Shipping Industry India – Low Profile - Suggestions to Improve the Situation

 Shipping Industry India – Low Profile  - Suggestions to Improve the Situation.

Dinesh K Kapila

Why has India neglected its merchant marine and the shipping sector. A nation of our size and ambition cannot simply presume that exports or cargo can be transported by any vessel under any flag. We should have had by now a few major shipping companies facilitating both forms of trade, coastal and non coastal. This gross neglect had caught us off guard now as shipping costs rise worldwide. A committee of experts from the government and industry must study the pain points preventing entrepreneurs from considering an entry in this sector or seeking headquarters outside India. The Policy framework must facilitate investment and the upscaling of this sector. The Chambers of Commerce should also take this up.
Alongside the ship building industry must be more efficient and productive. And taxation for seafarers should ideally be the same, whether sailing on foreign lines or Indian lines or then find a harmonious point. This neglect is akin to our giving away slots to airlines of other nations.
And containers. The simplest of products to make and we don’t manufacture them. Why so. What led to this absolute dependence on China. We must have our own manufacturing. This crisis must make us move urgently. It's never one or two issues which impact a sector, it is always a mix. 

Just to add, Even as Colombo and Hambanthota were strategically being developed, we did not think of developing the Cochin Port or Mormugoa Port as points of trans shipment into the largest market in the vicinity and also to provide technical and logistics services as an alternative to Singapore further East. It seems we need a strategic vision and swift execution for this sector

Pertinently, this is a Capital Intensive Business, and the market (read Rates) are very volatile. Unless the areas of concern / factors are addressed, the extremely competitive market will keep us out.  India will continue to have a nascent shipping industry. The factors are -

1. Acquisition of a Ship - Capital (Loans) raised in India is more expensive. So the capital costs being equal to acquire an asset, the cost of the asset - capital - is more in India. This has to be factored say over the fifteen years or so of the productive life of the asset (ship).

2. Taxes - Purely for an Indian Flagged vessel, there is GST, multiple taxes by State Governments and then the GST on the acquisition of a ship from another nation, presently it is 5 %, so when the vessel is brought the first time to an Indian port, this levy has to be paid. Costs go up. Or Indian shipbuilders should be more efficient and cost competitive.

3. Income Tax on seafarers - Seafarers pay income tax as per Indian rates, that is on the higher side while Indian seafarers on foreign vessels pay lower rates, consequently the operating cost for the Indian companies goes up as they match the salaries inclusive of taxation.

4. Classification of Vessels – The rule now is, it has merits, that all Indian owned vessels have to be classified by Indian agencies, now these agencies don’t have the reach and scale, specially abroad. So Indian owners have to resort to dual classification, from abroad and within India, thus raising costs.

5. Government Support – Nations with a large economy or long coast lines such as the USA, China, Indonesia etc, do extend support for vessels flagged within their nations. Conditions / Conditionalities maybe there but the support is a major factor. India does not extend any support. China essentially imports 70 % to 80 % of its oil by VLCCs owned by Chinese companies.

6. Coastal Cargo – In the USA, they permit only the US flagged vessels to ply their coastal waters and ports. Freight rates may go up admittedly (normally in the range of 3% to 7 % of the shipping freight) as compared to the total value but the country’s merchant marine benefits. China does the same. Chinese companies buy older ships from other nations and deploy them on coastal shipping.

7. Coastal Cargo – The other area of concern is the conversion and reconversion issues due to customs rules, which cause delays at some ports (not all) and this can at times be of days, This has to improve. But overall port operational efficiency has improved.

8. Bunker (Fuel) Costs – The cost of bunkers is high and add to it taxation, so companies tend to avoid bunkering in India. But this cannot be avoided for coastal shipping. Shipping Companies with flags of convenience bunker abroad and then take up coastal shipping.

9. Indian Trade – We need to scale up massively as a nation on the economy and on trade -  imports and exports – thus at times there may be a limited incentive to set up a shipping company.

10. Atamnirbhar Scheme – The GOI has certainly this July states that for Indian ships – (Indian owned Indian flagged) depending upon the age of the ship – there will be a subsidy of 5 % to 10 %. PSU  Companies etc seem to be reluctant about the process of delivery of the subsidy / incentive, this needs to be addressed.

11. Generic – Pollution Risk etc – There is a risk of running all ships under one company considering the cost of any penalty due to a incident of pollution. This could raise the cost of insurance. Many lines abroad (not China) tend to set up multiple companies.

12. To sum up, the limited generation of a surplus, cost of funds being higher,  Govt policy being  somewhat iffy, the entrepreneurs tend to weigh the risks of any investment in shipping.

13. Lastly, our shipping industry has all told 1600 to 1650 odd ships, plying internationally or nationally, this is too narrow a base considering the size of our economy and the expected growth. 

14. The number of companies, largely two, is a rather concerning issue. We need a multitude, some specialising in vessels and a few able to dictate the terms of trade, inbound or outbound.    

    

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