Shipping Corp seeks cargo reservation after losses
Hit by losses in the past two quarters, state-owned Shipping Corp. of India (SCI) has asked the government to reserve at least one-third of sea-borne cargo for vessels registered in the country, Live Mint reports.
Shipping minister G.K. Vasan made the request on behalf of India’s largest ocean carrier in a written note in the Lok Sabha.
Vasan was replying to a parliamentary question on how the government proposed to help SCI tide over the prevailing depressed market conditions.
“Major industrialized economies such as Japan, China, South Korea, and USA have followed a proactive policy of cargo reservation for national flag vessels for carriage of all national cargoes for strengthening their national tonnage,” Vasan said.
Currently, India-registered ships carry less than 9% of India’s overseas trade.
SCI reported a loss of Rs.146.46 crore in the first half of the current fiscal. It has posted a net profit of Rs.450.46 crore in the same period a year ago. It registered a loss of Rs.140.6 crore in the three months ended 30 September.
SCI also wants Indian ships to be given contracts of five to seven years to ferry crude oil, petroleum products and gas, thermal coal, coking coal, fertilizer and iron ore. In the case of liquefied natural gas, it has asked for 25-year contracts, Vasan said.
“It is not possible to implement this proposal,” said T.V. Shanbhag, who was India’s chief controller of chartering between 1995 and 2005. “Freight contracts depend on the duration of supply contracts of commodities. Any uncertainties in the supply contracts will have an impact on the freight contracts.”
“Secondly, local fleet owners want cargo reservation without any competition from outside to determine the freight rates,” he pointed out. “How can you expect state-owned firms to be competitive when private players such as Reliance, Essar and Adanis are allowed to make their own shipping arrangements depending upon the cost while public sector units have to pay a premium to Indian fleet owners to carry their cargo?”
SCI, which operates a fleet of 82 ships, has not suggested any method that can be followed to put a price to such contracts.
India-registered ships have a so-called right of first refusal to carry cargo owned or controlled by government departments and agencies, except crude oil imported by state-run oil refiners. Such contracts typically run for at least two years.
A government-appointed working group headed by Satish Agnihotri, the director general of shipping, has favoured the proposal, a spokesman for the shipping ministry said. The working group is a part of the national transport development policy committee headed by Rakesh Mohan, a former deputy governor of the Reserve Bank of India.
SCI would fall short of a target of buying 62 ships by 16 at the end of the 11th Five-Year Plan that concludes on March 2012, Vasan said in reply to another Parliament question on 1 December on the carrier’s vessel purchase targets.
The global economic slowdown seen after 2008 had a severe impact on the global shipping business with freight rates and asset values declining substantially, the minister said.
“In view of the uncertainties prevailing during the period 2008-10, SCI slowed down its acquisition programme, which is the primary reason for the shortfall,” he said.
“The board of directors has revisited the fleet acquisition plan, and looking at the present market conditions, has decided to go slow on ship purchases,” said S. Hajara, chairman and managing director of SCI.
Shipping minister G.K. Vasan made the request on behalf of India’s largest ocean carrier in a written note in the Lok Sabha.
Vasan was replying to a parliamentary question on how the government proposed to help SCI tide over the prevailing depressed market conditions.
“Major industrialized economies such as Japan, China, South Korea, and USA have followed a proactive policy of cargo reservation for national flag vessels for carriage of all national cargoes for strengthening their national tonnage,” Vasan said.
Currently, India-registered ships carry less than 9% of India’s overseas trade.
SCI reported a loss of Rs.146.46 crore in the first half of the current fiscal. It has posted a net profit of Rs.450.46 crore in the same period a year ago. It registered a loss of Rs.140.6 crore in the three months ended 30 September.
SCI also wants Indian ships to be given contracts of five to seven years to ferry crude oil, petroleum products and gas, thermal coal, coking coal, fertilizer and iron ore. In the case of liquefied natural gas, it has asked for 25-year contracts, Vasan said.
“It is not possible to implement this proposal,” said T.V. Shanbhag, who was India’s chief controller of chartering between 1995 and 2005. “Freight contracts depend on the duration of supply contracts of commodities. Any uncertainties in the supply contracts will have an impact on the freight contracts.”
“Secondly, local fleet owners want cargo reservation without any competition from outside to determine the freight rates,” he pointed out. “How can you expect state-owned firms to be competitive when private players such as Reliance, Essar and Adanis are allowed to make their own shipping arrangements depending upon the cost while public sector units have to pay a premium to Indian fleet owners to carry their cargo?”
SCI, which operates a fleet of 82 ships, has not suggested any method that can be followed to put a price to such contracts.
India-registered ships have a so-called right of first refusal to carry cargo owned or controlled by government departments and agencies, except crude oil imported by state-run oil refiners. Such contracts typically run for at least two years.
A government-appointed working group headed by Satish Agnihotri, the director general of shipping, has favoured the proposal, a spokesman for the shipping ministry said. The working group is a part of the national transport development policy committee headed by Rakesh Mohan, a former deputy governor of the Reserve Bank of India.
SCI would fall short of a target of buying 62 ships by 16 at the end of the 11th Five-Year Plan that concludes on March 2012, Vasan said in reply to another Parliament question on 1 December on the carrier’s vessel purchase targets.
The global economic slowdown seen after 2008 had a severe impact on the global shipping business with freight rates and asset values declining substantially, the minister said.
“In view of the uncertainties prevailing during the period 2008-10, SCI slowed down its acquisition programme, which is the primary reason for the shortfall,” he said.
“The board of directors has revisited the fleet acquisition plan, and looking at the present market conditions, has decided to go slow on ship purchases,” said S. Hajara, chairman and managing director of SCI.