EXPORT-IMPORT BANK OF INDIA
OCCASIONAL PAPER NO. 142
INDIAN SHIPPING INDUSTRY: A CATALYST FOR GROWTH
Exim Bank’s Occasional Paper Series is an attempt to disseminate the findings of research studies carried out in the Bank. The results of research studies can interest exporters, policy makers, industrialists, export promotion agencies as well as researchers. However, views expressed do not necessarily reflect those of the Bank. While reasonable care has been taken to ensure authenticity of information and data, Exim Bank accepts no responsibility for authenticity, accuracy or completeness of such items.
c Export-Import Bank of India October 2010
1 Contents
Page No. List of Tables 5 List of Exhibits 7 List of Box Items 7 Executive Summary 9 1. Introduction 25 2. Global Scenario 27 3. Indian Scenario 43 4. Indian Shipbuilding Industry 60 5. Role of Shipping in Mitigating Climate Change 67 6. Challenges and Strategies 73 Annexure 1. Indian Shipping: Top Ten Projects 93
2. The IMO Package for Reducing CO2 in Shipping Industry 94 3. Relevant Policies Currently Under Consideration at the 95 Marine Environment Protection Committee 4. Business Partners Involved in the Establishment 96 of a KG-Fund
Project Team: Mr. S. Prahalathan, General Manager, Research and Planning Group Ms. Renuka Vijay, Manager, Research and Planning Group
3 List of Tables
Table Title Page No
1. Chief Shipping Lanes in the World 26 2. Development of International Sea Borne Trade 27 3. World Sea Borne Trade in 2008, by Country Groups 28 and Types Of Cargo 4. World Fleet Size by Principal Types of Vessels 29 5. Top Six Countries with the Largest Controlled Fleets 30 (as of January 1, 2009) 6. Top 35 Flags of Registration with the Largest Registered 31 Deadweight Tonnage (as of 1 January 2009) 7. Nationality of Top 3 Major Open and International Registry 32 Fleets (as of 1 January, 2009) 8. Maritime Engagement of 25 Major Trading Nations 33 (2008 trade data) 9. Average LSCI Rankings of Country Groups, 2009 38 10. Existing and Emerging Drivers for Future Maritime 41 Transportation 11. Distribution of Indian Shipping Tonnage During 44 01.01.2009 to 31.10.2009 12. Share of Indian Shipping in India’s External Trade (2007-08) 45 13. Traffic Handled at Major Ports 46 14. Capacity Utilization at Major Ports 47 15. Cargo-wise Traffic Handled at Major Ports 2009-10 48 16. Development of Indian Shipping Tonnage 75 17. Progress of TRANSCHART 77 18. Capacity Utilization at Major Ports 78 19. Movement of Cargo by Major Transport Categories 80 20. List of Towns of Excellence 86 21. Comparison of Logistics Cost 87
5 List of Exhibits Exhibit Title Page No
1. World Fleet by Principal Types of Vessels 28 2. Baltic Dry Index and Freight Rates 34 (Nov 2007 – July 2010) 3. Growth of Indian Fleet 43 4. Composition of Indian Fleet 45 5. LNG Imports by India and World 49 6. World Shipbuilding Statistics 60 7. World Completions by Types of Vessels, 2008 61 8. Orderbook of Select Countries and the World 62 9. Indian Shipping: Orders Booked till 2011-12 63 10. Ship-Breaking Statistics for Select Countries, 2008 64 11. Trends in CO2 Emissions and Fuel Consumption by 68 Shipping Industry 12. Comparison of CO2 Emissions from Shipping and Other 68 sectors in the Total World Emissions 13. Comparison of CO2 Emissions Between Different Modes 69 of Transport 14. World’s Largest Emitters of CO2 from International 70 Marine Bunkers 15. Select Sectors Using KG Funds 82 16. Turnaround Time at Select Ports 88
List of Box Items Box Title Page No
1. World Bank’s Logistics Performance Index (LPI) 52 2. Shipping Trade Practices Bill 59 3. Basic Structure of KG Model 83 4. India’s Offer Under WTO’s Maritime Transport Services 91
7 Executive summary
The growth in international trade, of goods loaded (66.3%), while oil removal of trade barriers being the made up the balance. Growth in dry principal reason, has made the bulk trade is estimated at 4.8% with developing countries to concentrate the five major bulk products, fuelled more on the improvement of their mainly by the needs of China’s metal infrastructure, like roads, airports, industries. seaports, which play a vital role in the development of the economy. From a level of 2.5 billion tonnes Product storage, along with the in 1970, the volume of sea borne capacity to move large shipments, trade in the world has grown over have placed the shipping industry the years crossing 8 billion tons in in a very advantageous position. 2008, witnessing a CAGR of 3.3%. Containerization, multi-modal trans- Developing countries accounted for port services, advancement of marine greater share (60.5%) in total goods engineering technology, specialized loaded, as compared to the developed systems, and computerization countries, which hold a share of have contributed towards making 33.5% in 2008, and the balance being sea transport as a prime mode for accounted by economies in transition. movement of internationally traded Within the developing region, Asia goods. However, the development displayed a good performance having of shipping industry in a country also the highest share (62.3%) in the total depends on its population density, goods loaded, followed by Latin economic advancement and many America (22.9%). Following the global other inter-related conditions, like economic slowdown and sharp decline port and refueling capacities. in world merchandise trade, growth in international trade continued, albeit GLOBAL SCENARIO at the slower rate of 3.6% in 2008 over 2007, as compared to 4.5% in In 2008, international seaborne trade 2007 over 2006 (8168 million tonnes was estimated at over 8 billion tons of in 2008, 7882 million tonnes in 2007, goods loaded, a volume increase of and 7545 million tonnes in 2006). 3.6% over the volume recorded in the previous year. Dry cargo, including The level of world fleet also saw a rise bulk, break bulk, and containerized in 2009 with the world merchant fleet cargo, accounted for the largest share exceeding 1 billion dwt (dead weight
9 tonnage). The fleet of container- impacted given the economic ships increased by 11.9%, reflecting slowdown of 2008 and 2009. Since the growing share of traded goods the demand for ships / vessels is a being containerized; the tonnage of derived demand of commodities, the oil tankers increased by 2.5%; bulk slowdown affected the demand for carriers by 7%; general cargo ships ships / vessels during this period. This by 3.2%; in the year 2009 over the has been evident from the movement levels prevailed in the year 2008. of Baltic Dry Index (BDI), which is a daily weighted average of prices of Japan has been topping the list of shipping raw materials, and is one countries controlling fleets in terms of the leading indicators of global of dwt with 173.2 million dwt and economic activity. BDI measures 3720 ships; followed by Greece, with the demand to move raw materials, 3064 ships and 169.4 million dwt; and which indicates production, planning Germany, with 3522 ships and 104.9 and industrial activity worldwide. BDI million dwt. India was ranked at the reflects the freight cost to transport 15th position with 963 ships and 15.5 dry bulk cargoes around the world, million dwt, a share of 1.4% in terms mainly raw materials such as iron ore, of dwt. coal, and grains. The index excludes wet cargoes (such as crude oil carried In terms of value of trade, USA is the by tankers) and container business major country engaged in maritime (used mainly to carry manufactured transport generating 10.68% of world products). trade in 2008. Other major countries include Germany (8.22%), China Regulators Plan to Monitor (7.91%), and Japan (4.78%). Among Shipping Rates the Asian countries, China is the As the global trade shrunk by over largest trader with large container port 10%, many shipping lines found traffic and fleet. China International themselves in a situation of excess Marine Containers (CIMC) and capacity (many liners ordered new Singamas are the two largest ships during the economic boom container manufacturers, which make period). Some analysts predicted China dominate in this field also. that at least few shipping lines would India is placed at eighteenth position go out of business to match with the in the world (with a share of 1.45%), supply demand situation. However, it and seventh position amongst Asian is believed that shipping lines, in an countries. informal arrangement, collectively reduced the capacity through ‘slow Global Trends steaming’ (spending more days in sea, which helped them to save Effects of the Global Slowdown on fuel and reduce capacity). It is Shipping Industry has been widely estimated that slow-steaming could
10 cut a liner’s capacity by around the maritime transport sector of 5%. It is also believed that some contributing to global efforts at shipping lines have teamed up to reducing emissions of greenhouse levy a voluntary surcharge of US $ gases, IMO’s Marine Environment 400 per container. Both the Federal Protection Committee (MEPC) is Maritime Commission (USA) and the considering a number of mitigation European Monitoring Agency are measures aimed at reducing closely monitoring the developments emissions of greenhouse gases from to see any evidence of price fixing by international shipping. shipping liners. Integration of Shipping Industry Maritime Transport and Climate with Global Logistics and Supply Chains Change Challenge Global shipping majors, like other Like other economic sectors, maritime segments of the conventional transport transport, which by volume carries industry, are increasingly getting over 80% of global trade, has a role integrated with the emerging global to play in addressing formidable logistics and supply chain activities, challenge of climate change. owing to both external and internal International maritime transport dynamics. Many firms are entering is playing a part in contributing to into the enhanced canvas of offering climate change, but more importantly, logistics solutions, such as door-to- it is also likely to be directly and door delivery systems, integrating indirectly impacted by the various with rail/road haulage movements climate change factors, such as rising of cargo, customs brokerage, sea levels, extreme weather events cargo consolidation, packaging/ and rising temperatures. The wide- re-packaging, and distribution ranging impacts of climate change, services, thereby substantially including that from maritime transport, consolidating their market position, and their potential implications and supplementing their ocean for trade, economic growth and freight income. The global shipping development, underscore the need industry is thus going through a major to integrate climate considerations redefinition by undertaking logistic into strategies for transport planning integration of their cargo operations. and development. Increasingly, it is being recognized that considered Change in Directions in Trade and concerted actions are urgently Volume required to ensure effective control Multi-polarity of trade flows, and the of greenhouse gas emissions and growth in trade volumes of Asian to establish the requisite adaptive region is expected to impact the capacity in the shipping industry, world shipping, as profoundly done especially in developing countries. by liner shipping and containerised Recognizing the importance for cargo some decades ago. One may
