Overview of Indian Shipping Sector
The importance of maritime transportation in the economic development of India can be seen from the fact that 95% of country’s trade by volume and 77% by value moves by sea. The Indian seaborne trade has been growing at a CAGR of 11.38% for the past 10 years, and it was the highest, 12.25%, prior to the global slowdown. This growth rate indicate that the Indian seaborne trade will be grown to the level of 2,134 million tonnes by the year 2020 from the present level of 598.70 million tonnes. At present Indian seaborne trade constitutes only 3.66% of the global seaborne trade and with the kind of projections mentioned, it can reach a significant 9.3% by the year 2020 .
While the Indian seaborne trade has been growing substantially, the share of Indian ships carrying country’s overseas trade has been declining from 40% in late 80’s to 8.4% in 2008-09.(Source- Maritime Agenda Jan’11) . This continued slippages in the share of overseas trade is in turn causing a drain on foreign exchange in terms of payment of freight charges.
Recent trade analyses show that the Indian trade conditions are ripe for an increase in tonnage with clear scope in tankers, LNG/LPG carriers , OSVs, dry bulk carriers and containers. Yet none of the Indian companies has declared any plan for expansion or given any indication of an optimistic outlook for growth.
The cautious industry reaction, in spite of the obvious potential for growth, is a major concern and an analysis of this reveals below mentioned issues and bottlenecks confronting the sector.
Issues Confronting Indian Shipping Industry
1. Inadequate Growth of Indian Tonnage
Indian tonnage is not growing in pace with the fast growing maritime trade. As on 1st January 2011, India has 700 vessels under coastal trade and 340 vessels under overseas trade totalling to a fleet size of 1040 ships (source INSA report) with a tonnage of 10.2 mgt. In terms of fleet size, the Indian shipping industry is makes only a marginal share of just about 1% of the global fleet. This inadequacy is one of the reasons for the declining trend of Indian fleet’s share in overseas trade. Considering the fact that the Indian seaborne trade could increase 3.56 times by 2020, the Indian shipping tonnage could be brought up to the level of 130million GT by then to arrest further decline in the share of Indian ships.
2. Age profile of the Indian fleet
Another major reason for the declining share in overseas trade has been the age profile of the shipping vessels in India. As per INSA report around 52%of the Indian shipping fleet are over 20 years of age and overdue for replacement. This makes the Indian vessels non competent with the relatively new and modern foreign vessels.
3. Inadequate Port facilities & high cost
Indian ports are the gateways to India’s international trade, and are handling over 90% of foreign trade. Though the bulk of Indian trade is carried by sea routes, the existing port infrastructure is insufficient to handle trade flows effectively. Around 70% of the ship time is estimated to be spent at ports.High transportation costs, port delays, poor turnaround time of coastal ships and inadequate mechanical handling facilities are some of the other reasons for the declining share of Indian shipping tonnage in India’s overseas trade.
4. Lack of capital investment in shipping sector.
In the present competitive global scenario, all countries face the challenge of continuous upgradation and modernization of their maritime transport system in order to cope with the rapid increase in volume. This requires the adaptation of new and improved technology in both vessels as well as the port operations and transport facilities. The increasing size and sophistication of ships and port facilities require heavy capital investment, which is another major problems faced by Indian shipping industry.
5. Lack of a Clear Policy Approach
Lack of conviction – Requests for fiscal regime change for the global competitive conditions has always been discouraged by the argument ‘ownership is not necessary for efficient cargo movement’ . Unfortunately this argument ignores the high cost of freight imposed on any country that does not have the bargaining powers to negotiate terms. It is to be noted that the tactical wisdom of a “Buy FOB ,sell CIF” practice of Japan, USA and China is not just to support the national shipping, but is a bargaining strategy in the international trade.
Economic benefits undocumented – Another reason for lack of a clear policy is the absence of a systematic study to evaluate the overall benefits and employment potential of the multiplier effect of shipping.
Global opportunity unexploited – In a globally flat world, in the current macro-economic atmosphere, the ownerships and resources for expansions are sourced by forming joint ventures and consortiums of global partners. There is no reason why we must strictly stick to the vision of Indian Flags belongs only to the Indians. This policy is another bottleneck in the growth of Indian tonnage.
The national energy security issue – This is another policy issue which has direct bearing on the growth of Indian tonnage. Govt. Of India should take a policy decision to ear mark the gas and oil sector for national tonnage. This policy will boost the growth of Indian tonnage and its share in overseas trade. India has oil tankers, some LPG carriers and very few oil rigs, but there is not even one LNG carrier . This void should be filled to avoid further decline in the share of Indian vessels in overseas trade.
Lack of direction in offshore vessel growth- Due to lack of policy directions in the area of offshore maritime services, the Indian OSV owners chosen to put their vessels in the cross trade rather than in the Indian waters. It is necessary to offer a level playing ground to Indian operators to compete effectively with their foreign counter part.
Special laws for bilateral trade – Bilateral shipping arrangements are considered to be an effective tool to ensure cargo support to the Indian shipping companies. However, in reality, the International Shipping Trade Agreements signed with other countries are mainly used to strengthen the diplomatic relations rather than maximise bilateral trade. A new business modal could be evolved for mutual benefit and increased use of ship of the country flag. Such support enhances the competitive strengths of national shipping companies, and thereby contributes to the growth of national fleet and its share in overseas trade.
