Mumbai: The state-run Shipping Corp. of India Ltd (SCI), India’s biggest shipping firm by fleet size and revenues, plans to invest more than $500 million (Rs1,980 crore) to buy bigger ships, including capesize and kamsarmax carriers, which can load more dry bulk cargo to cash in on the booming demand for carrying raw materials such as coal, iron ore and steel across the world’s oceans.
The firm, 80.12% owned by the Indian government, plans to acquire eight such vessels which will cost more than $500 million at current prices, said Umesh C. Grover, director in charge of technical and offshore division at SCI.
At current prices, a new capesize vessel would cost about $90 million to build from scratch, while a kamsarmax costs around $55 million.
Capesize ships, which typically can carry as much as 175,000 tonnes of coal, steel or iron ore, are the largest vessels capable of carrying dry bulk commodities.
They must travel between oceans via the Cape of Good Hope or Cape Horn because they are too large to use the Suez or Panama canals.
A kamsarmax carrier, that loads up to 82,000 tonnes of dry bulk cargo, is the biggest size ship that can call at the world’s largest bauxite port located at Kamsar in Equatorial Guinea.
Scaling up: A file picture of the Mumbai port trust. Shipping Corp. of India is planning to buy bigger vessels to capitalize on the growing demand for raw materials such as coal, iron ore and steel. (Photo: Ashesh Shah/ Mint)
A capesize ship currently fetches a day rate of about $120,000 for its owner when it is hired for a one-year period, while a kamsarmax carrier earns around $65,000 a day.
SCI currently owns and operates about 20 dry bulk carriers. These are mostly of the handymax variety, which can typically carry as much as 60,000 tonnes of dry bulk commodities. This has limitations because shippers prefer bigger ships to transport larger quantities of cargo in a single trip to achieve economies of scale in freight costs.
“We missed the on-going boom in dry bulk freight rates. When the dry bulk rates were shooting up, we could not exploit the trend since we had only smaller dry bulk ships. With the induction of bigger vessels such as kamsarmax and capesize in our fleet, we believe Shipping Corp. can capitalize on the buoyant dry bulk freight market,” said Grover.
“A lot of power projects are coming up in India in the next couple of years and there will be a huge demand for such vessels to carry raw materials used to fire the power plants,” Grover added, explaining the rationale behind the move.
Apart from the smaller size, SCI’s dry bulk carriers get lower rates as most of them are older ships and fetch less rates compared with younger vessels. SCI has a bigger presence in the tanker market and owns and operates about 45 tankers that can carry crude oil, petroleum products, liquefied petroleum gas and other chemicals.
In a bid to replace its old dry bulk fleet, in December, SCI placed orders for six new handymax carriers with South Korean shipbuilder STX Shipbuilding Co. Ltd at a cost of $269.4 million.
SCI’s rivals in India such as Mercator Lines Ltd, Great Eastern Shipping Co. Ltd and Essar Shipping Ltd have purchased or are in the process of buying new and bigger dry bulk ships.
Mumbai-based Mercator last year acquired three kamsarmax vessels for about $190 million, each with a capacity to load around 84,000 tonnes of dry bulk cargo.
Great Eastern, India’s largest private shipping company, is also increasing its presence in the dry bulk shipping market by ordering eight dry bulk carriers, including four kamsarmax carriers at a total cost of around Rs2,300 crore.
Essar Shipping is also buying six dry bulk carriers from STX for $378 million and each can carry 98,000 tonnes of dry bulk commodities.