In the Doldrums: Shipping companies in weak financial position

Shipping companies in weak financial position

The performance of the Indian shipping industry has been below par in the past year. A number of shipping companies are grappling with plunging profits. The fate of shipyards is rather bleak, with a few such as ABG Shipyards and Bharati Defence and Infrastructure Limited being debt-ridden and on their way to liquidation. However, the government is trying hard to ensure (and subsequently sustain) sector growth through a slew of reforms. All aspects of the industry – shipbuilding, ship repair, cruise shipping, inland water transport (IWT) and coastal shipping – are receiving increased government attention.

Performance

  • As of April 30, 2019, the Indian shipping industry had a fleet of 1,409 vessels of 12.79 million gross tonnage (GT) and 19.39 million deadweight tonnage (DWT). Of the vessels, 952 were coastal vessels with a tonnage of 1.5 million GT (1.67 million DWT) and 457 were overseas vessels of 11.29 million GT (17.72 million DWT). During 2014-18, the total number of vessels grew at a compound annual growth rate of 3.86 per cent. In absolute terms, 197 vessels of 2.38 million GT were added during the period.
  • While about 11 per cent of the vessels are 0 to 5 years of age, a large part of the fleet (around 41 per cent) is over 20 years old (as of December 31, 2018). In terms of fleet composition, dry cargo liners dominated with 812 vessels, followed by oil tankers (168).
  • With respect to IWT, during 2017-18, the total traffic handled on the three national waterways (NWs) (NWs 1, 2 and 3), Goa waterways, Maharashtra waterways and Gujarat waterways (operational from October 2017) was 55.01 million tonnes (mt). Of this, Maharashtra waterways handled the lion’s share of 47.19 per cent (25.96 mt). During 2018-19 (till November 2018), the traffic on NWs 1, 2, 3 and 4, three state waterways, and the Sunderbans waterwaste stood at 47.01 mt.
  • On the financial front, most of the shipping companies/shipyards, except Cochin Shipyard Limited, Gujarat Pipavav Port Limited and Shreyas Shipping and Logistics Limited, registered negative profits during 2018-19.
  • In order to raise funds for undertaking more repair and retrofit works, one of the shipyards, Garden Reach Shipbuilders and Engineers Limited (GRSE), issued its initial public offering (IPO) in September 2018. The three-day IPO, which consisted of 29,210,760 shares, opened on September 24, 2018 with a price band of Rs 115-Rs 118 per equity share and a Rs 10 face value. However, even after extending the IPO to October 1, 2018 (owing to under-subscription to the tune of 67 per cent) and reducing the price band to Rs 114-Rs 118, the IPO received a tepid response and was subscribed by just 1.81 times.
  • In August 2018, Mazagon Dock Shipbuilders received approval from the Securities and Exchange Board of India (SEBI) for its IPO. Earlier, in July 2018, Avana Logistek Limited (which also specialises in coastal shipping and liner services) filed a draft red herring prospectus with SEBI for an IPO.
  • On the technological front, in order to provide real-time information on the least available depths of waterways, the Inland Waterways Authority of India (IWAI) launched a new portal, the Least Available Depth Information System, in February 2019. Earlier, in July 2018, the IWAI had launched a dedicated portal, Forum of Cargo-Owners and Logistics-Operators, to provide cargo owners and shippers with real-time data on the availability of vessels.
  • With respect to project completion, the government inaugurated Phase IA of the Varanasi multimodal IWT terminal project on November 12, 2018. This was marked by the receipt of the first intra-country container vessel carrying PepsiCo’s consignment through inland waterways. The IWAI’s vessel, MV RN Tagore, carried 16 containers (equivalent to 16 truckloads) of food and snacks. Meanwhile, construction work on the two terminals at Haldia and Sahibganj is under way and the terminals are expected to be completed by January 2020.

Initiatives to promote shipping industry

  • On the policy front, the government has unveiled a number of initiatives to promote the domestic shipping sector. To give an impetus to the Make in India initiative and incentivise shipbuilding activity, in February 2019, the Ministry of Shipping (MoS) revised the guidelines for chartering of ships by providing the right of first refusal to firms that have ships built in the country. When tendering is undertaken to charter a vessel, the bidder offering a ship built in India will now be given priority over one offering a foreign-built ship, in case both have the same bid quote. The move is expected to raise the demand for ships built in India and will provide them with additional market access and business support.
  • For facilitating the movement of fertilisers through coastal shipping, the MoS has taken a number of initiatives. Recently, in June 2019, the Department of Fertilisers approved a policy for reimbursement of freight subsidy for transportation of fertilisers through the coastal shipping route. Earlier, the financial support was available for fertiliser movement via rail.
  • In September 2018, the MoS eased the conditions for foreign flag vessels to carry fertiliser cargo along the coast by modifying the cabotage relaxations announced in June 2018. As per the amendments issued on September 10, 2018, for a foreign flag vessel to qualify for the relaxed norms, at least 50 per cent of the total coastal cargo on board should be fertilisers and the rest can be any other cargo. In addition, the movement of fertilisers on a foreign flag vessel can be bulk, break bulk or containerised cargo.
  • In July 2018, the MoS relaxed the norms for foreign vessels under Section 407 of the Merchant Shipping Act, 1958, for the movement of fertilisers from one port to another within the country. Foreign flag vessels are now not required to obtain licences from the Directorate General of Shipping for engaging in coastal trade for carriage of fertilisers via the sea route.
  • Cruise tourism is another emerging segment that has attracted attention. A cruise service was launched between Mumbai and Goa in October 2018. The newly modernised cruise passenger facilitation centre at Chennai port received its maiden vessel, MV Le Laperouse, on December 25, 2018.

To conclude, given India’s natural advantages of being well placed on trade routes and having a long coastline and vast network of inland waterways, the shipping sector has significant potential. With a number of policy reforms under way, the government is determined to tap the sector’s potential. The timely implementation of policies and execution of plans could ensure the realisation of this potential.

Garima Arora