6. Restrictive Fiscal Climate
This is another issue which pulls back the Indian tonnage growth. At present there are around 12 taxes that the Indian shipping companies are subject to besides the tonnage tax. These together reduce the 2-3% tax benefit granted under the tonnage tax regime.
It is to be noted that countries like UK and Germany ,who introduced Tonnage tax at about the same time as India , almost doubled their tonnage in a span of 5 years against India’s growth of 21%. (Source – 11th 5 yr plan, Working group report on Shipping and IWT )
As maritime trade is important for the economic development of the country measures could be taken to eliminate or mitigate the incidence and impact of the above taxes to accelerate tonnage growth.
7. Half hearted belief in coastal shipping
Despite its evident advantages over the land based modes of transportation, coastal shipping in India has not become an integral part of the country’s transport infrastructure. Economic reforms in India have triggered a high rate of economic growth in the country and this in turn has led to an increase in transport demand. This demand is being met mainly by the rail and road transport systems. About 60-65% of the freight traffic is carried by road , 30-35% is by rail and only about 7% by coastal shipping.
Though coastal vessel number and tonnage increased from 244 / .60mgt in 2003 to 700/1.0 mgt on 1st January 2011 (source INSA report), the actual number of cargo carrying fleet is very small. A relatively modest investment in coastal sea routes with appropriate policy changes would bring substantial benefits to the shipping industry, both in domestic and international sectors.
8. Regulatory issues
Shipping industry which caters to the demand across continents is regulated by both domestic and international regulations. The compliance of such regulations add cost to the shipping industry. Also the wider regulatory framework makes stricter entry barriers into the Indian shipping industry.
Lack of regulation in offshore services - With increasing E&P activity offshore, there will be foreign and Indian drilling units and support vessels employed in the EEZ area surrounding our coast. While Indian flag vessels would be operating under MS rules and ISM codes, the foreign flag support vessels will have very little control exercise on them. Foreign vessels deployed in this sector will not be inspected by Indian port state administration as they operate in EEZ. A well defined common statutory rules and regulations should be evolved, jointly by the petroleum and shipping sectors, and a regulatory body should be formed to monitor all vessels in this sector for the compliance and implementations .
Restrictive manning policies – Under the MS Act, 1958 Indian flags are under the compulsion to employ only Indian seafarers. Though India is one of the top supplier of qualified seafarers, the Indian shipping industry is facing serious shortage of manpower, especially at the senior levels. This is mainly because many of the officers preferring to sail on-board foreign flag vessels owing to discrepancy in taxation policies.
Outmoded legislation- Regular updation of the maritime legislation is the most important aspect of effective implementation of the IMO instruments .By adoption of conventions, IMO made several changes in maritime laws, especially in the safety and environment related issues. All of them are not incorporated in the Indian MS Act. Also, the Act is not in pace with the changing patterns of the trade.
9. Maritime Security
The sea borne terrorist attacks on Mumbai- 26/11, focused the need for strengthening maritime and coastal security against threats from sea. A number of measures have been initiated such as CT-PAT, ISPS, CODE, LRIT etc to enhance maritime security. This has added new expenses to shipping industry, which reflects in the entire supply chain. A balanced approach would have to be arrived at for managing such huge costs, without compromising on the security aspect, to make Indian shipping sector more cost effective and viable.
10. Environmental issues
Over the years the shipping industry have been confronting with a number of environmental issues. Like other economic sectors, maritime transport has a role to play in addressing formidable challenge of climate change. There is an ongoing battle among the national and international authorities in the development and implementation of environmental standards. Commercial viability will have to be in balance with requirement for environment protection.
Conclusion
India is now projected to become the fourth largest economy in the world by 2020, after China, Japan and the US. Indian mercantile trade has grown phenomenally and now constitutes 4% of the GDP. Government of India has been supporting the growth of the industry through various measures. However the competitive position of the Indian shipping industry needs to be strengthened.
The other players in the shipping and associated sectors have also a role to play for the development of the industry. Indian shipping industry needs to team up with foreign consortium of fleet owners to tap the growing LNG transportation business. Indian ship builders must focus on benchmarking their own processes to international standards to improve the efficiency, delivery time, price and quality. Innovative financing measures such as German KG model may be adopted to encourage fund flow into this sector.
Rather than merely regulating and controlling the national fleet, India should have policies in place which proactively encourage and promote investments in International shipping services under the Indian flag and should change legislations to permit it.
As a maritime nation, India should take a mature approach of looking beyond the Indian trade to become a global player and to provide global conditions of trade. It is therefore essential for India to put together all such strategies, that would lead to optimal and effective contribution towards developing the shipping industry.
PLL, incorporated on April 2, 1998 ,formed as a Joint Venture by the Government of India to import LNG and set up LNG terminals in the country, it involves India's leading oil and natural gas industry players. The promoters are GAIL (India) Limited (GAIL), Oil & Natural Gas Corporation Limited (ONGC), Indian Oil Corporation Limited (IOCL) and Bharat Petroleum Corporation Limited (BPCL). 