11 recall that the earlier phase of trade comprises five components: (a) the volume witnessed shipping growth number of ships, (b) their container in TransAtlantic and TransPacific carrying capacity, (c) the number routes, and the growing volume of of companies, (d) the number of world trade, especially from Asia, is services provided, and (e) the size likely to position the Pacific Rim and of the largest vessels that provide Indian Ocean Rim routes in the lime services from, and to each country’s light. seaports. Most LDCs are also among the least connected countries. The Common Port to Specialist Port average ranking of LDCs in 2009 was 109, compared to an average ranking Ports have been conventionally of 76 for other developing countries viewed as provider of omnibus and 68 for developed countries. solution to all types of cargo on a common basis. However, the global trend is veering into development of Growth in Establishment of freight specialized ports – such as Transshipment Terminals LNG terminals, container terminals Growth in long distance and - that involve high capital costs containerized trade has led to and intensive deployment of cargo the growth in establishment of handling equipment. Also, there transshipment hubs. It is not possible to has been a global trend in the port establish direct shipping connections sector towards growing separation between every country because either of port authority from port operator. there may not be enough volume, or The balance of power in the maritime the ports may be located distantly trade, which was traditionally in from each other. Therefore, a set of favour of shipping lines, has been direct or transshipment connections shifting in favour of shipper, whose are required to link all country pairs cargo is being moved. With such by maritime shipping. For this emerging trends in port development purpose, the transshipment terminals in the world, shipping companies are and intermediate hubs have been expected to change their strategies started. The world’s most important and offer solutions to suit such intermediate hub is Singapore, where trends. 92% of its traffic is transshipped. The emergence of major intermediate Liner Shipping Connectivity of hubs favoured a concentration of large LDCs vessels along long-distance, high UNCTAD publishes an annual index capacity routes, while smaller ports called the ‘Liner Shipping Connectivity can be serviced with lower capacity Index’ (LSCI) that aims at capturing ships. Consequently, the emergence trends and differences in countries’ of intermediate hubs has permitted liner shipping connectivity. The index liner services that would otherwise be covers 162 coastal countries and economically unfeasible.
12 Port Regionalization country, comprises ports, shipping, shipbuilding and ship repair, and Ports, especially large gateways, inland water transport systems. are facing a wide array of local According to the Ministry of Shipping, constraints that impair their growth Government of India, approximately and efficiency. Limited availability 95% of the India’s trade by volume, of land for expansion is one of the and 70% by value, is moved through most acute problems. This issue maritime transport. India is among is exacerbated by the deepwater the top 20 leading countries having requirements for handling larger large number of merchant fleets in ships. Port regionalization is required the world. The Gross Tonnage (GT) when the ports are not able to handle under the Indian flag was 10.1 million additional traffic. Port regionalization GT as of 1.09.2010, with as much as refers to integration between 1029 ships in operation. maritime and inland transport systems, particularly by using rail Ports act as an interface between and barge transportation, which are ocean transport and land transport. less prone to congestion than road India has 12 major ports viz. Kolkata transportation. Port regionalization (including Dock complex at Haldia), and hinterland connectivity has been Paradip, Vishakapatnam, Chennai, growing over the years, with the Ennore, Tuticorin, Cochin, New objective of meeting the constraints Mangalore, Mormugao, Jawaharlal faced by ports. Port regionalization Nehru at Nhava, Mumbai, and Kandla, helps in creating a regional load centre and 187 minor ports. network through joint development of a specific load centre and logistics Despite recessionary conditions, platform in the hinterland. This has led to the development of corridors traffic handled at major ports has leaning on rail or barge services grown on an average by 5.7% in the connecting to inland terminal facilities, year 2009-10, over the year 2008-09. which act either as satellite terminals, However, ports like Haldia (-20.4%), load centers or, less commonly, Ennore (-6.9%) and New Mangalore transmodal facilities. Many port (-3.2%) are few of the main ports that authorities, terminal operators, witnessed negative growth in 2009-10. commercial real estate developers Nevertheless, most of the ports have and local/regional governments have not achieved their target for the year been actively involved in the setting 2009-10. Mormugao (8.5%), Tuticorin of such facilities. (8.1%) Mumbai (2%), Kandla (2%), and Paradip (1.8%) were the only INDIAN SCENARIO ports which achieved their growth target for 2009-10. Haldia (-22.1%) Maritime transport, which plays a and Ennore (-14%) were the two ports vital role in the development of the which showed huge variation in traffic
13 compared to the traffic targeted in 135,000 cubic metres, a LNG vessel 2009-10. It has been the endeavour cost at least US $ 200 million in the of Government of India to consistently international market. Therefore, the enhance the cargo handling capacity Indian shipping industry is currently of the major ports keeping in view the exploring this area through joint projected traffic for the country. The ventures. Shipping Corporation of aggregate capacity in major ports India (SCI) has identified carriage as on 31.3.2009 was 574.77 MTPA. of LNG as one of its thrust and Major cargoes handled at Indian ports growth areas, and has emerged as include: petroleum products, iron ore, the first Indian shipping company in fertilizers & raw materials, coal and LNG transportation, through global containerized cargo. In case of POL, agreements. SCI has acquired stake fertilizer and other cargo, Kandla in the three Indian LNG transportation handled the highest traffic. agreements through a global bidding process. LNG Shipping in India In the past few years, there has been a International Container massive growth in LNG trade globally. Transshipment Terminal (ICTT) The growth is mainly due to the energy The need to develop transshipment demands of the emerging economies, hub ports in India was documented by particularly India and China, and due the Planning Commission in its Tenth to the fact that LNG is relatively safe Five Year Plan. The Vallarpadam and environmentally friendly. Even in terminal in Cochin has been identified the event of spillage, LNG evaporates as a transshipment terminal for the quickly and has no long term adverse sub-continent by the Government effect on the ecosystem, and so poses of India. The Vallarpadam terminal, little or no risk to environment. The the first-of-its-kind in India, aims to non corrosive nature of LNG makes cut down logistics costs for shipping the life of an LNG carrier longer than lines, transshipping cargo in and other types of carriers. out of the country, as at present, the containerized cargo, to and from Currently, India has two LNG India, is transhipped through the terminals, with few more that are ports at Colombo, Dubai, Singapore planned or proposed. India started and Salalah. receiving LNG shipments in January 2004 with the start-up of the Dahej INDIAN SHIPBUILDING INDUSTRY terminal in Gujarat state. Indian shipping industry currently does not The world shipbuilding statistics own any LNG vessels; one of the shows that during 2009, the world main reasons is attributed towards order book was close to 9226 ships, the cost of acquisition of LNG which was around (-) 18.6% less vessels. With a capacity of about compared to previous year. In fact,
14 after 2007, new orders for shipbuilding is well positioned for growth. According had reduced by almost half in 2008 to a study by the Indian Shipbuilders and in 2009. However, completions of Association, the industry can grow the shipbuilding orders have shown at a rate of more than 30%, and this improvement over the years. rate of growth could be achieved through supportive measures by the India, currently, has around 32 Government, including incentives for shipyards, owned by: Central shipyards. As growth in international Government (6), State Governments trade results in increased global (2), public listed private shipyards and domestic demand for new (3), and privately held shipyards vessels, Indian shipyards have (22). However, the major share of the certain advantages over shipyards in present ship-building capacity in India developed nations. India possesses a is held by eight public sector yards, large pool of technical workers, and with Cochin Shipyard Limited and its cost of workforce is relatively low, Hindustan Shipyard Limited having compared to most other shipbuilding capacity and infrastructure to build countries. Apart from this, the Indian vessels of 1.1 lakh dwt, and 80,000 navy usually gives orders to Indian dwt, respectively. Barring these two shipyards based on national interests. shipyards, the majority of private This will also act in favour of the Indian sector shipyards have limited ability shipbuilding industry. to build vessels in respect of capacity and size of the vessels. Also India’s Shipbuilding acts as a catalyst for capability of building technologically overall industrial growth due to spin advanced ships, like LNG carriers are offs to other industries, including relatively less. steel, engineering equipments, port According to the world order book infrastructure, trade and shipping position, during 2009, Indian services. The indirect potential of shipyards had an order book of close shipbuilding industry in employment to 260 ships constituting 1% share in generation and contribution to GDP is terms of GT and 2.8% share in terms therefore tremendous. The dynamics of number of bookings. China was top of India’s economic growth will in the list with the largest number of continue to create demand for new bookings of 3523 ships, followed by ships, and ship-building capacity South Korea (1675), Japan (1286) within the country needs to be and Europe (447). India stood at the augmented to cater to this demand. sixth position in the world order book, If the domestic ship-building capacity after Vietnam (287). is augmented, the benefits to the economy would be manifold, with Although India occupies a small spillover effects on other associated/ percentage of the global shipbuilding ancillary sectors, and generation of market, the Indian shipbuilding industry employment.
