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| Indian Coastal Shipping: Overview |
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The global sea-borne trade which is more than 8 billion tonnes accounts for more than 95% of total world trade. The world shipping fleet stands at about 1.1 billion DWT. In terms of ownership by nationality Greece continues to maintain its predominant position followed by Japan, Germany, China, and Norway; together, these five countries own more than half the world fleet.
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The Indian sea borne trade has been growing at a growth rate of nearly 9.5% over the last decade and is more than 720 million tonnes per annum. Approximately, 90 per cent of the country's trade by volume (70 per cent in terms of value) is moved by sea.
India has the largest merchant shipping fleet among the developing countries and ranks 15th amongst the countries with the largest cargo carrying fleet with 8.96 million GT till Dec 2008 and the average of the fleet being approximately 23 years.
Coastal shipping is an energy-efficient, environment-friendly and economical mode of transport in the Indian transport network and a crucial component for the development of domestic industry and trade. India, with her 7,517 km long coastline studded with 13 major ports and 200 non-major ports provides congenial and favorable conditions for the development of this alternate mode of transport.
India's Coastal Shipping Tonnage as on 31st December 2008 was 607 vessels with 959575 GRT and 998601 DWT. In India, coastal shipping accounts for seven percent - against 43 per cent in the EU - of domestic cargo movement.
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Indian Coastal Fleet Profile |
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Indian coastal shipping is highly fragmented. The top 9 companies account for nearly 60% of the total fleet by DWT. The major companies in terms of tonnage are Poompuhar Shipping Corp., Shipping Corporation of India Ltd., Sesa Goa Ltd., etc. In terms of number of ships, the top 9 companies only have a 30% share of the fleet. Many companies own just 1 or 2 ships. The leading companies by number of ships are Ocean Sparkle, Great Offshore, Reliance Industries Ltd., etc. |
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Amongst the Indian coastal shipping companies, the largest average fleet size is around 80,000 DWT, whereas for overseas shipping many companies have average sizes in excess of 100,000 DWT. This shows that coastal shipping is primarily carried out in smaller and a large number of vessels rather than small number of big vessels. The economy of scale is not utilized in the short distance coastal shipping, probably because of the high capital expenditures involved in acquiring large ships.
Dry cargo vessels make up the majority of Indian coastal fleet by DWT, whereas tugs and offshore vessels, which are obviously having lesser displacement, are employed in large numbers. The category ‘others’ includes passenger vessels and vessels belonging to Port trusts (mainly tugs and survey vessels).
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Indian Coastal Shipping Potential |
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It is estimated that coastal cargo movement in India will increase to 107 MT in 2012 as compared to 83.28 MT in 2006. This will increase demand for coastal shipbuilding and ship repair. Domestic coastal trade is likely to assume more importance due to the slowdown in global (overseas) trade and shipping.
Despite the global downturn, Indian domestic trade is expected to remain strong and coastal shipping will retain its strong potential. According to the Government’s 11th five year plan, coastal shipping will proved revenue worth Rs 190 crores via ship repairs alone.
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Studies have shown that the cost of transporting goods in containers from North India to South India and vice-versa can be reduced by as much as 40-50% at comparable transit times by using the multi-modal combination of rail and sea. All these factors indicate that coastal shipping is a potential area for heavy investment in the future.
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Policies Regarding Coastal Shipping |
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It frames and implements the policies regarding coastal shipping as well as the construction specifications of coastal vessels, cabotage laws, taxation, etc.
Cabotage law in most countries reserves the movement of coastal trade to their own flag vessels. Policy measures involve crewing restrictions, ownership restrictions, provision for domestic fleet subsidy, reflagging restrictions, etc. In India, the Merchant Shipping Act bars foreign bottoms from carrying cargo between Indian ports; exceptions are made if no suitable Indian vessel is available. The market of shipping industry being highly volatile, such protection creates a certain degree of stability for the Indian bottoms. Action plan for the development of coastal shipping is already on the anvil with the Central Government. With a view to promote coastal shipping and sailing vessel industry, the home trade vessels and sailing vessels have been exempted from the payment of lighthouse dues under the provisions of the Lighthouse Act, 1927.
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Future Outlook |
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In the short term, the picture looks bleak. However, there are small signs of recovery. Chinese iron ore demand has picked up again. There has been a slight upturn in Bulk Carrier freight rates, especially in the small size vessels.
Moreover, several companies are still acquiring bulk carriers for their captive use. These include some companies from India. Indian manufacturing sector is not severely hit by recession, due to a strong domestic economy, which is not heavily linked to US and Europe.
It is expected that the smaller size vessels – handysize and handymax will have the potential to tide over the recession.
This can be due to the fact that Handysizes/Handymaxes are typically used for the minor bulks such as cement, sugar, salt and fertilizer - global essentials that remain in demand even during a severe economic downturn.
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Also, the small size of these vessels means that they are often the only type that can service certain ports – making substitution with larger ships impossible. In addition, outstanding orders for handysize vessels equate to only 47% of the existing fleet – the smallest of any segment of dry bulk ships. The average age of the handysize fleet is 18 years. Some 41% of vessels are already more than 25 years old and will likely be scrapped over the next few years – especially if rates do not rebound. If all vessels are delivered (unlikely, in our view) and all vessels over 25 years are scrapped, the net capacity increase over the next 4 years would only amount to about 6%.
In the long term the bulk segment is expected to recover, but not reach the heights of 2007. The current downturn is the most severe since the 1980s and could last as long. Fortunately, this downturn has come after the longest upturn in bulker history (2002 to mid 2008) and hence, the shipping companies have the amassed profits which might help them see off this phase.
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Indian Shipyards |
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Indian shipyards do not have the capability of making post panamax vessels. This could be to their advantage, as bulk carriers in small sizes appear to be the most resistant to the effects of recession. Most of Indian orderbook is much below Panamax size, and hence, these orders might not be cancelled. Currently there are 50 bulk carriers on the Indian shipyard orderbook, amounting to 2.7 million DWT. The average size of these carriers is in the Handymax range (54,000 DWT), and 16 of these vessels are in the Handysize category. Hence, Indian yards may manage to avoid order cancellations.
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