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Indian Shipping Industry – Riding the Economic Wave

Thursday, March 22nd, 2012

 

indian ship

Ship in Indian Ocean.

The shipping industry is global in scale and it reflects the economic health of nations and the world as a whole. Commercial shipping started with the Phoenician merchants who carried goods across the Mediterranean. The Venetians and Dutch were prominent original players in this burgeoning industry. The opening of the Suez Canal in 1869 came as a boon to shipping, as it enabled faster trade between Europe and Asia. The container shipping sector grew exponentially from the 1970s to the 1980s. In Asia the industry saw significant growth, with Hong Kong opening its large container port to the world in 1989.

 

It can be said that 90 percent of the world trade is transported by the international shipping industry. The huge volumes of goods to be exported and imported would be impossible without it. Trade across the oceans benefits customers across the globe, owing to the competitive freight rates offered and the high efficiencies exhibited. Further, economic liberalization bodes well for the industry as a whole.

The shipping industry serves as a catalyst for economic development and offers a cheaper mode of transportation to access larger markets. Cargo changes hands via 50,000 merchant ships criss-crossing on international waters. The world fleet is registered in 150 countries and the industry employs a huge manpower of a million people serving in various capacities.

It can be said that shipping is eco-friendly as it is the least dangerous means of transport compared to land-based transport and industries, as the marine pollution caused by shipping is the least impacting on the environment. Statistics reveal that there has actually been a significant reduction in marine pollution over the past 15 years due to fewer oil spills, while the increase in seaborne world trade has been phenomenal. Based on the total material riding on the high seas, the global shipping industry is classified into wet bulk (goods like crude and petroleum products), dry bulk (like iron ore and coal) and liners or containers.

The Shipping Industry in India

Shipping encompasses ship repair, ship building, offshore engineering, yacht manufacture, and river and coastal shipping. The Indian shipping industry is massive considering its fleet of more than 615 ships with a total capacity of 6.65 million tons Gross Registered Tonnage, or GRT. Nearly 260 ships take care of overseas trade while others take care of domestic needs. A remarkable growth in the numbers of tugs, survey vessels, towing vessels and pilot vessels belonging to ports and maritime boards in the recent past shows that the industry is fast developing.

Among the dominant shipping companies, SCI and Great Eastern Shipping operate mixed fleets, while Essar Shipping deals with energy trade and operates tankers. Another significant contributor in India is Varun Shipping, which operates wet, dry bulk, gas and chemical goods transport vessels. The Shipping Corporation of India (SCI) recently celebrated its Golden Jubilee. SCI started as a marginal liner shipping company with only 19 vessels in 1961 but is now the largest Indian shipping Company. Its fleet is comprised of bulk carriers, crude oil tankers, product tankers, container vessels, passenger-cum-cargo vessels, phosphoric acid/chemical carriers, LPG/ammonia carriers and offshore supply vessels.

SCI owns and operates around one third of the Indian tonnage servicing both national and international trades. It operates break-bulk services, international container services, liquid/dry bulk services, offshore services and passenger services. SCI ensures uninterrupted supply of crude oil to the country. It also specializes in transportation of LNG, or Liquid Nitrogen Gas, which is an all important fuel required by power plants and chemical/petrochemical industries.

The chief factors which keep shipping companies like SCI on the growth path in India are the Indian government’s liberalization and globalization policies, along with the availability of a modern and new technically advanced fleet of vessels and well-qualified personnel to man the ships. The shipping market is cyclical in nature and freight rates are volatile. The earnings and freight rates depend on the demand and supply scenarios existing at that time in the world markets. Increase in demand is a function of trade growth and the geographical balance of trade. Increase in supply is a function of new ship building orders and scraping of existing tonnage.

The shipping industry will witness a boom when there is an addition of shipping capacity and an increase in world trade. But the capital-intensive industry requires huge cash flows for funding operations and procurement. Also imperative is the investment in human resources, as there is a critical need for expertise and technical knowledge in handling all matters at sea.

Indian Shipping Industry – Challenges and Opportunities

The shipping sector in India shapes India’s economy to a large extent. The Indian shipping sector is growing in leaps and bounds and metamorphosing from a traditional way of business to attract lucrative business opportunities.

Almost 90 percent of the country’s trade by volume takes place by sea in India, which owns the largest merchant shipping fleet among developing nations. The Indian shipping industry carries national and international cargoes, besides being involved in ship building, ship repairing, offering lighthouse facilities, freight forwarding, and so on.

Modernization of the shipping industry was a first step taken to deal with fast globalization and liberalization. Infrastructural development is trying to beat competition from foreign companies. Crude petroleum products are carried on the high seas in huge volumes by Indian ships, and deregulation in the oil sector has helped crude oil carriers to operate with fixed freight rates irrespective of the market condition. However, there are remaining opportunities galore as liquefied natural gas (LNG) has to be imported to feed power and fertilizer projects in India. This business opportunity, valued at several billion dollars, has to be garnered by Indian shipping companies by collaborating with foreign companies as it is too expensive for them to handle it alone. The cost of shipping LNG is US$200mn for just one ship.

The state-owned Shipping Corporation of India (SCI) has joined hands with Mitusi Osaka Shosen Kaisha (OSK), a consortium in Japan, to build LNG vessels for India. Impediments to fast growth and loss of high value business in the Indian shipping sector are port congestion and lack of depth in channels (as was seen at Kolkata Port Trust’s Haldia dock).

As Indian refineries have stepped up production, petroleum imports have reduced, in turn reducing transportation. Also the laying of pipeline networks on land across borders is expected to affect crude oil transport by ship adversely.

Shipping Management

With the growing complexity of supply chains which span the globe, it is imperative for companies to keep in step with changing business environments with increased flexible distribution operations, tighter inventory control and faster, more efficient processing. This needs an effective process execution system. Software companies like INTTRA offer tools that help plan, process and manage shipments for ensuring optimum service, speed, reliability and security.

E-commerce tools help shipping companies in making schedules, booking, giving shipping instructions, making bills of lading, track and trace in-transit containers, and in drawing reports. Shipping management software most often features time saving tools. Electronic connections allow seamless shipment management and communication between shipping partners across the ocean container supply chain. Such software also provides control and visibility over the shipping company’s document intensive processes, enabling the company to focus on core competencies more.

Present Scenario

The financial crisis which swept the world in 2009 and 2010 certainly affected the shipping industry, both in the dry bulk and the crude carrier segments. Freight rates declined with reduction in overall demands and even crude tanker rates fell by 15 percent with bulk freight rates dipping lower. However, the dry bulk segment recovered thanks to demand for stockpiling of dry bulk commodities, including foodgrains and metals from China. In 2011 the shipping freight rates have shown some improvement but are still being affected by the European crisis.

In Asia the demand concerns are painting a dark picture with the cooling down of the Chinese economy. Combined with supply-side pressures, the industry is bound to suffer. But all is not lost - the increase in India’s refining capacity and a boost in global oil exploration activity will be advantageous for offshore shipping lines as demand for their services will increase.

The commissioning of large domestic refining capacities in India and other countries will result in an increase in imports of crude, which will be beneficial to shipping majors. Increase in new ship building deliveries is also expected to give a much-wanted stimulus to the shipping rates.

 

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