15 Ship-repair industry industry in India will also get business from the Indian shipping industry, The global ship repair market is which has about 50% of ships owned, estimated to be worth US $ 10 billion older than 20 years. As the older ships to US $ 12 billion, with Singapore require more frequent and extensive holding a share of 20%; India, on ship-repair and maintenance, Indian the other hand, has only a share of ship yards could gear themselves to about US $100 million1. There are a service them. total of 35 SRUs (Ship Repair Units) registered with the Director General ROLE OF SHIPPING IN MITIGATING of Shipping, Government of India, of CLIMATE CHANGE which only 7 SRUs namely - Alcock Ashdown & Co Ltd, Chennai Port According to International Energy Trust, Cochin Shipyard Limited Association, the CO2 emissions and (CSL), Garden Reach Shipbuilders fuel consumption by the shipping & Engineers Ltd. (GRSE), Hindustan sector have been increasing over the Shipyard Limited (HSL), Mumbai Port years owing to growth in trade around Trust (MbPT) and Mazagaon Dock the world. From a level of 562 million Limited (MDL) have been given the tonnes of CO2 in 1990, the emissions permanent approval as SRUs. The have doubled to 1050 million tonnes major SRUs in the country are CSL, in 2007. The fuel consumption by the HSL, Western India Shipyard, MDL, shipping industry has also increased and ABG shipyard. Western India during this period, from a level of 179 Shipyard is the only shipyard in India, million tonnes to 333 million tonnes. which is dedicated to ship repairing However, compared to other sectors, activity. shipping is the least environmentally damaging form of commercial Since India is located strategically transport, and compared with land on the international trade route, the based industries, is a comparatively country can offer ship repair and minor contributor to marine pollution maintenance services to ships plying from human activities. According to a from west to east in the trade route. study (Second IMO GHG Study 2009) This represents increasing market by International Maritime Organisation potential for the ship-repair business, (IMO), shipping industry contributed as ship owners may prefer to repair 4% to the total CO2 emissions during their ships without deviating from 2007, and comparatively lesser than their trade routes. Currently, ship- the other sectors. repair is primarily undertaken in Dubai Dry docks, Singapore, Bahrain and Even though India, compared to other Colombo dockyards. The Ship-repair nations, has very less emissions from
1Maritime Advisory
16 the shipping industry, the players withholding tax liability on charter hire should concentrate on reducing charges paid to foreign ship owners, emissions on a sustainable basis. seafarers taxation cost to employers, Indian ship building industry should wealth tax, sales tax, VAT on ships also pay attention in building ships and spares, lease tax on charter hire that will be fuel efficient and hence charges, customs duty on import of reduce emissions in the future. certain categories of ships, stores, Shifting to LNG-based fuel vessels spares and bunkers, and services tax. would also contribute to achieving The Research Paper is of the view lesser emissions from Indian shipping that such tax regime makes Indian industry, as also in terms of reduction ship owners to prefer to own vessels in fuel cost. outside India.
In the case of CO2 emissions from Multiplicity of Regulations International Marine Bunkers, Singapore was having the highest Shipping industry, catering to emissions in 2007, constituting a the demand across continents, share of 15.9% in the total emissions of is regulated by both domestic CO2 by international marine bunkers. and international regulations. This was because Singapore had Internationally, the International the busiest marine bunkering centre, Maritime Organisation has a set of as also one of the world’s top export rules to ensure safe, secure and refining centres. China and Singapore efficient shipping, besides the labour were the countries which had shown standards required for seafarers considerable increase of emissions worldwide. There are also international over the years. India’s share was very regulations on operations of ships, minimal owing to minimal bunkering such as International Convention for activities in the country. the Safety of Life at Sea, International Convention for the Prevention of CHALLENGES AND STRATEGIES Pollution from Ships, Convention on the International Regulations Challenges for Preventing Collisions at Sea, Onerous Tax Regime International Convention on Loadlines, International Ship and Port Facility According to a Research Paper by Security Code, and International Ministry of Finance, Government of Safety Management Code. There India, the shipping industry is facing significant tax burden, though the are also international regulations tonnage tax has been introduced. for seafarers, such as International The paper lists out taxes such as Convention on Standards of Training, minimum alternate tax, dividend Certification and Watch-keeping distribution tax, withholding tax liability for Seafarers, and ILO Merchant on interest paid to foreign lenders, Shipping Convention.
17 UN Convention on the Carriage of poor turnaround time of coastal ships Goods by Sea (called the Hamburg on account of over-aged vessels, Rules), The UN Convention on and inadequate mechanical handling International Multimodal Transport of facilities are some of the other Goods (1980), and the UN Convention reasons for the declining share of on Conditions of Registration of Indian shipping tonnage in India’s Ships (1986) are some of the other overseas trade. Continued slippages regulations initiated by UNCTAD. in the share of Indian shipping in the carriage of India’s overseas Domestically, there are several acts trade is in turn causing a drain on that regulate the Indian shipping precious foreign exchange in terms industry, such as: The Merchant of payment of freight charges, which Shipping Act (1958), The Inland could otherwise be used for other Vessels Act (1917), The Coasting high priority imports or for building Vessels Act (1838), and The up indigenous infrastructure. One of Multimodal Transportation of Goods the major reasons for the declining Act (1993). Besides, there are also share in overseas trade has been the other statutes that govern the shipping age profile of the shipping vessels in industry indirectly. These include: The India. Majority of the Indian shipping Indian Ports Act (1908), The Dock fleet contains ships which are over Workers (Regulation of Employment) 20 years of age. This reduces the Act (1948), The Seamen’s Provident competitiveness of Indian vessels as Fund Act (1966), and The Inland compared to the foreign vessels. The Waterways Authority of India Act increasing size and sophistication of (1985). ships and port facilities require heavy capital investment, which is one of The wider regulatory framework the major problems faced by Indian makes stricter entry barriers into shipping industry. the industry, and adds cost to the compliance of such regulations. Declining Cargo Support As per the existing Government Declining Share of Indian Shipping policy, all import contracts are to be Tonnage in India’s Overseas Trade finalized on FOB (Free On Board) Over the years the share of Indian basis in respect of Government shipping in overseas trade has owned / controlled cargoes on behalf declined. From 85% in 1981, it has of Central Government Department/ declined to 32% in 2009. As on State Government Department and September 2010, India had 693 Public Sector Undertaking under vessels under coastal trade, and 336 them, with a view to retain control vessels under overseas trade with over shipping arrangements within a total of 1029 ships in total. High the country, and for providing cargo transportation costs, port delays, support to Indian flag vessels by
18 providing first right of refusal. For to sail on-board foreign flag vessels meeting the above objective, the policy owing to favourable taxation policies. provides for centralized shipping Industry experts opine that over- arrangements through the Chartering regulation of the industry, owing to Wing (TRANSCHART) in the Ministry which seafarers have to undertake of Shipping, Government of India. lots of job responsibility in a very As regards Chartering of vessel for short time, is another reason for movement of cargoes on private declining interest to undertake account, the same are regulated seafaring as a profession. The only through the Director General of way the shortage of seafarers can be Shipping, by granting permission managed is by creating a workplace to private charters after taking into environment that is attractive to consideration the availability of Indian applicants, and corporate values that flag vessels by granting first right of are aligned to wider social interests. refusal. Though the International Labour Organization (ILO), the IMO (the Data collated by Ministry of Shipping, IMO has designated 2010 as the Government of India, on Government “Year of the Seafarer”), and shipping owned / controlled cargoes handled industry organizations began helping by the chartering wing of Ministry of to stimulate initiatives for recruitment Shipping, shows that the share of into the industry a couple of years Indian vessels in moving cargo under ago, it is considered that the ultimate TRANSCHART has been declining solution lies with the industry itself. over the years. Cargo support in favour of national shipping is very important, High Port Calling Costs since reservation of national cargoes for national fleet provides the national High port charges, like port dues, berth fleet with a certain degree of stability hire, pilotage and cargo-handling in an otherwise violently cyclical charges, in India are also affecting market. the Indian shipping industry. India is known to be having high ship calling cost as compared to other competitor Manpower Shortage countries in the region. According to One of the major problems faced industry sources, port calling costs for by the shipping industry is the a ship that can carry 1,200 standard shortage of manpower. India is not cargo containers is US $ 19,000 able to provide adequate number of (` 8.4 lakh) at Kochi. The rate is seafarers to man Indian flag vessels. US $ 3,300 in Colombo, Sri Lanka, This is mainly because not enough and US $ 5,700 in Jebel Ali, United young people seem to find seafaring Arab Emirates. This makes the Indian an attractive and appealing career ports non competitive compared with many of the officers preferring to other foreign ports. High prices
