State-run Shipping Corp. of India Ltd (SCI) has called off plans to buy three new container ships from Cochin Shipyard Ltd as it seeks to go slow on ship purchases to deal with a downturn in the shipping industry, Live Mint reports.
“Our ship acquisition committee decided not to pursue the purchase of three container ships from Cochin Shipyard because of the high price quoted by the yard,” J.N. Das, a director looking after liner and passenger division at SCI, said. Shipping Corp. and Cochin Shipyard were discussing the finer details of the deal ahead of signing a formal contract.
File photo of Viraat Super tanker or large crude carrier owned by the Shipping Corp of India.
This is the first clear indication that India’s biggest ocean carrier is becoming cautious on buying new ships as a global oversupply of ships, low freight rates and rising costs hurt margins of fleet owners.
The firm, 63.75% owned by the Union government, has reported losses in the past two quarters.
“What appears to be a large cash reserve suddenly looks fragile because everything is happening in the reverse direction—higher depreciation on new ships inducted into the fleet, lower freight rates and higher interest rates,” said a Union shipping ministry official who sits on the board of SCI.
SCI has a cash reserve of about Rs. 1,800 crore.
“The company’s board in its last meeting held on 22 September had advised caution on fresh ship purchases/investments,” he said, asking not to be named.
SCI had planned to buy the three ships, each with a capacity to load 3,500 standard containers, from Cochin Shipyard on nomination basis (without floating a tender) in a deal facilitated by the shipping ministry that controls both the firms.
The cost for each of the three ships was to be pegged to the price discovered through a global tender for one such ship. China’s Rongcheng Shenfei Shipbuilding Co. Ltd had won the order to construct one ship for SCI by quoting the lowest price of $48 million, and the shipbuilding contract was signed in July.
“Cochin Shipyard was asking for about $15 million more for each ship, plus value added tax (VAT), compared to the $48 million quoted by the Chinese yard. Why should I take it,” Das said.
“If the price quoted by Cochin Shipyard is not the market price, how can it fit into our strategy,” asked Shipping Corp’s director, finance, B.K. Mandal.
“Nobody can match the Chinese on prices,” said a spokesperson for Cochin Shipyard. “We are collaborating with a Japanese firm on technology to build the container ships; this requires import of lot of equipment. Naturally, the ship prices will be higher,” the spokesperson said, adding that the government should support the venture in terms of duties and other levies because the container ship sector holds immense promise for shipyards.
SCI follows a five-year plan for ship purchases. Out of the 62 ships SCI had planned to buy during the five years ending 31 March 2012, the firm has bought 11 ships and placed orders for another 28 ships, worth about $1.8 billion, at various global and Indian yards. SCI was planning to order the balance 23 ships before 31 March, the terminal year of the plan.
Mandal, however, said the five-year ship acquisition programme followed by the firm does not mean that the plan would be executed in full. “We are not in a hurry to reach 62. Depending upon the market and pricing, we keep reviewing our plans. We can eat only what we can chew; that’s what we will be doing,” he said, adding that the firm was “not looking to cancel any of the 28 ships for which contracts have been signed and construction is in progress, nor did the contracts allow for renegotiation of prices to reflect the current market”.
“Our ship acquisition committee decided not to pursue the purchase of three container ships from Cochin Shipyard because of the high price quoted by the yard,” J.N. Das, a director looking after liner and passenger division at SCI, said. Shipping Corp. and Cochin Shipyard were discussing the finer details of the deal ahead of signing a formal contract.
File photo of Viraat Super tanker or large crude carrier owned by the Shipping Corp of India.
This is the first clear indication that India’s biggest ocean carrier is becoming cautious on buying new ships as a global oversupply of ships, low freight rates and rising costs hurt margins of fleet owners.
The firm, 63.75% owned by the Union government, has reported losses in the past two quarters.
“What appears to be a large cash reserve suddenly looks fragile because everything is happening in the reverse direction—higher depreciation on new ships inducted into the fleet, lower freight rates and higher interest rates,” said a Union shipping ministry official who sits on the board of SCI.
SCI has a cash reserve of about Rs. 1,800 crore.
“The company’s board in its last meeting held on 22 September had advised caution on fresh ship purchases/investments,” he said, asking not to be named.
SCI had planned to buy the three ships, each with a capacity to load 3,500 standard containers, from Cochin Shipyard on nomination basis (without floating a tender) in a deal facilitated by the shipping ministry that controls both the firms.
The cost for each of the three ships was to be pegged to the price discovered through a global tender for one such ship. China’s Rongcheng Shenfei Shipbuilding Co. Ltd had won the order to construct one ship for SCI by quoting the lowest price of $48 million, and the shipbuilding contract was signed in July.
“Cochin Shipyard was asking for about $15 million more for each ship, plus value added tax (VAT), compared to the $48 million quoted by the Chinese yard. Why should I take it,” Das said.
“If the price quoted by Cochin Shipyard is not the market price, how can it fit into our strategy,” asked Shipping Corp’s director, finance, B.K. Mandal.
“Nobody can match the Chinese on prices,” said a spokesperson for Cochin Shipyard. “We are collaborating with a Japanese firm on technology to build the container ships; this requires import of lot of equipment. Naturally, the ship prices will be higher,” the spokesperson said, adding that the government should support the venture in terms of duties and other levies because the container ship sector holds immense promise for shipyards.
SCI follows a five-year plan for ship purchases. Out of the 62 ships SCI had planned to buy during the five years ending 31 March 2012, the firm has bought 11 ships and placed orders for another 28 ships, worth about $1.8 billion, at various global and Indian yards. SCI was planning to order the balance 23 ships before 31 March, the terminal year of the plan.
Mandal, however, said the five-year ship acquisition programme followed by the firm does not mean that the plan would be executed in full. “We are not in a hurry to reach 62. Depending upon the market and pricing, we keep reviewing our plans. We can eat only what we can chew; that’s what we will be doing,” he said, adding that the firm was “not looking to cancel any of the 28 ships for which contracts have been signed and construction is in progress, nor did the contracts allow for renegotiation of prices to reflect the current market”.