Mr. Sabyasachi Hajara, Chairman & Managing Director of The Shipping Corporation of India, graduated with First Class Honours in B.Sc. (Chemistry) from Kolkata University in 1970. He obtained Post Graduate Diploma in Management from the Indian Institute of Management of Calcutta, in 1973. He joined the Shipping Corporation of India (SCI) on May 2, 1973. On September 1, 2005, he assumed charge as Chairman and Managing Director of The Shipping Corporation of India. Hajara has rich experience in various aspects of shipping. Hajara has been a member of number of Indian delegations at the Council and Assembly meetings of the International Maritime Organization (IMO), where he has represented SCI and the Indian National Shipowners' Association (INSA). Presently, he is the President of INSA and also a trustee on the Board of Trustees of the Mumbai Port Trust. Hajara has been associated with a host of Management and Industry Associations.
The Shipping Corporation of India Ltd (SCI) was established on 2nd October 1961 by the amalgamation of Eastern Shipping Corporation and Western Shipping Corporation. Starting out as a marginal liner shipping company with just 19 vessels, the SCI today has metamorphosed into a giant conglomerate. Sailing through for over four decades, the SCI has a significant presence on the global maritime map and is undoubtedly India’s premier shipping line. The SCI owns and operates about 35% of the Indian tonnage and operates in practically all areas of shipping business servicing both national and international trades. SCI over the years has also diversified into a large number of areas. The thrust areas for growth and diversification will focus on energy transportation, including the sunrise segment of LNG transportation and container transportation.
In a free-wheeling interaction with Anil Mascarenhas & Hemant P. Maradia of India Infoline, Mr. Hajara says, “Unless the global economy bounces back sharply, I don’t think the ship owners will have an easy time in the next two years.”
Indian shipping industry has lot of untapped potential. What is SCI doing to ensure that the un-tapped potential is realised?
As you very rightly pointed out, we believe the Indian shipping industry has definitely not realised its full potential. India is today one of the few nations in the world that can offer a very solid cargo base. We are the fifth largest importer of crude oil and the third-largest exporter of iron ore.
In terms of volume, our total EXIM trade, which is about 700mn tons, represents about 8-9% of world volume of 8bn metric tons.
But, unfortunately, shipping in India has not grown as fast as it should have. About 30 years back, India and China had more or less the same tonnage. Today, the Chinese tonnage is more than three times that of India’s.
Moreover, China is way ahead of India in every area of the maritime industry. Some of the Chinese ports handle many fold the containers handled by all the Indian ports put together.
In terms of ship building too, China has grown by leaps and bounds. It has actually overtaken Japan to become the second largest ship builder after South Korea. By 2015 or a little later, China is likely to surpass even South Korea as the world’s biggest ship builder.
In India, we have seen some growth in ship building capacity. We used to build 0.3% of the global ship building tonnage about 3-4 years back. Today, it has jumped to 1.2%. With strong engineering skills and comparatively cheaper manpower, India has tremendous potential in ship building.
This is particularly due to the fact that in many countries, including China, the government has taken a lot of facilitative measures. They have realized if the EXIM trade has to grow, then maritime capacity must be augmented substantially. That is what China has done.
The only way India can realise its true maritime potential is if the Government announces facilitative measures, including fiscal incentives.
The shipping industry has commissioned a report that recommends certain policy changes. The Govt is also taking a review of FDI norms? What are your expectations in this context?
The Indian National Ship Owners Association, which represents almost 90% of India’s total shipping tonnage, had hired SBI Caps to undertake a study. This has already been submitted to the Union Ministry of Shipping. It does recommend, among other things, interest subvention, particularly for domestic loans. The interest rates prevalent globally to shipping companies are far lower than what is expected by the Indian lenders. Without some interest subvention, the domestic loans for shipping projects will not be attractive at all.
What kind of response do you expect from the Government?
On behalf of the Indian National Ship Owners’ Association we have made a presentation to Mr. B.K. Chaturvedi, Member of the Planning Commission. We have expressed our views on how the Government can give an impetus to the shipping industry. We are hoping for a positive response.
