Indian Government Considers New Shipping Company: Experts Raise Concerns
The Indian government is proposing to establish a new shipping company jointly owned by state-controlled firms (PSUs) that import cargo for their use. This plan has been met with scepticism from industry experts who believe it to be a complex and impractical solution.
Why a New Shipping Company?
India aims to increase its national shipping fleet and reduce its reliance on foreign ships. Currently, over 90% of Indian cargo is transported on foreign vessels, leading to a significant foreign exchange outflow estimated at $75-80 billion annually. The government believes a larger domestic fleet would strengthen energy security and boost the economy.
The Proposed Structure
The new company, envisioned as a Special Purpose Ship Owning and Leasing Entity (SOLE), would be incorporated in GIFT City, India’s international financial services center. State-owned firms like IOCL, BPCL, and MMTC would co-own the ships and lease them back for long-term use. The Shipping Corporation of India (SCI), the existing state-owned shipping company, would manage the vessels.
Experts Raise Concerns
Several experts doubt the feasibility of this plan:
- Limited Control over Cargo Movement: Many cargo contracts are based on Cost, Insurance, and Freight (CIF) terms, where sellers are responsible for shipping. This limits the new company’s ability to secure cargo for its vessels.
- Operational Challenges: Experts question the practicality of managing a large fleet without experience and highlight the difficulty of securing return cargo for empty ships.
- Difficulties in Negotiations: Negotiating cargo contracts on Free-on-Board (FOB) terms, where buyers handle shipping, is unlikely as sellers often have their own fleets.
- Financing Hurdles: Acquiring a large number of ships requires substantial capital. Experts point out that privatization of SCI would remove a potential funding source.
- Uncertain Demand: The future demand for oil imports, a key cargo for the proposed company, is uncertain due to potential increases in domestic production and a shift towards green energy.
Alternative Solutions Proposed
Industry experts suggest alternative approaches:
- Strengthening SCI: Experts recommend focusing on expanding SCI’s fleet by providing funds through the proposed Maritime Development Fund or allowing other PSUs to become SCI shareholders instead of privatization.
- Supporting Existing Companies: Financial aid to established Indian shipping companies could be a faster and more effective way to increase the national fleet.
Focus on Container Shipping Needed
The plan overlooks the needs of non-energy exporters and importers who rely on container ships. Industry bodies have called for a state-backed container shipping company to address this gap.
Why can’t the government use SCI to increase the national fleet? Why can’t they extend funds to SCI through the proposed Maritime Development Fund to buy and lease ships and give them to PSUs on charter? Further, in the event of SCI getting privatised, the private owner of SCI will be operating the ships of the joint venture co-owned by the public sector,” an industry official said. “This should be given serious thought by the government. It can be done through SCI,” he added.
“If this is not found suitable, there are already so many shipping companies out there. Why not give taxpayer money to them, as they at least have a track record,” the industry official said.
The former Chief Controller of Chartering, Shanbhag, on the other hand, said, “Why not expand SCI by making other PSUs as shareholders of the Company instead of privatising it”.
Conclusion
The Indian government’s plan for a new joint venture shipping company faces significant challenges. Experts recommend focusing on strengthening the existing SCI or supporting private Indian shipping companies. Additionally, addressing the container shipping needs is crucial for a more comprehensive solution.