19 would normally deprive a port, a part Strategies of its patronage (vessels and cargo owners), and thus reduce demand for Increasing Investment in Shipping port services. Industry Shipping analysts feel that there is Congestion in Port and a pressing need for the Government Connectivity with Hinterland to take on the role of a facilitator and Indian ports are the gateways to India’s create opportunities for a healthy international trade, and are handling business climate to attract fresh over 90% of foreign trade. Though the investments in the shipping sector. The old ships are being used by bulk of Indian trade is carried by sea the ship owners primarily due to routes, the existing port infrastructure low investment capacity to buy new is insufficient to handle trade flows ships, and the tremendous shortage effectively. The current capacity at in the availability of ships. Usage of major ports is overstretched. The old ship is highly risky apart from major ports together have a capacity being operationally more expensive. of 574.77 million tonnes per annum Further, several countries around the (MTPA), handling traffic of 560.96 world have banned certain class of million tonnes during 2008-09, and ships, as per their build and age, to the capacity utilization during this be operated from their ports. A large period was 96.7%. The capacity part of the current order book of the utiilisation at major ports has been shipyards would go towards replacing increasing over the years owing these old vessels and the incremental to growing trade. During 2001-02 growth in capacities would be the capacity utilization was 83.6%, additionally catered by orders placed which has peaked to 99.7% during outside India. 2007-08, signifying increasing Developed countries have evolved congestion in all the major ports. various innovative structured models Another major challenge faced for financing shipping industry. Norway by Indian shipping industry is the has evolved the kommandittselskap relatively low hinterland connectivity structure (KS Model), which is a tax- with the ports. Indian ports are finding deferral method employed to finance it difficult to handle additional traffic ship acquisitions. The German because of slow evacuation from adopted the ‘Kommanditgesellschaft’ ports. Therefore, it is important that (KG) model for financing of various connectivity of major ports with the projects including that of shipping hinterland is augmented not only to industry. Both KS and KG models ensure smooth flow of traffic at the operate more or less on similar present level but also to meet the principles. Such models would be best requirements of projected increase in suited for Indian shipping industry too. traffic. According to the Directorate General
20 of Shipping, Government of India, clearance system needs to be brought innovative methods are required to into place for according clearances to raise the needed resources. One new shipyard projects covering land such suggestion was exploring the acquisition, environmental clearance, possibility of creating innovative power and water etc., so that project financing models like German KG implementation is not delayed. The Model for shipping finance in India. present requirement to obtain multiple clearances from various departments acts as a deterrent to attracting Indian shipping industry does investment into this sector. not attract much of the requisite investments, at present. The German Developing Adequate Container KG Model would help the Indian Freight Stations shipping industry in mobilizing necessary funds for the shipping To increase the competitiveness of companies, as also would serve as the country’s exports in the global an effective investment tool for high market, by reducing the transaction net-worth individuals, who would cost (both absolute and implicit cost) benefit from tax exemption and in exports, the Government of India also earnings. The Indian shipping is laying stress on developing a industry can also use this model number of container freight stations for the purpose of purchasing LNG (CFSs) in the country. Modern and vessels as they are perceived to be technologically advanced CFSs play relatively safe investments backed by a significant role in effective custom long term charters. clearance activities in the port, and thereby shorten the turnaround Strengthening Shipbuilding time of ships. More CFSs need Industry to be developed in the vicinity of Shipbuilding acts as a catalyst for export clusters across the country. overall industrial growth due to spin Mapping of existing network of CFSs offs to other industries, including with the Towns of Export Excellence steel, engineering equipment, port shows that the CFS network needs infrastructure, trade and shipping. The to be strengthened further. It may dynamics of India’s economic growth be mentioned that Towns of Export has created, and will continue to Excellence are identified by the create a demand for new ships, most of Ministry of Commerce and Industry, which will have to be built abroad, due Government of India, if the value to inadequate indigenous capacity. On of production in the identified town the other hand, the benefits to Indian exceeds `750 crore. industry and potential for employment generation from shipbuilding and Integration of Shipping and the associated ancillary industry Logistics would grow manifold, if India builds ships for meeting its entire tonnage It is important to note that the economy requirements. Also single window today is experiencing more and
21 more trade related activities. Hence, importance of integrated logistics has overall logistics development has got a new dimension. Outsourcing of become very essential, especially in logistics service to specialized service the transportation sector. In order to providers, having considerable be competent with the global majors, expertise in the industry, has become India needs to offer exemplary a trend. Overall, the role of integrated transportation services along with logistics services is expected to logistics services by integrating increase in the economy leading to the two segments. Logistics is betterment of value chain. defined as the process of planning, implementing, and controlling the Creation of Adequate Warehousing efficient, cost effective flow and Facilities storage of raw materials, in-process Warehousing and storage is also an inventory, finished goods and related integral part of the logistics industry information from point of origin to and plays a very important role in point of consumption, so as to meet the shipping industry. Warehousing customer requirements. The inte- and storage has undergone a lot of grated logistics value chain consists of change over the past decade, and three key links or segments which are internationally warehousing has been transportation, warehousing and value classified into three types, viz., private added services. However, traditional warehousing, public warehousing and transport companies, courier contract warehousing; amongst them companies and freight forwarders contract warehousing is popular. Since have emerged as integrated logistics ports act as an interface for seaborne service providers by leveraging trade movement, most of the major on their existing infrastructure and ports in India provide warehousing experience. They not only provide the facilities to its users through its own prime functions like transportation, warehouses, as also with those warehousing, packaging, clearing and forwarding, but also provide privately-owned warehouses located value added services, such as order within or outside the port arena. processing, documentation of sales tax and excise duty, invoicing, collection With an increasing number of ships of bills, inventory management, and calling at Indian ports, storage and others. This kind of development warehousing facilities need to be is very important and useful for the upgraded manifold. Domestic ports shipping industry in particular. suffer from inadequate storage facilities, which result in delay in With the strategies being taken up consignment delivery. In the coming by few industrial houses to reduce days, the number of ships calling operational costs and enhance value at Indian ports is likely to increase addition throughout the value chain, manifold. This will result in huge
22 unloading of cargoes, which needs to showcases against which India’s be stored properly before being sent logistics parks could be modelled. to the final destination. Therefore, a It may be mentioned that Indian major investment opportunity lies in railways have identified 11 sites in the setting up warehouses that not only Delhi-Mumbai corridor for developing provide storage facilities, but also multi-modal logistics parks. offer services in packaging of goods, so that they do not get damaged Tapping LNG Business during transit. In order to harness India’s power and Creation of Multimodal Logistics fertilizer projects, LNG (Liquefied Parks Natural Gas) is being imported by Another trend has been the India. If transportation of LNG is taken establishment of multi-modal logistics up by the shipping industry, it would parks. These multi-modal logistics provide significant volume of business hubs have been planned to provide for the shipping industry. However, total transport solution and other many shipping companies may not value-added services to industry in have adequate resources to buy LNG and around the dedicated freight vessels to engage in this business. corridors. Each logistics park will According to industry sources, a LNG have a container terminal for both vessel costs around US $ 200 million; domestic and international operations; therefore, it is important for the Indian mineral-handling terminals; cement shipping companies to build strategic and fertilizer terminals; automobile tie-ups with foreign counterparts so terminals; storage and distribution; that they do not miss out this business as well as transshipment facilities; opportunity. conventional, cold storage and product-specific warehouses; as It may be mentioned that the state- well as hotels, banks, food parks owned Shipping Corporation of India and entertainment centres. Such (SCI) has already started building trend would open up new avenues strategic tie-ups through collaborative and opportunities for manufacturers, approach. SCI has joined hands with retailers, suppliers, and logistic Mitusi Osaka Shosen Kaisha (OSK), players to improve their supply chain. a consortium in Japan, to build LNG Service, cost and time advantage vessel to serve India’s needs. Even are direct benefits of such parks, and the private companies have shown outsourcing of value-added services, interest in LNG transportation. which are traditionally performed Although the Indian shipping in-house, would further increase companies are interested in LNG the competitiveness. Logistic parks transportation, low level of experience across the globe provide ample and the volume of investment act as reference points and are excellent major hindrances.
