Anil Devli, chief executive officer at INSA said Indian shipping companies are not seeking price differentiation but cargo reservation. “Indian shipping companies are ready to bid for cargo on market-based freight rates," Devli added.
Indian shipping is facing issues such as excess supply of ships, inflow of new ships into the market, shrinking world trade and lower demand for scrappage from ships due to a fall in steel prices.
India’s exports contracted for the 13th month in a row in December due to tepid global demand. Data released by the commerce ministry showed that exports contracted 14.75% to $22.3 billion in December, while imports shrank 3.9% to $33.9 billion.
India’s overall exports are projected to fall 13%, from the previous year’s level, to $270 billion, by the commerce ministry.
Former Union secretary of shipping M.P. Pinto said he disagreed with the idea of quotas. “Seeking reservation implies that we are inefficient and the business is not viable. It’s is no longer a relevant argument. Why would Indian cargo should be carried by Indian ships? Indian ships are capable of finding their own cargo without reservation," Pinto said.
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