Backed by India’s booming economy and the introduction of tonnage tax last year, Indian shipowners have embarked on a buying spree.
“Indian shipping is booming,” says Yudhishthir Khatau, president of the Indian National Shipowners’ Association and managing director of the Varun Shipping Company Limited. “Though growth is not as fast paced as it is in China, India is posting high single-digit annual growth and is helping to fuel the growing demand for shipping. This development, combined with the introduction of tonnage tax last year, has unleashed a new wave of ship orders by Indian owners.”
The Indian fleet has steadily been eroded in recent years, but the trend changed after the government passed a bill to introduce a new tonnage tax regime based on shipowners’ net tonnage. The measure, introduced in April 2004, means that the shipowners’ tax burden has dropped from 35 per cent to about two per cent, making the Indian register more competitive.
Level playing field
“Indian shipping companies will now have a level playing field compared to international companies. The low tax permits shipping companies to retain and re-invest a greater portion of their net earnings,” explains Mr Khatau. “However, the issues of replacement of the ageing tonnage and retention of skilled seafarers still need to be addressed if we are to consolidate the industry’s newly won advantages.”
As reported in Seatrade, since the tonnage tax was first announced, over 1 m gt has been added to the Indian flag, with the total passing 8 m gt for the first time in history this March.
Several owners have been extremely active in the second-hand market over the past 18 months, including Varun Shipping. The company currently owns and operates a diversified fleet of 17 vessels for the transportation of LPG, crude oil, petroleum products, dry bulk cargoes and offshore support vessels.
Earlier this year, the company bought a pair of modern double-hull Aframax tankers, both of which will be operated by Heidmar in the Sigma pool.
“Indian demand for crude oil is expected to increase and, with production being unable to meet the rising demand, the growing deficit is likely to be met by imports, resulting in increased shipping demand,” says Mr Khatau.
The Great Eastern Shipping Company, which currently operates a fleet of 44 ships totalling 2.96 m dwt plus 32 offshore units, has also been expanding its fleet. Its most recent newbuilding was a second ice-class Suezmax crude carrier delivered by Hyundai Samho in May. The company also has 12 new vessels on order – five medium-range product tankers and seven offshore support vessels.
Executive chairman K M Sheth comments: “The shipping sector will continue to be governed by the dynamics of ever increasing globe trade. Also, with Indian sea-borne cargo traffic expected to grow significantly in the years ahead, I believe our fleet expansion will demonstrate Great Eastern’s ability to meet market demands and clients’ needs.”
Mr Sheth warns, however, that the number of quality officers manning Indian flag vessels needs to be brought on a par with the numbers serving on foreign vessels.
He explains, “Indian shipping companies have been experiencing serious difficulties on this front for quite some time now. Though Indian owners have gradually increased officers’ wages to almost the levels paid by foreign flag owners, Indian officers continue to prefer employment with foreign flags for tax relief.”
According to Mr Sheth, the situation is worsening because of Indian companies’ fleet expansions as well as the increasing number of foreign ship managers setting up shop and recruiting out of India.
Hungry for oil & gas
Rising oil and gas prices have also led to the higher utilisation of Great Eastern’s offshore assets. “Our drilling rigs and support vessels have been adequately employed for the past two years,” says V K Sheth, the managing director of the offshore arm of Great Eastern Shipping.
He believes the renewed thrust on exploration and development by oil companies operating in India will create new opportunities. “Stronger balance sheets, improved oil company cash flows and a matching regulatory regime with a clearly defined focus by the government on oil security would ably support this business,” he says.
One of the fastest growing companies in Indian shipping is Mercator Lines. In addition to posting a profit of USD 40 m on turnover of USD 128 m last year, it has been able to top these funds by raising funds through foreign currency convertible bonds, which are listed on the Singapore Stock Exchange for further fleet expansion.
Its rapidly growing fleet currently consists of 11 tankers, employed on a mix of domestic and cross trades. The most recent additions were a pair of second-hand Aframaxes, which joined the fleet in April/ May. The company also recently chartered nine craned Panamax bulkers from the Klaveness Group. The charters range from 18 months to five years and include purchase options on three vessels.
“Basically, we’re targeting Indian cargoes,” says Harish Mittal, Mercator Lines’ chairman and managing director. “Indian trade is growing much faster than Indian tonnage, so we’re aiming, through our fleet expansion, to help meet market demand.”
Growth engine
While acknowledging the government’s decision to introduce tonnage tax, Mr Mittal believes there is still room for improvement in framework conditions if Indian owners are to play a major role in international shipping. “The shipping industry is undoubtedly the growth engine of the Indian economy and it must therefore be given due support and encouragement.”
Goodearth Maritime is another aggressive, upcoming shipping company in India. This Chennai-based company has taken major strides into the newbuilding market by placing orders for six Diamond 53 and four Handysize bulkers at Hindustan Shipyard, Visakhapatnam. The company owns and operates five bulk carriers profitably, having acquired them at low values prior to the shipping boom, and also has major order plans to revive and fully utilise slots at the Hindustan Shipyard.
Managing director Mr S Madhan relates how the company started its operations in 2003, quickly establishing itself as a quality-conscious owner. As part of a broad-based trading group, the company has a substantial need for high-quality bulk tonnage both for the group and to meet national bulk cargo requirements.
“We made a lot of good money when we started up. The challenge now is to redeploy the money very carefully. The demand for good quality tonnage to serve the markets is still reasonably high so we have opted to place orders for the six Diamond vessels, plus three options. The first vessel will be delivered in 2007,” says Mr Madhan.
Commenting on the company’s interest in the Hindustan shipyard, Mr Madhan said prospects are looking up for most shipyards, including Hindustan, which is reported to now have an orderbook totalling around USD 260 m.
More export orders
“Indian yards are beginning to win more export newbuilding orders and move up in vessel size and complexity, thanks to the strong demand for new ships, lack of capacity at Far Eastern yards and state support. We too aim to deliver some of these high-quality and high-tech ships, and the yard, labour and support systems at Hindustan will have both gained in experience and gained world confidence when they do so.”
Prospects are indeed looking up for both Indian shipowners and yards. As Mr Madhan says: “It’s a very challenging market but the potential is there. We are building for the future – India’s future.”