23 Bilateral Shipping / Cargo shipping in the carriage of country’s Reservation Schemes overseas trade is due to the terms of trade being used by India’s trading Bilateral shipping arrangements are partners, who by and large have considered to be an effective tool to been entering into shipping contracts ensure cargo support to the Indian favourable to them. In the above shipping companies. In this context, context, Government may consider it may be mentioned that cargo including cargo reservation schemes support in favour of national shipping in the negotiations under the bilateral/ is prevalent, since reservation of regional trade agreements. national cargoes for ships carrying national flags provides a certain degree of stability in an otherwise Conclusion violently cyclical market. Such support The Indian shipping industry has enhances the competitive strengths been growing in the last two decades; of national shipping companies, and however the competitive position of thereby contributes to the growth of the Indian shipping industry needs to national fleet. According to Office be strengthened. Government of India of Maritime Administration of US has been supporting the growth of the Department of Transportation, USA industry through various measures. is providing cargo preference to Government has a role to develop US national flags, of Government- Indian port sector, which would impelled cargo, with 100% preference contribute to the growth of the Indian for military cargo, and export cargo shipping. The players in the shipping supported by US-Exim Bank; 75% and associated sectors have also a preference for agricultural cargo role to play for the development of the (governed by the Food Security Act industry, for it to carve a niche in the of 1985); and 50% Civilians Agencies world shipping map. Indian shipping Cargo (governed by Cargo Preference industry needs to team up with foreign Act of 1954). consortium of fleet owners to tap the growing LNG transportation business. India too is providing cargo support to Indian ship builders must focus on Indian ships, through TRANSCHART, benchmarking their own processes for movement of Government owned/ to international standards to improve controlled cargo. However, there has the efficiency, delivery time, price and been decline in support provided quality. Innovative financing measures through TRANSCHART, as, pursuant such as German KG model may be to trade liberalization, there has adopted to encourage fund flow into been decanalisation of imports of this sector. It is therefore essential various items, which reduced the for India to put together all such quantum of such support to Indian strategies, that would lead to optimal ships. According to a study by UN- and effective contribution towards ESCAP, the lower share of Indian developing the shipping industry.
24 1. Introduction
The growth in international trade, The type of merchant vessel employed removal of trade barriers being the on a trade route is determined principal reason, has made the basically by the traffic carried. There developing countries to concentrate are different ways in which ships can more on the development of their be operated. infrastructure, like roads, airports, seaports, which play a vital role in the a) Tramp vessels or general trader development of the economy. Product does not operate on a fixed sailing movement and product storage along schedule, but merely trades in all with the capacity to move large parts of the world in search of shipments have placed the shipping cargo, primarily bulk shipments; industry in a very advantageous position. Containerization, b) Liner vessels operate on a fixed multi-modal transport service, route between two ports or two advancement of marine engineering series of ports. They operate on technology, specialized systems, and a regular scheduled service; computerization have contributed towards making sea transport c) Conference line is an association as a prime mode for movement of internationally traded goods. of ocean carriers who have joined However, the development of shipping together and have consensus industry in a country also depends with regard to freight rates and on its population density, economic shipping conditions; advancement and many other inter- related conditions, like port and d) Independent lines operate refueling capacities. independently and individually.
Merchant ships can be of four types: The world shipping is having well a) Tankers; defined routes contributing to its b) Bulk carriers; further development. Some of the c) General cargo vessels; and chief shipping lanes are given in d) Container ships. Table – 1.
25 Table: 1 Chief Shipping Lanes in the World Shipping Routes Regions Connected The North Atlantic Route W. Europe, E. Canada and USA
The Mediterranean-Red Sea-Indian N.W.Europe, Mediterranean, Ocean Route E.Europe, S.Asia and E. Asia
The Cape Route W.Europe, Africa, Australia via Cape of Good Hope
The South Atlantic Route S.E.South America, N.W.Europe, Mediterranean
The Panama Route E.N.America, W.United states, W.Canada, Chile
The North Pacific Route W.N.America, E.Asia, N.America, Australia
Note: N –North, W - West, S - South, E - East
26 2. Global Scenario
In 2008, international seaborne trade From a level of 2.5 billion tonnes was estimated at over 8 billion tons of in 1970, the volume of sea borne goods loaded, a volume increase of trade in the world has grown over 3.6% over the volume recorded in the the years crossing 8 billion tons in previous year. Dry cargo, including 2008, witnessing a CAGR of 3.3%. bulk, break bulk, and containerized Developing countries accounted for cargo, accounted for the largest share greater share (60.5%) in total goods of goods loaded (66.3%), while oil loaded, as compared to the developed countries, which hold a share of made up the balance. Growth in dry 33.5% in 2008, and the balance being bulk trade is estimated at 4.8 % with accounted by economies in transition. the five major bulk products, fuelled Within the developing region, Asia mainly by the needs of China’s metal displayed a good performance having industries. the highest share (62.3%) in the total
Table - 2 Development of International Sea Borne Trade (In million of tons)
Year Oil Main bulks* Other Dry cargo Total (all cargoes)
1970 1442 448 676 2566 1980 1871 796 1037 3704 1990 1755 968 1285 4008 2000 2163 1288 2533 5984 2006 2648 1888 3009 7545 2007 2705 2013 3164 7882 2008** 2749 2097 3322 8168
Source: Review of Maritime Transport 2009, UNCTAD Note: * Iron ore, grain, coal, bauxite/alumina and phosphate ** Preliminary
27 Table - 3
World Sea Borne Trade in 2008, by Country Groups and Types Of Cargo (In millions of tons)
Source: Review of Maritime Transport 2009, UNCTAD
Exhibit:1
World Fleet by Principal Types of Vessels
Source: Review of Maritime Transport 2009, UNCTAD
28 goods loaded, followed by Latin being containerized; the tonnage of America (22.9%). Following the global oil tankers increased by 2.5%; bulk economic slowdown and sharp decline carriers by 7%; general cargo ships in world merchandise trade, growth in by 3.2%; during 2009 over the levels international trade continued, albeit in the year 2008. (Exhibit: 1 and at the slower rate of 3.6% in 2008 Table: 4). over 2007, as compared to 4.5% in 2007 over 2006 (8168 million tonnes Japan has been topping the list of in 2008, 7882 million tonnes in 2007, countries controlling fleets in terms of and 7545 million tonnes in 2006) dwt with 173.2 million dwt and 3720 ships; Greece, with 3064 ships and The level of world fleet also saw a rise 169.4 million dwt; and Germany, with in 2009 with the world merchant fleet 3522 ships and 104.9 million dwt are exceeding 1 billion dwt (dead weight other major players in the world. India tonnage). The fleet of containerships was ranked at 15th position with 963 increased by 11.9%, reflecting the ships and 15.5 million dwt, a share of increasing share of traded goods 1.4% in terms of dwt.
Table: 4 World Fleet Size by Principal Types of Vessels (million dwt)
Note: figures in parantheses show the percentage share Source: Review of Maritime Transport, 2009
29 Table - 5
Top Six Countries with the Largest Controlled Fleets as of January 1, 2009
Source: Review of Maritime Transport 2009, UNCTAD
The 35 countries and territories with Most open and international registries the largest fleets registered under specialize in certain countries of their flag accounted for 93% of the ownership. Panama is used by the world fleet. Countries with largest flag vessel owners of Japan who account for more than half of the registries of registration were Panama with 274 tonnage (128.4 million dwt), followed million dwt, followed by Liberia (124 by owners from China (22.8 million million dwt) and Marshall Islands dwt), Greece (19.4 million dwt) and (68.45 million dwt). As regards the Republic of Korea (19.2 million dwt). number of ships, the largest fleet The world’s second largest registry, was again flagged in Panama (8065 Liberia is used by owners from vessels) followed by USA (6435), Germany (39.5 million dwt), Greece Japan (6316), Indonesia (4464), (23.2 million dwt), Russia (8.1 million dwt) and Saudi Arabia (7.4 million China (3916) and Russia (3444). dwt). Marshall Islands, being the third India stood at the 16th position in largest registry, catered to Greece terms of DWT (15.3 million dwt) and (16.1 million dwt), USA (11.8 million 15th position in terms of number of dwt) and Germany (10.5 million dwt). vessels (1460 vessels) (Table: 6). (Table: 7)
30 Table: 6 The 35 Flags of Registration with the Largest Registered Deadweight Tonnage As of 1 January 2009
Source: Review of Maritime Transport, 2009
31 Table: 7
Nationality of Top 3 Major Open and International Registry Fleets As of 1 January, 2009
Source: Review of Maritime Transport, 2009
There are various reasons for In terms of value of trade, USA is the choosing a foreign registry to register major country engaged in maritime a ship, which is also called ‘flag of transport generating 10.68% of world convenience’. The reasons may trade in 2008. Other major countries include: reduction of operating costs, include Germany (8.22%), China or avoidance of regulations in the owner’s country. Flag of convenience (7.91%), and Japan (4.78%). Among may also happen based on vessel the Asian countries, China is the types and characteristics. Usually largest trader with large container port older vessels are nationally flagged traffic and fleet. China International than foreign flags. Another major Marine Containers (CIMC) and reason to choose a foreign flag by Singamas are the two largest ship owners in another country is with container manufacturers, which make the objective of involving the ship China dominate in this field also. in international trade. According to UNCTAD, owners from high income India is placed at eighteenth position countries are more likely to choose in the world (with a share of 1.45%), a foreign registry than owners from and seventh position amongst Asian countries with lower income. countries.(Table: 8)
