India’s robust maritime sector could weather the financial storm

When will it all happen? How bad will it get? These are queries that are buzzing around Indian players in the shipping field while mulling over the financial meltdown. But as our policy makers would like to depict, the fundamentals are strong and the possibility of the Indian maritime sector feeling the effect of the global financial crisis will witness a quick turnaround coming out of the present financial crisis safe and sound.
Hope is writ large all around, with what is being considered as a positive outcome of the US elections with Barack Obama making history. The US president-elect is expected to bolster measures to overcome recession in the world’s biggest economy. Significantly, the return of investments into India is expected to benefit the rupee. The strengthening of the rupee and prices of crude oil coming down are their certain expectations. Efforts are underway in various financial capitals of the world to contain the meltdown while the Indian government is making all efforts to isolate the country’s economy from the shattering effect of the global financial crisis.
Despite the global economic gloom, the Shipping Corporation of India (SCI) the largest shipping company in the country, managing 81 ships plans to add 69 ships to its fleet over the next five years at an estimated cost of $ 20 bn. This would double its fleet strength from five mn DWT now to 10 mn DWT. It has already placed orders for 29 ships and invited bids for another 40 vessels. Yet more dramatic is the company’s September quarter result which netted sales at Rs 1184.65 crore as against Rs 868.88 crore for the same quarter in the last year. The profits jumped to Rs 274.88 crore against Rs 182.31 crore for the same period in the previous year.
Other shipping companies have also done tremendously well. Over the same period, Great Eastern Shipping, India’s largest private shipping company registered a net profit growth of 48% from Rs 342.79 crore to Rs 506.15 crore. Varun Shipping, the oil and gas shipping giant of India for the same period declared its quarterly net profits at Rs 44.27 crore compared to Rs 15.37 crore a year ago. Mercator too yielded massive profits of Rs 104.96 crore versus Rs 90.54 crore earlier.
Logistics companies too are cheerful about their overall performance. Allcargo Global Logistics Ltd has reported a whopping 151 per cent growth in net profit at Rs 47.4 crore (Rs 18.9 crore) for the third quarter (July-September) of the current calendar year (which is its fiscal year). The growth in net sales during the period was 56.3 per cent at Rs 631.5 crore (Rs 403.9 crore).
Sahil Freight Express Pvt. Ltd., India’s leading logistics player has stormed on to the global scene acquiring the entire operations of U-Freight in Colombo and is now getting set to open its own office in Dubai. The company has been appointed to handle all of Linde’s project equipment including heavy lift and over dimensional cargo being supplied to various Indian companies as well as Linde’s project coming up in the Middle Eastern countries. Several others in the field too are experiencing similar buoyancy.

On the ship manning and management front, Capt SC Sood of IMS Ship Management points out that with the demand for oil going down the need for tankers and FPSO would decline. “One comforting feature will be that the shortage of marine officers will vanish and this will have a direct impact on their wages which will come down drastically,” he says. “No doubt ship manning companies will have to cut corners and training institutes will see a drop in candidates enrolling too. Development of infrastructure will however have to continue.” He sees a boom in dredging moving onto a higher trajectory. In this regard he is in the process of floating a dredging company, IMS Infrastructure Ltd which will focus on dredging operations.

On the ship building front a pall of gloom has settled on the overseas ship building giants with plenty of cancellations having taken place although it has not yet happened here in India. At least this is one consolation that our country is not in the forefront of ship building activity to suffer any major loss. Amid this crisis in the foreign shipping industry, new building activity has almost vanished. Long gone are the days of dry bulk ship owners being turned down by yards, which opted to fill their berths with more profit making types of vessels. Now shipyards are on the opposite end, uncertain even about the outcome of their current huge order books.
Capt Sood stated that Korea Times reported that the country’s shipbuilding industry may soon be heading for a downturn. For instance the world’s leading yard, Hyundai Heavy Industries booked just 20 ship orders in the third quarter, excluding those received by its affiliates. This represents a drop of 52.3%. Samsung Heavy has suffered a 40% drop while the recently sold Daewoo Shipbuilding didn’t report any new orders in the last two months. Kroean “The Korean government is likely to subsidise their shipyards to overcome the effects of order cancellation and losses,” Capt Sood stated.

India could miss the export target of $ 200 bn (Rs 9.8 trillion) set by the government in the current fiscal, with weakening global demand starting to affect overseas shipments. But exports have grown 10.4% to $13.7 bn. Mr. G K. Gupta, President of the Federation of Indian Export Organisations (FIEO). “Also, demand for Indians products has declined due to a slowdown in the US and European markets.” Imports during September grew 43.3% to $24.4 billion.”
“Higher volumes of imports due to increasing domestic demand for consumption as well as refining for export purposes have also pushed up oil import bill,” said a petroleum ministry official, asking not to be named.
Indian ships carry only 12% of the country’s international trade. Would Indian ship owners think of making a turnaround and take more Indian cargo to assuage the likely decline in shipping trade happening overseas.