In 2005, the world shipping industry garnered a freight income amounting to US $380 Bn. The total world shipping tonnage, as on 1st January 2006, stood at 642.67 Mn GT[Dry Bulk (27.75%), Wet Bulk (27.15%), Containerships(14.98%), LNG/LPG (4.19%), Others(25.94%)].The Indian shipping industry earned a freight income of US $2.2 Bn in FY 2006 and the Indian tonnage, as on 1st July 2006, stood at 8.57 Mn GT [Dry Bulk (30.60%), Wet Bulk(55.70%), LPG carriers(3.30%), Containerships(1.10%), others(9.30%)].
The shipping industry is interestingly poised at the moment. After seeing dizzying high freight rates in 2004 and a strong market in 2005 & 2006, ‘what lies ahead?’ is not an easy question to answer. The prospects of the shipping industry will depend on the trade volumes growth in dry bulk, wet bulk and container ship segments, in addition to tonnage addition/deletion balance in these respective segments.
Dry bulk cargo constitutes of two main commodities: iron ore and coal. Iron ore trade is largely driven by the demands of the Chinese steel industry. Chinese iron ore demand remained strong in CY 2006, however, going forward whether there will be any significant slowing down in the Chinese steel industry still remains to be seen. As 83% of India’s iron ore exports are to China, the trade volumes arising out of India will also depend, to some extent, on the prospects of Chinese steel industry. As per INSA Annual Report 2005-06, the iron ore trade is expected to grow at a CAGR of 3.4% till 2014 to reach 131.50 Mn tonnes (97.31 Mn tonnes in 2005).
As the Asian countries are putting up new coal based power stations; the demand for coal is expected to remain steady. India’s coal demand is expected to increase because of the capacity additions in the power, cement and steel sector. The Indian coal trade is expected to grow at a CAGR of 8.52% till 2014 to reach 135.9 Mn tonnes (65.12 Mn tonnes in 2005).
The age of dry bulk carriers is high with more than 30% of the total dry bulk gross tonnage being over above 20 years. In case of India, more than 60% of the dry bulk gross tonnage is over 20 years of age. Going ahead, CARE feels that the freight rates in this segment will be determined more by the new tonnage additions-scrapping balance than by dry cargo volumes growth.
This winter, the wet bulk market has been suppressed due to decreased movement of crude oil. This was attributed to stocking of oil by developed countries (when the oil prices hit above $70/barrel) before the winter began. However, barring such intermittent phenomenon, the wet bulk market is expected to remain buoyant. India has been seeing an increase in its crude oil consumption. As per INSA, India’s Petroleum-Oil-Lubricants trade is expected to grow at a CAGR of 4.47% till 2014 to reach 290 Mn tonnes (126.44 Mn tonnes in 2005).
The world tanker fleet is relatively young as it is being replenished with new double hulled tankers. 15.7% of the world tanker gross tonnage is over 20 years while in case of India 23.3% of crude tanker tonnage and 51.86% of product tanker tonnage are over 20 years of age. The Indian players will need to replenish their fleets with tankers which are compatible with International Maritime Organization regulations (single hull vessel need to be phased out by 2010 unless covered by Conditional Assessment Scheme).
With 2-2.5 times relationship with GDP growth rate, the container trade volumes will continue to grow exponentially. The growth will arise both due to increase in the volumes of the currently containerized commodities and containerization of newer commodities. As per INSA, the container traffic at the Indian major ports is expected to grow at a remarkable CAGR of 15.57% till 2014 to reach 15.1 Mn tonnes (4.74 Mn tonnes in 2005). With 13.7% of world container fleet over 20 years of age, not significant scraping is expected. The cargo growth in this segment is expected to absorb the new tonnage additions, thus keeping the freight rates buoyant. However, Indian shipping companies have marginal presence in the container ship segment. This is because containership segment is liner business and hence requires huge investments in infrastructure and logistics. As a result, the majority of the Indian containership cargo is being carried by foreign shipping companies.
As per industry estimates, it is believed that the Indian shipping industry will need to spend about US $4 Bn on fleet renewal (all segments included) in the next five years. However, the Indian shipping companies will be encouraged to add tonnage under the Indian flag only if it is provided with an internationally comparable fiscal and legal environment. Thus, for the Indian shipping industry to explore the opportunities ahead, it is necessary that the government plays a facilitative role.