32 Table - 8
Maritime Engagement of 25 Major Trading Nations (2008 trade data) Country / Territory Percentage share of world trade generated in terms of value
USA 10.68 Germany 8.22 China 7.91 Japan 4.78 France 4.04 Netherlands 3.72 Italy 3.37 UK 3.36 Belgium 2.91 Canada 2.70 Republic of Korea 2.64 Russian Federation 2.61 Hong Kong (China) 2.32 Spain 2.06 Singapore 2.03 Mexico 1.85 Taiwan 1.53 India 1.45 Saudi Arabia 1.27 Australia 1.19 Switzerland 1.19 Malaysia 1.15 Sweden 1.15 Poland 1.14 Brazil 1.12 Total Above 76.39 Source: Review of Maritime Transport 2009, UNCTAD
33 Exhibit : 2
Baltic Dry Index and Freight Rates (Nov 2007 - July 2010)
Baltic Dry Index (November 2007 - July 2010)
Freight Rates (November 2007 - July 2010)
Note: VLCC (Very large crude carriers) – 2,00,000 – 3,00,000 DWT : Suezmax – 1,20,000 – 1,80,000 DWT : Aframax – 79000 – 1,20,000 DWT Source: Indian Industry: A monthly review, 2009&2010, Baltic exchange.com
34 Global Trends ships, mainly in Chinese, Japanese and South Korean shipyards, as the Effects of the Global Slowdown shipping companies did not want to face the challenge of low capacity, but Shipping Industry has been widely respond to the expected increase in impacted given the economic demand for freight along key trading slowdown of 2008 and 2009. Since routes, such as Asia-Europe or the the demand for ships / vessels is a trans-Pacific. derived demand of commodities, the slowdown affected the demand for But, since the second half of the ships / vessels during this period. This year 2008, the demand contracted has been evident from the movement significantly. From the beginning of of Baltic Dry Index (BDI), which is a May 2008, BDI fell down, and touched daily weighted average of prices of its lowest in December 2008, at 743 shipping raw materials, and is one points. Thus, the shipping industry of the leading indicators of global was also one of the major sectors of economic activity. BDI measures the world to get affected by the global the demand to move raw materials, economic crisis. However, the BDI has which indicates production, planning started improving since January 2009, and industrial activity worldwide. BDI and has been witnessing a cyclical reflects the freight cost to transport trend. As on July 2010, the BDI fell by dry bulk cargoes around the world, 38% from 3088 points in June 2010 to mainly raw materials such as iron ore, 1910 in July 2010. The main reasons coal, and grains. The index excludes wet cargoes (such as crude oil carried for this has been the lower imports by tankers) and container business from China and an oversupply of dry (used mainly to carry manufactured bulk vessels on the ocean. China has products). been reducing its steel production due to the falling global prices of BDI had grown strongly alongside steel, thereby resulting in reduced the globalization process, with the imports of high cost iron ore. As a new powerhouse economies, like result of this, the demand for capsize China and India, seeking increasing vessels used for transporting iron ore volume of core raw materials, such as fell which led to the BDI to fall.Another iron ore, coal, and oil for stimulating significant factor was the fall in freight their manufacturing activity. BDI had rates. From its highest in June 2008, reached its peak in November 2007 the freight rates for VLCC fell from at 10,561 points, probably due to US $ 1,19,722 per day in July 2008 significant growth in world economy, to US $ 45,090 per day by December and double-digit expansion of 2008. The Suezmax (from USD international trade volumes. The ship- 78,573 per day in July 2008 to USD builders were piled up with massive 46,598 per day by December 2008), orders for the construction of new and Aframax (from USD 41,184 per
35 day in July 2008 to USD 35,509 per shipping lines have teamed up to day by December 2008) freight rates levy a voluntary surcharge of US $ also showed decline since July 2008. 400 per container. Both the Federal However, later on, the rates had Maritime Commission (USA) and started improving and as on March the European monitoring agency are 2010, freight rates of VLCC stood at closely monitoring the developments USD 29,491 per day, Suezmax stood to see any evidence of price fixing by at USD 17,407, and Aframax stood shipping liners. at USD 13,401 per day, respectively. The rates have again showed a Maritime Transport and Climate decline since May 2010. As on July Change Challenge 2010, freight rates for VLCC fell by Like other economic sectors, maritime 58%, from USD 29,199 per day in transport, which by volume carries June 2010 to USD 12,358 per day in over 80% of global trade, has a role July 2010; freight rates for Suezmax to play in addressing formidable fell by 35%, from USD 15,651 per challenge of climate change. day in June 2010 to USD 10,237 per International maritime transport day in July 2010; and the freight rates is playing a part in contributing to for Aframax fell by 21%, from USD climate change, but more importantly, 13,084 per day in June 2010 to USD it is also likely to be directly and 10,331 in July 2010. indirectly impacted by the various climate change factors, such as rising Regulators Plan to Monitor sea levels, extreme weather events Shipping Rates and rising temperatures. The wide- As the global trade shrunk by over ranging impacts of climate change, 10%, many shipping lines found including on maritime transport, themselves in a situation of excess and their potential implications capacity (many liners ordered new for trade, economic growth and ships during the economic boom development, underscore the need period). Some analysts predicted to integrate climate considerations that at least few shipping lines would into strategies for transport planning go out of business to match with the and development. Increasingly, it is supply demand situation. However, it being recognized that considered is believed that shipping lines, in an and concerted actions are urgently informal arrangement, collectively required to ensure effective control reduced the capacity through ‘slow of greenhouse gas emissions and steaming’ (spending more days in to establish the requisite adaptive sea, which helped them to save capacity in the shipping industry, on fuel and reduce capacity). It is especially in developing countries. estimated that slow-steaming could Recognizing the importance for cut a liner’s capacity by around the maritime transport sector of 5%. It is also believed that some contributing to global efforts at
36 reducing emissions of greenhouse in TransAtlantic and TransPacific gases, IMO’s Marine Environment routes, and the growing volume of Protection Committee (MEPC) is world trade, especially from Asia, is considering a number of mitigation likely to position the Pacific Rim and measures aimed at reducing Indian Ocean Rim routes in the lime emissions of greenhouse gases from light. international shipping (Annexure: 2). Common Port to Specialist Port Integration of Shipping Industry Ports have been conventionally with Global Logistics and Supply viewed as provider of omnibus Chains solution to all types of cargo on a Global shipping majors, like other common basis. However, the global segments of the conventional transport trend is veering into development of industry is increasingly getting freight specialized ports – such as integrated with the emerging global LNG terminals, container terminals logistics and supply chain activities, - that involve high capital costs and owing to both external and internal intensive deployment of cargo dynamics. Many firms are entering handling equipment. Also, there into the enhanced canvas of offering has been a global trend in the port logistics solutions, such as door-to- sector towards growing separation door delivery systems, integrating of port authority from port operator. with rail/road haulage movements The balance of power in the maritime of cargo, customs brokerage, trade, which was traditionally in cargo consolidation, packaging/ favour of shipping lines, has been re-packaging, and distribution shifting in favour of shipper, whose services, thereby substantially cargo is being moved. With such consolidating their market position, emerging trends in port development and supplementing their ocean in the world, shipping companies are freight income. The global shipping expected to change their strategies industry is thus going through a major and offer solutions to suit such redefinition by undertaking logistic trends. integration of their cargo operations. Liner Shipping Connectivity of Change in directions of trade volume LDCs Multipolarity of trade flows, and the Most international trade in growth in trade volumes of Asian manufactured goods is transported by region is expected to impact the containerized liner shipping services. world shipping, as profoundly done These liner services form a global by liner shipping and containerised maritime transport network, through cargo some decades ago. One may which basically all coastal countries recall that the earlier phase of trade are connected to each other. UNCTAD volume witnessed shipping growth publishes an annual index called the
37 ‘Liner Shipping Connectivity Index’ compared to an average ranking of (LSCI) that aims at capturing trends 76 for other developing countries and and differences in countries’ liner 68 for developed countries (Table shipping connectivity. The index 9).Container shipping companies covers 162 coastal countries and are less likely to provide services comprises five components: (a) the to and from LDC seaports because number of ships, (b) their container (a) national trade volumes tend to carrying capacity, (c) the number be lower, and (b) a lower level of of companies, (d) the number of development will often make ports services provided, and (e) the size less attractive for transshipment and of the largest vessels that provide transit cargo. services from, and to each country’s seaports. The ranking of LDCs among the 162 coastal countries improved slightly Most LDCs are also among the least by 3 points between 2004 and connected countries. The average 20092. Improving port infrastructure ranking of LDCs in 2009 was 109, investment and the introduction of
Table: 9 Average LSCI Rankings of Country Groups, 2009
Source: UNCTAD Note: Lesser the rank the better.
