Shipping Corp may exit container business
The move comes at a time when the government has initiated a review on the relevance of SCI as a state-run firm
.jpg)
Mumbai: State-run Shipping Corp. of India Ltd (SCI) may exit its loss-making container shipping business as the Mumbai-based company comes under pressure to do something drastic to reverse three continuous years of losses.
The move comes at a time when the government has initiated a review on the relevance of SCI as a state-run firm, according to a document reviewed by Mint.
“The shipping ministry is examining the relevance of SCI in today’s scenario when the private sector is coming in (a) big way to invest in shipping sector,” said a comprehensive action plan for the maritime sector prepared by the shipping ministry, following a meeting between Prime Minister Narendra Modi and shipping secretary Vishwapati Trivedi on 21 June.
The board of SCI will meet on Tuesday to approve the company’s results for the three months ended 30 June.
India’s biggest ocean carrier is losing money heavily from operating five container ships (it has a total fleet of 72 ships). The losses from this business have only added to the poor performance of its bulk carrier and tanker unit—the main profit centre of the company in the last two years.
SCI, 63.75% owned by the government, is India’s only mainline container ship operator servicing the country’s export-import trade.
The container shipping business is a part of the liner shipping division of the company.
“We are examining it (the container shipping business) very minutely with a microscope,” said chairman and managing director Arun Kumar Gupta. “ If pushed to the wall and if we think there is no way we can turn around the loss-making container shipping business, we might as well close it down”.
“There is no point in running a continuous loss-making service,” Gupta said, adding that the company may not shut the entire liner business as some of the services are profitable.
Gupta holds additional charge of director, finance, of SCI, as the candidate selected by the public enterprises selection board as finance director decided not to join the firm from 1 June. B.K. Mandal, the company’s finance director, retired on 31 May.
The company’s container carrying unit has posted operational losses in four of the last five years with accumulated losses running up to ₹ 728.11 crore.
So far, the container shipping business was subsidized by revenue from dry bulk carriers and tankers. But with the dry bulk and tanker unit also posting operational losses since financial year 2013, the future of the container business has come under a cloud.
SCI reported overall losses in financial years 2012, 2013 and 2014— ₹ 428.2 crore, ₹ 114.3 crore and ₹ 275 crore, respectively.
According to the guidelines of the department of public enterprises for government-owned companies, a company will lose its so-called navaratna status if it posts losses for three consecutive years.
The government is yet to decide on the navaratna status of SCI, a ministry spokesperson added; the tag gives greater financial autonomy to state-run companies.
The global shipping industry is yet to fully recover from the financial crisis of 2008. SCI’s local rival, Great Eastern Shipping Co. Ltd, though, has been reporting net profits during this period, one of the worst for the shipping industry in decades.
The contrast in operating performance is a reflection of the way in which the two companies are managed under different ownership structures—one state-owned and the other private, said a Mumbai-based shipping analyst.
“SCI is not able to respond quickly to market dynamics in a highly volatile industry such as shipping the way Great Eastern Shipping does. Its decision-making is often influenced by fear of government auditors,” the analyst said, asking not to be named.
“Something drastic, out-of-the-box, has to be done,” chairman and managing director Gupta told shipping agents at the company’s annual worldwide agents meet on 3 March in Mumbai, emphasizing that a situation of continuous and heavy losses at the container unit cannot be sustained any longer.
“Minor restructuring of services, sacrificing commission, renegotiating terminal charges, container freight station and inland container depot charges may not help.”
SCI restructured some of its container shipping services two years ago, but with the industry plagued by overcapacity and container rates trending below operating costs, the restructuring plans have suffered.
The company’s shifting focus from the container business was reaffirmed when it cancelled orders for building three new container ships, two of them each with a capacity to load 6,500 standard containers. This was the firm’s first attempt at buying bigger container ships, in line with the industry trend of owning large carriers to achieve economies of scale.
Since April 2013, SCI has cancelled orders for building nine ships, including the three container ships, to preserve cash.
SCI’s predicament mirrors that of at least another ocean carrier that halted its container services from 2012.
In June 2012, MISC Bhd, controlled by Malaysia’s state-owned oil and gas company Petroliam Nasional Bhd, closed its unprofitable container carrying unit after accumulating heavy operational losses of $789 million in the previous three years.
Global container carriers such as Maersk Line Ltd, Mediterranean Shipping Co. SA and CMA CGM SA are looking to forge operational alliances to control costs by sharing ships and port facilities as over-capacity, tumbling rates and rising costs cause industry-wide losses.
A decade ago, the National Democratic Alliance government led by Atal Bihari Vajpayee made an attempt to privatize SCI, but the plan was abandoned due to a lack of serious bidders.
Some said that it was imperative for SCI to remain in the container transportation business.
“The presence of SCI in this business has ensured a moderation in freight rates for shipping container from/to India to/from several parts of the globe,” said a customer who regularly ships container cargo from India to Europe. “Otherwise, India’s exporters and importers will be at the mercy of foreign container ship operators,” he added on condition of anonymity.
Another person said that India cannot risk leaving its huge defence purchases that are carried in containers to foreign shipping lines. He too did not want to be named.
Catch all the Corporate news and Updates on Live Mint. Download The Mint News App to get Daily Market Updates & Live Business News.
MoreLess
First Published:12 Aug 2014, 12:32 AM IST
- Top Gainers
- Top Losers
- 52 Week High