Bangalore: The plan of Shipping Corp. of India Ltd, or SCI, to buy around 20 second-hand ships of various sizes and categories with a budget of $300 million (around Rs1,400 crore), taking advantage of the crash in prices globally, has run aground because of a sudden spurt in resale values and lack of the kind of ships sought by the company.
“Buyers are now having to pay higher than ‘last-done’ prices in order to induce owners to sell. Some buyers are faster than others in realizing that they may have missed the very bottom of the market,” HSBC Shipping Services Ltd, the ship broking and shipping consultancy unit of the banking and financial services group, said in its recent weekly report on the sector.
Major setback: STX Shipbuilding’s shipyard in Jinhae, South Korea. Shipping Corp. has so far been able to buy only one ship, a tanker that was built by the South Korean company, for Rs157.92 crore. Seokyong Lee /Bloomberg
Stronger tanker rates on the spot market as well as a dearth of tonnage for sale have swiftly pushed prices up from bargain basement levels seen five months ago, according to London-based Clarkson Research Services Ltd, a unit of Clarkson Plc, the world’s biggest ship broker.
Since November, India’s biggest ocean carrier has floated global tenders several times to buy second-hand ships that are either five years old or ships that are nearing completion at yards but are being sold by the original owners due to lack of funding. These include container ships, passenger-cum-cargo ships, LPG carriers, oil barges, oil supertankers and dry bulk carriers of various capacities.
SCI could, however, buy only one ship so far—a tanker—that can carry 51,000 tonnes of products including vegetable oils, paying Rs157.92 crore. This ship was built at South Korea’s STX Shipbuilding Co. Ltd.
“The climb in second-hand ship prices has been steep and sudden,” said U.C. Grover, a director looking after technical and offshore services at SCI.
For instance, prices for second-hand oil supertankers or so-called very large crude carriers have jumped $10 million, or 13%, since the beginning of 2010, to hit $87.3 million, compared with the new-building price of $101 million. Prices for five-year-old oil supertankers had crashed to a low of $77.2 million in November 2009 from around $162.6 million at their peak in September 2008, according to data from the London-based Baltic Exchange.
Grover said SCI’s second-hand ship purchase plan has suffered a setback also because most of the ships offered were not acceptable.
“SCI as a company cannot compromise on the quality of ships,” Grover said. Besides, certain types of ships required by SCI, such as the three container ships—each with a capacity to carry 6,500 standard cargo containers—were just not available. “We will have to review the requirement for such ships,” he added.
With the government granting navratna status to SCI last year, the shipowner now has substantially greater freedom from state control while finalizing its capital expenditure plans.
Shipping industry executives said, however, that the purchase plan flopped because tenders were not the preferred mode to buy such ships globally. “You won’t buy second-hand ships through the tender route; it is always done through negotiations,” said a Mumbai-based ship broker, who asked not to be named.
But, being a government company, SCI has to use tenders to avoid accusations later.
“If second-hand ships are available in the market and you go through the tendering process, ships are sold by the time you go through the formalities,” said K.S. Nair, a director looking after the bulk carrier and tanker division at SCI.
“Being a government company, SCI has no choice but to buy ships through the tender route. Without a board approval, we cannot change that system either,” Grover said.