2UNCTAD
38 private sector operations, seaports the most acute problems. This issue in several LDCs have managed to is exacerbated by the deepwater become more attractive as ports of requirements for handling larger call for international liner shipping ships. Port regionalization is required companies. when the ports are not able to handle additional traffic. Port regionalization Growth in Establishment of refers to integration between Transshipment Terminals maritime and inland transport systems, particularly by using rail Growth in long distance and and barge transportation, which are containerized trade has led to less prone to congestion than road the growth in establishment of transportation. Port regionalization transshipment hubs. It is not and hinterland connectivity has been possible to establish direct shipping growing over the years, with the connections between every country objective of meeting the constraints because either there may not be faced by ports. Port regionalization enough volume, or the ports may helps in creating a regional load centre tend to be very distant from each network through joint development of other. Therefore, a set of direct a specific load centre and logistics or transshipment connections are platform in the hinterland. This has required to link all country pairs by led to the development of corridors maritime shipping. For serving this leaning on rail or barge services purpose the transshipment terminals connecting to inland terminal facilities, and intermediate hubs were which act either as satellite terminals, started. The world’s most important load centers or, less commonly, intermediate hub is Singapore, where transmodal facilities. Many port 92% of its traffic is transshipped. The authorities, terminal operators, emergence of major intermediate commercial real estate developers hubs favoured a concentration of large and local/regional governments have vessels along long-distance, high been actively involved in the setting capacity routes, while lesser ports of such facilities. can be serviced with lower capacity ships. Consequently, the emergence • Satellite terminals: These are of intermediate hubs has permitted tend to be close to a port facility, liner services that would otherwise be but mainly at the periphery of economically unfeasible. its metropolitan area (often less than 100 km), since they mainly Port Regionalization assume a service function to Ports, especially large gateways, the seaport facilities. They are facing a wide array of local accommodate additional traffic constraints that impair their growth and undertake services that have and efficiency. Limited availability of become too expensive at the port, land for expansion is among one of such as warehousing (e.g. empty
39 containers) and distribution. activities servicing an extended Satellite terminals can also serve market will be present. as load centers for local or regional markets, particularly if economic • Intermodal / transmodal density is high, in which case they facilities: These link large systems form a multi-terminal cluster with of freight circulation either through the main port they are connected the same mode (e.g. rail-to-rail) or to through regular rail or barge through intermodalism (e.g. rail- shuttle services. For gateways to-truck). In the latter case, the having a strong import component, inland terminal assumes the role a satellite terminal can also of a load center. The origin or the undertake transloading function destination of the freight traffic in a significant manner, where the tends to be elsewhere, particularly contents of maritime containers for transmodal freight.3 are transloaded into domestic containers or truckloads. Drivers of Change for Future Maritime Transportation • Load centers: This refers to a major intermodal facility - load According to OECD, there are center - granting access to six major drivers for maritime well defined regional markets transportation – policy, demography that include production and & society, energy & environment, consumption functions. It technology, economics, and finance. commonly corresponds to a Policy plays a very important role metropolitan area where a variety in maritime shipping because the of terminals serve concomitantly development of shipping requires government assistance. Maritime intermodal, warehousing, transportation is subject to many distribution and logistics functions. forms of regulations pertaining to These tend to take place in safety, security and environment. For logistics parks and free trade e.g polices like Cabotage, demurrage zones (or foreign trade zones). and privatization play an important role The inland terminal is thus the in the development of shipping. For point of collection or distribution ports and maritime shipping, the most of a regional market. The more complex policies have been related extensive and diversified the to security considerations, namely market, the more important is advance notice of cargo content the load center. If the load center and scanning cargo at ports. These has a good intermediary location, have been absorbed in practices and such as being along a major rail costs, as efficient security procedures corridor, then freight distribution became a competitive factor along
3International Transport Forum, OECD
40 Table: 10 Existing and Emerging Drivers for Future Maritime Transportation
Source: International Transport Forum, OECD supply chains. In the case of maritime and also may lead to new sites being shipping, policy and regulations developed for port activities leading are important for shipping security, to new opportunities for more efficient governance and for taxation. connections with inland transport systems. Demography is another factor which plays an important role as a Climate change has become an driver for maritime transportation. It important issue in recent times and creates derived demand for maritime this is another factor that may add to transport. When there is an increase the sustainability of transport systems. in population, there would be increase Since maritime transportation only in demand and consumption levels. accounts for the least greenhouse This would lead to changes in mobility. gas emissions, compared to other Also, as greater share of population forms of transport, use of maritime lives in urban areas, this would lead transport may tend to increase in the to increasing demand, which would future due to this reason. Ports have ultimately lead to pressure at the also started embarking in various port terminals with respect to ships environmental regulations such as calling at the port. This would help restricting ship engine idling and in further expansion of port terminals drayage, which focus on noise and
41 pollutant emissions because they advantages derived from them. As have clear local impacts. Also the transportation costs are expected to prices of energy and raw materials rise on the medium term, namely, due have a direct impact because higher to fossil fuels, transport demand will the energy prices, there will be a shift be readjusted accordingly in volume towards more energy efficient modes but also in location. According to of transport. OECD, both for ports and maritime shipping, the short and medium terms Use of IT and technological underline a process of rationalization. innovations contribute to trade The exploitation of comparative facilitation as it makes the custom advantages, which have been a procedures more standardized and driving force of globalization, is efficient thereby resulting in economies yielding lower productivity gains and of scale. Innovations in technology many suppliers are reconsidering will ensure better performance of their outsourcing strategies. It can engines and materials making the be expected that containerization work faster and easier. This will also will reach a phase of maturity, at help in improving performance with least in advanced economies, and better utilization of existing assets. For that future growth potential will be example, improvements in terminal more limited to niche markets, such automation will be especially suitable as commodities. Hinterland access for ports that have a good volume regimes are developing as important and acute real estate pressures. port competition factors, particularly in Information technology has multiplying the case of transshipment terminals. effects on maritime transportation, particularly over the management Finance is a major growth factor of intermodal assets. The range of for maritime transport because applications is impressive, from the without finance the development of loading and unloading sequence of maritime transport will suffer. In most container ships, stacking in container of the cases, the largest financial yards, navigation (GPS), scheduling institutions, often in partnership with (pick up and delivery), gate access, the public sector, provides adequate and tracking the whereabouts of a level of capitalization. Transportation container. projects, due to their size and technological complexity, are getting Another major driver of growth for increasingly capital intensive. The maritime sector is economic growth value of transportation assets and and global trade. The structure of the revenue they generate are economies, their trade patterns and likely to be important factors behind level of activities have an important their financing. Recently, maritime influence in national and global transport is becoming less attractive transport systems. The price of to investors and this would be a transportation is linked to the viability driving factor determining the growth of supply chains and comparative of the maritime sector in future.
42 3. Indian Scenario
Maritime transport, which plays a under the Indian flag was 10.1 million vital role in the development of the GT as of 1.09.2010, with as much as country, comprises ports, shipping, 1029 ships in operation. shipbuilding and ship repair, and inland water transport systems. Shipping Corporation of India, with According to the Min istry of Shipping, 80 ships, hold a share of 33% in total Government of India, approximately Indian shipping tonnage as on October 95% of the India’s trade by volume end 2009. Other major players were and 70% by value is moved through Great Eastern Shipping Company maritime transport. India is among (65 ships and 17% of GT), Mercator the top 20 leading countries having Lines Ltd (16 ships and 7% of GT) large number of merchant fleets in and Essar Shipping and Logistics Ltd the world. The Gross Tonnage (GT) (29 ships and 4% of GT).
Exhibit : 3 Growth of Indian Fleet
Note: data for 2010 as on 1.09.2010 Source: Indian National Shipowners Association (INSA), Annual Report 2009- 10, Ministry of Shipping, Government of India
43 Table: 11 Distribution of Indian Shipping Tonnage During 01.01.2009 to 31.10.2009
.
Source: Ministry of Shipping, GOI
Tankers and bulk carriers constitute cargo vessels for break bulk cargo around 86% of the total fleet size; and container ships for containerized the break-up of which include: crude cargo. tankers - 35%, product tankers - 20%, During 2007-08, the share of Indian bulk carriers - 31% and others 14%. shipping lines in India’s overseas Different types of ships are used for trade was 9.5% as compared to a different types of cargoes, like tankers high percentage of 90.5% contributed for carrying oil and liquid products, by foreign lines. Indian lines held a bulk carriers for mineral ores, grains significant percentage in liquid cargo and many other produce, general of 16.4%.
