SCI board debates closing firm’s container business

SCI board debates closing firm’s container business

Bangalore: The board of state-run Shipping Corp. of India Ltd (SCI) is debating the future of its container shipping business, including a possible exit from this sector, as losses mount in the face of a downturn in global trade, at least three persons familiar with the matter said.

India’s biggest ocean carrier is losing money from operating 10 container ships every year. And, the losses from this business have been eroding the profits of the firm, 80.12% owned by the Centre. SCI is India’s only mainline container ship operator servicing the export-import trade. So far, this business has been cross-subsidized by revenue from dry bulk carriers and tankers. With the dry bulk and tanker market also crashing in the wake of the slowdown, the future of the container business was a hotly debated issue in the last few meetings of the SCI board, one of the three persons said. He did not want to be named as the discussions are confidential.

“Some of the board members have questioned the need for SCI to continue operating container ships and want the firm to withdraw from this sector," he said. This section feels that the huge losses incurred by the firm from operating container ships have dented its balance sheet, hurting the firms ability to raise loans.

On 31 October, the board set up an internal committee to reassess future prospects and suggest ways to go forward, a second person briefed on the matter said. Out of the 10 container ships on SCI’s fleet, five are owned by the firm while the balance have been hired. These ships are used to carry containers from India to Europe, north and south China and West Asia.

J.N. Das, SCI’s director for container services and a member of the board, declined to comment. However, people in the trade said that it was imperative for SCI to remain in the business. “The presence of SCI in this business has ensured a moderation in freight rates for shipping containers 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.

To drive home this point, he said that the cost of shipping a standard container from India to the US went up by $300 (Rs14,040) immediately after SCI withdrew a service in January 2008 to the US citing low demand and unremunerative rates. “It was clear that global container ship owners operating from India were waiting for SCI to go out of service to raise freight rates," he said.

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.

During the first six months of the current fiscal, SCI has reported a loss of Rs170.14 crore from operating container ships. In the year to March 2009, this division incurred a loss of Rs187.23 crore. “At this rate, SCI is estimated to incur a loss of more than Rs300 crore for the full year from running container ships," said a board member on condition of anonymity.