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A good year ahead

N. K. Kurup

AT THE turn of the year, the booming freight market brings more cheer to shipowners. If predictions are anything to go by, it will be another `champagne year' for tanker owners. Tanker tonnage is unlikely to grow in the near future while its demand is ex pected to be firm, in view of the current buoyancy in freight rates, say analysts.

Though a lot depends on the developments on the oil front and the political situation in the Gulf, the shipping industry, excited by the steep rise in VLCC rates -- the highest since 1973 -- is highly optimistic about another year of handsome earnings.

Indian companies, though constrained by some inherent difficulties, are making the best of the favorable wind. With average tanker rates leaping from $10,000 a day to $40,000 a day in the past year, major Indian lines will end this fiscal with better bot tomlines.

An extremely positive trend is that more and more Indian ships are being deployed for cross-trading. Even the state-owned Shipping Corporation of India, the nodal agency making shipping arrangements for crude import, has recently fixed one of its tankers in the international market. The private sector Essar Shipping already has six Suezmax vessels on long-term charter outside India. Similarly, Great Eastern Shipping has three crude carriers operating on international charter.

For Indian companies, it is also an opportunity to go global. Until recently, they were seeking comforts in the cost-plus freight being offered by the OCC. They are fortunate as the market turned better, when they were forced out of `cost-plus'.

Going by the projections, India's own oil import would go up regardless of the rising prices. A recent report by a leading US shipbroker said the tanker boom would be driven by India and China, which are set to witness growth in oil consumption.

The per capita consumption of oil is lower in India (0.8 barrels) and China (1.3 barrels) than in countries such as South Korea Z (17.2 barrels), Japan (16.4 barrels) and the US (24.9 barrels). India's oil consumption would increase from 95 million tonne s to 600 million tonnes, and China's from 200 million tonnes to 800 million tonnes by 2010, the report says.

However, if the current trend in the cargo share of Indian bottoms is any indication, they may be unable to take advantage of the boom. Indian fleet accounts for roughly 55 per cent of the crude import, down from 80 per cent five years ago. Today, nearly 45 per cent of Indian POL cargo is carried by foreign ships. Their share will go up further once the administrative pricing of petroleum products is lifted completely by 2002. A major part of the Indian tanker fleet is due for replacement. Acquisition o f additional capacity is difficult due to the regulatory and financial constraints.

Indian shipowners feel they are not able to take full advantage of even the existing opportunity due to government regulations, leave alone the potential. The major problem is that acquisition of second-hand ships has become very costly. Under the new Ex im Policy, the importers of second-hand ships have to submit special import licences five times the c.i.f value of ships.

``It is a great tragedy that Indian owners have been precluded from purchasing second hand vessels,'' says Mr Sudhir Mulji, President, Indian National Shipowners Association. Efforts to rectify this anomaly are yet to bear any fruits. Indications are tha t shipowners will have to live with the existing provisions till the announcement of the new Exim Policy next April. ``The fault lies not in our stars but in ourselves,'' says Mr Mulji, referring to the government policies.

Along with crude, LNG is another cargo that holds promise for national bottoms. But the recent rise in price of this high-freight fuel has raised questions about the viability of its large-scale import. Here again, the government policy has a crucial rol e. Import duty on LNG is the highest. Many potential users of LNG are those who now use cheap fuel, such as coal. The higher landed price will make the fuel uneconomical for them.

In the case of transportation, Indian owners have been pleading that all LNG imports should be on a f.o.b basis, enabling them to participate in the trade. The government is yet to announce the policy, though potential importers have already started call ing bids.

There are several other hitches such as taxes and the high manning scale that inhibit a level playing field for Indian owners. But looking back to the days of prolonged recession, today's recovery in freight in all segments of the industry is heartening. The current market has rekindled investors' hopes in shipping. Though the higher earnings are yet to be reflected in the market caps of companies, shipping shares are in for better valuation.