By Krishna B. Kotak, Chairman, JM Baxi Group
The recently announced Union Budget 2024-25 has some relevant topics that merit attention, specifically in the field of shipping. In the past few years, especially post-Covid, the sector has witnessed a disruption in global supply chain arrangements. The shipping sector plays a central role in supply chain infrastructure, both in India and globally.
Indian ships carry a minority share of Indian trade across all types of ships and cargo. Indian bulk carriers carry almost 40 per cent of Indian cargo, while Indian tankers carry 30 per cent of Indian traffic. On the other hand, Indian container ships handle less than 5 per cent of Indian trade. Being aware and alert to this reality, the Indian government has tried to encourage an increase in Indian tonnage.
With the world increasingly becoming hyperconnected, international trade has become intrinsically linked with the core economic well-being of nations. Shipping is a critical part of international trade and supply chain dynamics, making shipping capacity and capability a matter of national economic security for all nations. The Covid 19-led disruption resulted in an exponential and stratospheric rise in shipping rates for India and many other nations, accompanied by shortages of containers and ships, leading to a compromised competitive position. Bearing in mind the critical need for a robust and competitive national commercial shipping fleet, the government has announced a scheme to promote capex and growth in the shipping sector. The Budget announced that ships registered at GIFT City would have an easier corporate regime.
The year 2023 saw Indian ports handle a volume of approximately 24 million twenty-foot equivalent units (TEUs). If India aspires to carry even 20 per cent of the Indian container trade on Indian ships, we will need a fleet of at least 80-120 container ships ranging from 5,000 TEUs to 10,000 TEUs. We should keep in mind that our two largest ship owners: the Shipping Corporation of India Limited and the Great Eastern Shipping Company Limited, have a fleet of 60 ships each. This highlights the exponential opportunity for growth in the sector. The Federation of Indian Export Organisations has been a strong advocate for developing an Indian container shipping fleet. It is estimated that such an initiative would require a capex of $10 billion-$15 billion. The Ministry of Ports, Shipping and Waterways will also need to take forward its proposal for a ship acquisition development fund, which could support this gigantic endeavour. The financial scale and scope of this requirement are such that without significant governmental involvement and commitment, it will not be possible to launch such a project.
The two instructive examples that will need to be kept in mind are as follows:
Firstly, the semiconductor industry, where India was able to advance only through the implementation of the Production-Linked Incentive scheme (PLI) and upfront government commitment for funding. After wasting 15-20 years, the government had to step in as a major “funder” for the industry. Shipping will require a similar level of government involvement and funding.
Secondly, the domestic Indian airline industry, which has grown without substantial government financial support. So why has the shipping sector not achieved similar growth? The Indian airline industry benefits from two forms of direct government support. First, the government regulates all international traffic on a bilateral basis (route and country), requiring a 50:50 share between two participating nations and their respective carriers, thereby effectively securing traffic for Indian airlines. Second, no domestic route is open to foreign airlines; even a carrier like Singapore Airlines had to form a joint venture such as Vistara with Tata Sons Private Limited as a partner to operate in India. The Indian shipping industry does not have such an assurance of protection in its domestic market. It is also a sad economic fact that, due to the financial strength and power of foreign container shipping companies, Indian companies struggle to sustain viable domestic operations. This explains why Indian shipping companies have been reluctant to substantively explore the container shipping sector. As a result, foreign shipping companies have become gatekeepers of Indian trade.
Bearing these two examples in mind, it is hoped that the Indian government will take forward the much-needed plans to achieve a degree of economic and trade security.
India’s current experience with the semiconductor project can serve as a template for the establishment of a viable and sustainable Indian container shipping fleet.