The Baltic Dry index (BDI) has risen over the past few weeks. It has reached upwards of 4000, which is the highest since early June. What is your reading on dry bulk rates?
We have definitely seen some upward movement in charter hire and freight, which is reflected in the BDI. It is a welcome relief to ship owners worldwide that the BDI has been moving up over the past few weeks.
But, as far as SCI is concerned, dry bulk carriage accounts for barely 20% of the total tonnage. Our tonnage is dominated by tankers (about 70%). The gains in the BDI can largely be attributed to China, which has been importing huge quantities of raw materials like iron ore.
There have been a few delays also at the ports of China, Brazil and Australia. This has helped in sucking out some supply overhang.
We are still worried because the supply pressure in the global shipping industry would remain for at least two more years.
The ship building orders are at their peak. More than 40% of the total existing capacity is on order. In percentage terms, the maximum orders are for capsize ships. Here the tonnage on order almost equals the total existing capacity.
Unless the global economy bounces back sharply, I don’t think the ship owners will have an easy time in the next two years.
For tankers what is the outlook?
We expect the current tough time to continue for the tanker segment as well because of the supply pressure. The winter is about to begin in the West. Usually, this is the time of the year when the tanker rates move northwards. Unfortunately, this year we haven’t seen any upward movement in tanker rates at all.
The demand for tankers is not so much linked to the price of the crude oil. It depends on the level of economic activity. For the first time after several years, the oil consumption in the world actually came down in 2008. Even in the current calendar year, it is expected to shrink marginally. From 2010 onwards, things should hopefully look slightly better.
With the supply pressure unlikely to wind down anytime soon, we don’t know if there will be much of an improvement in rates in the tanker segment.
What is the status of your diversification plans?
SCI does want to emerge as a full-fledged maritime player rather than just a shipping company. The company has taken an in-principal decision to try and get into ship building, in container terminal management, ICDs (whenever it is operational) and various other maritime related businesses.
At the moment, we are focusing on containing the fallout of the global slowdown on the company’s financial performance. We are trying to maintain the results at an acceptable level. We are trying to maintain our profitability.
At the same time, we have not forgotten our desire to diversify. We will continue to look at diversification opportunities. We are in talks with some ship builders for our foray into ship building.
But, the ship building industry itself is a victim of the global downturn. Very few new orders have been placed in the last few months anywhere in the world. As a result, our proposed foray into ship building projects has also got deferred to that extent.
You have also spoken about the need for India to increase its share in the global EXIM trade? Could you elaborate on this?
The Indian shipping lines’ share in the country’s EXIM trade was as high as 40% in the 1980s. Even in the late 1998-99, that share was about 30%. Today, it is well below 10%.
This is a cause for concern; because about 67% of the freight rates and charter rates earned by an Indian company get ploughed back into the country’s economy. Whereas a foreign ship company earns charter rates by participating in India’s EXIM trade, only about 10% gets ploughed back into the Indian maritime activities. The balance gets repatriated.
In light of this, we feel the Government should support Indian shipping liners.
The total Indian sea-born trade will be somewhere in the region of US$300bn plus. Freight component alone will be well over US$20bn.
Today, if just US$2.5-3bn is earned by the Indian shipping liners through EXIM trade, the remaining US$17bn is earned by the foreign companies.
Some cargo of this should be diverted to the Indian flag carriers. This will be very beneficial for the Indian economy.
Indonesia has reserved LPG transportation on domestic routes for local companies. Do you expect more such protectionist measures?
Since the global recession began, in early 2008, several protectionist measures have been taken by various nations. Obviously, the so-called ‘laissez faire’ economy has become a completely a Utopian idea. Globalisation and liberalisation have been given a go-by.
We are telling the Government to take a cue from the global protectionism. I am sure this is making some sense even to the policymakers, and I hope that some measures will be taken by concerned authorities in this direction.
Today, in several countries there is a concept of “Bhoomi Putra”. This means that the majority stake of any shipping liner operating in their region has to be with the locals. India is one of the unique countries to have 100% FDI policy in shipping.
