Bangalore/Mumbai: Companies engaged in cargo trade will have to pay more for hiring ships after the maritime regulator set new age limits for vessels calling at ports, or operating in India’s territorial waters.
Effective 15 May, the Directorate General of Shipping has fixed the age limit at 25 years for all cargo vessels other than gas carriers, oil or product tankers and dredgers. For gas carriers, the limit is 30 years. The age limit does not apply to double-bottomed oil tankers, while for those with a single bottom, it is less than 20 years, and that too after meeting certain technical requirements.
The rules will hurt oil importers such as Indian Oil Corp. Ltd (IOC), Hindustan Petroleum Corp. Ltd, Bharat Petroleum Corp. Ltd as well as Reliance Petroleum Ltd and Essar Oil Ltd. It will also impact coal and iron ore importers such as Ispat Steel Ltd, Steel Authority of India Ltd and Tata Steel Ltd as also ore exporters such as Sesa Goa Ltd.
“The age norms will lead to reduced availability of ships for hire in the global market. Obviously, it will have an impact on our freight bill,” said an executive at IOC who asked not to be named. The company spends more than Rs1,400 crore a year to ship oil to its refineries. Oil firms currently pay $4.94 a tonne as freight charge for hiring a double-hull tanker to move crude from Ras Tanura, the main crude oil loading port in the Arabian Gulf, to Vadinar port on India’s west coast. They pay $10.67 a tonne to ship crude from Ras Tanura to Vizag port on the east coast.
“The freight rates are currently high because there are less ships available in the market to move the cargo due to various global safety regulations. Oil loading terminals also prefer modern ships with double bottom to carry cargo, ” the executive said.
Younger fleet attracts a premium. Firms hiring double bottomed tankers will have to pay at least 25% more on freight because of the new age rules,” said an executive at tanker ship broker Trans Ocean Agency who also asked not to be named.
“Over the last week to 10 days, freight rates for moving oil and products have jumped by about 10-15%, not just because of the regulator’s decision to ban older ships from Indian shores but also due to other factors,” he added.
The earlier age norms allowed oil importers to hire ships that were less than 25 years of age subject to meeting certain technical parameters.
Significantly, the regulator has ruled that the norms will not apply to India-registered ships as they are already licensed to ply in Indian waters.
Experts say the rules will not be effective as most contracts signed by Indian entities put the responsibility of shipping the cargo on the foreign sellers and buyers. “Not more than 15-20% of the ships coming to Indian ports for loading and unloading cargo are hired by Indian entities with the permission of the directorate general of shipping,” said T.V. Shanbhag, who headed the Union government’s chartering division in the shipping ministry till 2005. The rest are hired by foreign entities which do not require its permission.