The Indian government controls the country’s biggest shipowner by fleet size and revenue. It owns 64% of Shipping Corp. of India Ltd.

The No. 1 tag is praiseworthy, considering India’s vast coastline and huge requirements for exports and imports—India pays a shipping freight bill estimated to be worth $57 billion a year. The top slot, though, comes at a price—the inflexibilities associated with operating in a market prone to high volatility that calls for taking very quick decisions. But quick decision-making is not the norm at Shipping Corp.

The global shipping industry has been experiencing turbulence since 2009 because of the economic downturn, barring a small respite in 2011-12. Indian shipping companies have been facing problems of restricted cash inflows because of very low charter hire and freight rates in all segments of shipping.

Indian shipowners who have been able to better manage their businesses have been the ones with a diversified fleet across shipping segments or businesses. While tanker and bulk carrier segments have seen a sharp downturn, the offshore segment with oil drilling rigs and other vessels used for supporting oil exploration have ensured cash visibility for companies.

Another characteristic that has assisted Indian shipping firms has been the fact that they have not acquired an excess of ships in this low shipping cycle. Even in a scenario of cheap assets, most Indian companies, with the exception of Shipping Corp., have judiciously resorted to buying second-hand ships.

Ship prices, which peaked in the middle of 2007-08, have dropped to a record low in the subsequent years.

It is generally accepted that all shipowners make money in a good market, but it is a bad market, such as the current one, that truly tests the strength and character of a fleet owner. It is here that Shipping Corp. has been found wanting. Being a state-controlled company, Shipping Corp. has to follow government-framed rules, procedures and regulations while buying and selling ships—a normal part of the shipping business—which private rivals are free from.

The result is that Shipping Corp. has not been able to take advantage of the steep fall in asset prices to buy second-hand ships.

Plenty of such ships are available globally, given the tight liquidity position facing fleet owners. This disadvantage is appalling because Shipping Corp. is a so-called navratna company, a title that grants state-owned companies greater freedom from government control in making investment decisions.

The fact that Shipping Corp. has not been able to buy even a single used ship since it was bestowed with the navratna status in 2009 speaks volumes about the futility of greater financial freedom for the shipowner.

Even discarding ships that have outlived their useful economic life for scrap is an arduous task for the company.

Moreover, the company has also not been able to re-negotiate the prices with shipbuilders on new ships ordered a couple of years ago to factor in the current market realities—something which has been happening globally since the meltdown—or alter ship specifications/types ordered earlier to suit the current market demand. This has had a telling impact on its balance sheet.

The company’s financials for the past several quarters have been hit by the arrival of new ships ordered during the boom time at prices that are much higher than the ones prevailing now. Coupled with depressed freight rates and other rising operational costs, depreciation on new ships has pinched the company’s profitability badly.

Shipping Corp. reported a full-year loss, its first in 28 years, in the year to March 2012. The financial year 2013 will also be a bad year for the firm. (The fourth quarter and full year earnings will be announced on 29 May).

The company has been able to pull itself out in these difficult times because of the huge cash reserves it had built during the good years. A few bad years since 2009 have seen these reserves dwindling.

To add to the woes, the firm has not had a full-time chairman and managing director since 1 January. The Public Enterprises Selection Board, the agency tasked with selecting director-level officials for state-run firms, had named one of Shipping Corp.’s functional directors to the top post on 31 August.

However, this selection is yet to be approved by the government, nearly nine months after the selection board’s decision.

A parliamentary standing committee comprising law-makers recently raised an alarm about the financial health of the company, concluding in a report published in May that the firm was heading the Air India way because of rising loan liabilities. India’s national airline has been a money-losing entity for long and had to be bailed out by the government.

A clear vision, appropriate strategy and professionalism can help this navratna public sector unit restore its financial health, the report said.

The parliamentary panel would do well to consider the rigid government framework in which Shipping Corp. operates.

The erstwhile Vajpayee government had made an unsuccessful attempt to privatize Shipping Corp. The process was abandoned after it bowed out of office in 2004. Shipping Corp. urgently needs greater operational autonomy and the flexibility to make use of the financial freedom that comes with the navratna status to help it navigate the choppy shipping market.

A prolonged downturn is the best time to take stock of the situation and initiate corrective steps to enable the firm conduct business like its private counterparts.

Otherwise, it is perhaps time to revisit the privatization plan once again.

P. Manoj looks at trends in the shipping industry.

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