Aside from the economic and commercial angle, we are also very much concerned with the country’s maritime border security. The presence of more and more Indian shipping liners is definitely going to help boost the country’s coastal security.
Also in terms of energy security, India must have its own fleet for the carriage of core, strategic raw materials like crude oil and petroleum products, etc. This is a very commonly followed concept, including in USA.
Are you considering any JVs?
We are always considering joint ventures with local partners and foreign partners. This is an ongoing process. But, there is nothing in the offing in the immediate future.
What is your total tonnage capacity and expansion plans?
Our tonnage capacity is 35% of the entire Indian shipping tonnage. It is a little over 5 million DWT. We have nearly about 2 million DWT of additional capacity on order.
Have you cancelled any ship building orders?
No, we have not cancelled any orders. We have 31 ships on order. These will be delivered over the next three four years.
The ships are of different types - tankers, bulk carriers, offshore vessels, etc.
How do you see asset prices going ahead?
Asset prices have been on the decline. Prices for new ships have come down by 30% and 40%. For the second-hand ships, the prices have dropped by as much as 50%. Supply pressure and subdued rates will mean that the weak trend in asset prices will also continue, at least till early 2010.
Have you come across any kind of distress sales?
Not really. But there have been some order cancellations, particularly by those who were entering in the Greenfield shipping ventures. Shipyards in China, South Korea and Japan have been very well backed by their respective governments with bailout packages. So, there is no real sign of any distress sales of ships on account of order cancellations.
What is the average age of your fleet?
Our average age is around 16 or so. This is comparable favourably with both India as well as global averages. Hopefully, when the new vessels join the fleet, the average will come down even more.
What are your plans for container services?
We are continuing with our European, Far Eastern and West Asian container services. We were also offering container services in the US, but had to reluctantly exit. We are also focusing on the coastal movement of containers.
Are you also looking at LNG and LPG transportation?
We have deployed two vessels for LPG transportation. We also have two ships that are carrying the LNG. But, they are not our own ships; they are owned by joint ventures. At the moment, they are being operated by us. Earlier, Mitsui OSK Lines and NYK Lines were their managers.
The third LNG vessel has just been delivered. That will be under the management of K Line for 2-3 years and then it will come under our management. We are also interested in getting involved in any other LNG project going forward.
How would you be funding your expansion?
No shipping project is entirely funded through internal accruals. In normal circumstances, 20% is the equity component and 80% is debt. But after the global financial crisis, raising money through debt has become tough. No lender is ready to lend up to 80% debt. Up to 60-65% debt is considered to be quite good in today’s time.
Have you received any positive response from lenders?
Yes. There is enough liquidity in the market. With asset prices down so much, lenders have turned wary of taking exposure to shipping companies. Valuation of the asset should be 1.2 times the debt. But all over the world, asset valuations have substantially come down.
What is your debt-equity ratio?
It is about 0.4. It used to be 0.26. We are a very, very low leveraged company.
Have you heard anything from the Government on disinvestment of its stake in SCI?
We haven’t received any communication from the Government on this issue. Government is the shareholder.
In our case already 19.88% of Government stake has been diluted. If they decide on further disinvestment of its equity in profit-making PSUs, then certainly SCI could also be one of them. But that won’t change the character of the company. In any case, the Government will hold at least 51% stake in PSUs.
How would you sum up SCI’s long-term goals?
SCI’s long-term goal is growth. Our goal is to become a full-fledged maritime player, and not restrict itself to a shipping company. India’s EXIM trade is expected to grow quite substantially. In general, the prospect for the Indian shipping industry and SCI in particular is pretty bright.
Tell us about your initiatives on transparency?
We have signed the integrity pact with the Transparency International. We have more and more importance to the vigilance department. I always tell all my colleagues that don’t take vigilance or internal audit as something that is going to police you. Constructive criticism is the best way to improve. Obviously, there is always scope for improvement. SCI is committed to being transparent in all areas of business.
What is your message to shareholders?
Just like any other shipping company in the world, SCI is in some difficulty right now. The profitability may suffer for some more time. But, we hope the shareholders would support the company as in the long run, SCI is going to do well.