The fall in freight rates to 20-year lows, the global financial turmoil and rupee depreciation have hit shipping companies hard. Globally, many of them are not even able to recover running costs.
Shipping Corporation of India -- the country's largest shipping company with a fleet of 81 ships -- has not yet 'laid up' any ship, though it has postponed asset purchases since prices are coming down.
In a wide-ranging interview with Abhineet Kumar, SCI chairman and managing director S Hajara discusses the problems facing the shipping industry. Excerpts:
Baltic Dry Index, the global benchmark for dry bulk carriers, has dropped about 94 per cent in the last six months. When can we see a rebound in the freight rates for dry bulk carriers?
No one has a crystal ball on how long freight rates for dry bulk carriers would continue like this. China was a major country fuelling dry bulk transportation.
It has slowed down steel production. Its coking coal import has also come down. It is not possible to give an outlook at this point of time.
What is the outlook on the freight rates for tankers and liners (which typically carry containerised cargo)?
Tanker market is still holding firm. The onset of winter in the Western countries also augurs well as they have high consumption of fuel for heating purposes.
However, the demand for very large crude carriers have got a hit as the parcel size is not that high.
With the US, Europe and China going under recession, container traffic is also hit. Import of cargo from China was an aid to the liner business of the shipping industry.
Only saving grace is that the bunker fuel prices (fuel for ships) have come down. It has helped us reduce the losses.
Is it possible to recover costs at such low freight rates?
Many ships are unable to even convert the variable or the running cost at the current freight rates. Then, there are so-called fixed costs for maintenance.
There are ships being laid up globally. When the ships are laid up, the fixed cost of maintenance also comes down. But we have not laid up any ship so far.
How is your capital expenditure plan getting impacted?
Credit crunch is a real problem. We need loans in dollar and suddenly the international banks have lost all appetite for lending. Even for SCI, it is much more difficult to manage credit.
The industry has a long gestation period and the debt-equity ratio for the industry is as high as 3:1. We have to tie up for finance for order placement.
Are you abandoning the Rs 14,000-crore (Rs 140-billion) investment plan that you have for the 11th five-year plan? Half of this has not been utilised so far. . .
We are not abandoning our investment plan but we are postponing it. We had finalised purchase of four capesize vessels (the vessels that are able to cross Cape of Good Hope on the horn of Africa) but we decided not to sign the purchase of assets.
We expect the value of assets will drop in the next six months. So, it does not make sense to buy it now.