44 Exhibit : 4 Composition of Indian Fleet (Position as on 1.7.2006)
Source: Indian National Shipowners Association (INSA)
Table - 12
Share of Indian Shipping in India’s External Trade (2007-08) (In ‘000 tonnes)
Source: Annual Report 2008-09, Ministry of Shipping, GOI
45 Port Traffic Despite recessionary conditions, traffic handled at major ports have Ports act as an interface between grown on an average by 5.7% in the ocean transport and land transport. year 2009-10, over the year 2008-09. India has 12 major ports viz. Kolkata However, ports like Haldia (-20.4%), (including Dock complex at Haldia), Ennore (-6.9%) and New Mangalore Paradip, Vishakapatnam, Chennai, (-3.2%) are few of the main ports that Ennore, Tuticorin, Cochin, New witnessed negative growth in 2009-10 Mangalore, Mormugao, Jawaharlal Nevertheless, most of the ports have Nehru at Nhava, Mumbai, and Kandla, not achieved their target for the year and 187 minor ports. Table - 13
Traffic Handled at Major Ports (In ‘000 tonnes)
Source: Ministry of Shipping, GOI
46 2009-10. Mormugao (8.5%), Tuticorin projected traffic for the country. The (8.1%) Mumbai (2%), Kandla (2%), aggregate capacity in major ports and Paradip (1.8%) were the only as on 31.3.2009 was 574.77 MTPA. ports which achieved their growth Thus the favorable capacity – traffic target for 2009-10. Haldia (-22.1%) equation continued during the year. and Ennore (-14%) were the two (Table: 14) ports which showed huge variation in traffic compared to the traffic targeted in 2009-10. Major cargoes handled at Indian ports include petroleum products, iron ore, It has been the endeavor of fertilizers & raw materials, coal and Government of India to consistently containerized cargo. In case of POL, enhance the cargo handling capacity fertilizer and other cargo, Kandla of the major ports keeping in view the handled the highest traffic
Table: 14
Capacity Utilization at Major Ports
Source: Annual Report 2009-10, Ministry of Shipping
47 Table: 15
Cargo-wise Traffic Handled at Major Ports 2009-10 (In ‘000 tonnes)
Source: Ministry of Shipping, GOI
48 LNG Shipping in India the largest supplier, accounting for nearly 82% of India’s imports. Some In the past few years, there has been a of the other major source countries for massive growth in LNG trade globally. LNG imports by India include: Nigeria The growth is mainly due to the energy (6.3%), Algeria (4.3%), Trinidad and demands of the emerging economies, Tobago, and Oman (2.1% each). particularly India and China, and due India imports LNG through both long- to the fact that LNG is relatively safe term contracts and spot shipments. and environmentally friendly. Even in the event of spillage, LNG evaporates Currently, India has two LNG import quickly and has no long term adverse terminals, with few more that are effect on the ecosystem, and so poses planned or proposed. India started little or no risk to environment. The receiving LNG shipments in January non corrosive nature of LNG makes 2004 with the start-up of the Dahej the life of an LNG carrier longer than terminal in Gujarat state. Petronet other types of carriers. LNG, a consortium of state-owned Indian companies and international India began importing liquefied natural investors, owns and operates the gas (LNG) since 2004. In 2007, India Dahej LNG facility with a capacity of 5 imported 358 billion cubic feet of LNG, million tons per year (mta) (975 bcf/y). making it the seventh largest importer India’s second terminal, Hazira LNG, of LNG in the world. Qatar was by far started operations in April 2005, and is
Exhibit : 5
LNG Imports by India and World (World) (India)
Source: US Energy Information Administration
49 owned by a joint venture of Shell and holding no less than 26% stake in Total. The facility has a capacity of the joint venture company owning the 2.5 mta (488 Bcf/y), and has capacity LNG tanker. However, in 2006, the to expand upto 5 mta (975 Bcf/y) in guidelines have been modified, and the future. with the introduction of LNG Shipping Policy, the importers are given the Geographically, India is very flexibility to transport the cargo either strategically located and is flanked by on FOB (free-on-board) or CIF (cost- countries that have large gas reserves insurance-freight) basis, by deploying on both the sides - east and the west. foreign or Indian flag ships. India is relatively close to four of the world’s top five countries in terms of International Container proven gas reserves, viz. Iran, Qatar, Transshipment Terminal (ICTT) Saudi Arabia and Abu Dhabi. Transshipment ports or transshipment Indian shipping industry currently hubs would refer to the port of does not own any LNG vessels; one choice for shipping lines seeking of the main reasons is attributed to trans-ship their containerized towards the cost of acquisition of cargoes originating from or destined LNG vessels. With a capacity of about for a country. Transshipment is the 135,000 cubic metres, a LNG vessel shipment of goods or container to an cost at least US $ 200 million in the intermediate destination, and then international market. Therefore, the from there to yet another destination. Indian shipping industry is currently Transshipment usually takes place in exploring this area through joint transportation hubs and most of the ventures. Shipping Corporation of international transshipment also takes India (SCI) has identified carriage place in designated customs areas, of LNG as one of its thrust and thus avoiding the need for customs growth areas, and has emerged as checks or duties, which are otherwise the first Indian shipping company in major hindrances for swift movement LNG transportation, through global of goods. agreements. SCI has acquired stake in the three Indian LNG transportation The need to develop transshipment agreements through a global bidding hub ports in India was documented process. . by the Planning Commission in its Tenth Five Year Plan. The It may be mentioned that, earlier, the Vallarpadam terminal in Cochin has guidelines by DG-Shipping stipulated been identified as a transshipment that no licence shall be granted for terminal for the sub-continent by chartering an LNG vessel unless the Government. The Vallarpadam registered under the Indian flag and terminal, the first-of-its-kind in India, is owned by an Indian entity either aims to cut down logistics costs for wholly or with an Indian partner shipping lines, transshipping cargo in
50 and out of the country, as at present, with the latest technology of ship-to- the containerized cargo, to and from shore (STS) cranes in support, will India, is transhipped through the ports facilitate handling of large container at Colombo, Dubai, Singapore and vessels afloat; d) deployment of these Salalah. This trend is not only making cranes will ensure that productivity at the transportation cost expensive, but ICTT is at par with the international also time consuming. It is to be noted standards; e) the terminal will have the that the Vallarpadam terminal aims facility to berth a mainline vessel and to transform Cochin port from being a feeder, together with the possibility a feeder port to a transshipment hub of exchange of boxes - from a feeder, port and the proximity of the terminal a container could be directly put on to east-west sea routes offers great to the mainline vessel, or vice-versa, savings, if containers are transhipped which is expected to result in better through the terminal. According transit times for the shipper. to industry sources, since ICTT is located within the Special Economic Regulatory Framework Zone area, containers transshipped through Vallarpadam would undergo Shipping in India, being a Central customs checks only at the Indian subject, is dealt by the Ministry of ports of origin or at the ports of their Shipping. The Indian shipping industry destination. is mainly governed by the following Acts; ICTT is developed by DP World on a build-operate-transfer basis, and DP 1. The Merchant Shipping Act, 1958 World will manage and subsequently 2. The Inland Vessels Act, 1917 transfer its operations at the Rajiv Gandhi Container Terminal (RGCT) in 3. The Coasting Vessels Act, 1838 Cochin Port to the new terminal upon 4. The Multi-modal Transportation of its completion. The DP World has been Goods Act, 1993 granted a 38-year concession for the exclusive operation and management Some other statutes that have of the site. indirect relevance on Indian shipping Some of the main reasons for choosing include: Cochin as the location for international transshipment container terminal 1. The Indian Ports Act, 1908 include: a) Cochin is strategically 2. The Dock Workers (Regulation of located in close proximity to the global Employment) Act, 1948 east-west trade routes; b) the Cochin 3. The Major Ports Trust Act, 1963 port is all-weather port, which offers a 4. The Seamen’s Provident Fund great advantage to vessel operators Act, 1966 who are able to work on their berthing windows without fail; c) ICTT will have 5. The Inland Waterways Authority a draft of around 15 metres, which, of India Act, 1985
51 Box: 1 World Bank’s Logistics Performance Index (LPI)
The World Bank’s Logistics Performance Index (LPI) summarizes the performance of countries in six areas that capture the most important aspects of the current logistics environment: Efficiency of the customs clearance process, quality of trade and transport-related infrastructure, ease of arranging competitively priced shipments, competence and quality of logistics services, ability to track and trace consignments, and frequency with which shipments reach the consignee within the scheduled or expected time.
These areas range from traditional issues (customs procedures and infrastructure quality) to new concerns (tracking and tracing shipments, timeliness in reaching a destination, and the competence of the domestic logistics industry. None of these areas alone can ensure good logistics performance. Their selection is based on the latest theoretical and empirical research and on extensive interviews with professionals involved in international freight logistics. The LPI uses standard statistical techniques to aggregate the data into a single indicator. This approach makes it possible to conduct meaningful comparisons across countries, regions, and income groups, as well as to undertake country-specific diagnostic work. Plotting an average relation between country income and logistics performance makes it possible to identify over- and under-performers in the logistics sector. An overperformer is a country with a higher LPI score than would be expected based solely on its income level, and an underperformer is a country with a lower than expected LPI score.
According to the Logistics Performance Index of World Bank, among the lower middle income countries, India was one of the top logistics performer with a world rank of 47 in 2009; and relative to income per capita, India was among the top ten over performers (excluding high-income countries), along with Bangladesh, China, Democratic Republic of Congo, Madagascar, Philippines, South Africa, Thailand, Uganda, and Vietnam.
Source: The Logistic Performance Index and its indicators, World Bank, 2010
52 There are various subordinate It may be mentioned that the Ministry offices, autonomous bodies, societies of Shipping, Government of India and associations, and public sector has been working towards merging undertakings, which help the Ministry two existing port legislations which in regulating the shipping industry. are Indian Ports Act, 1908, and Major Some of them are: Ports Act, 1963, which rule over Government-controlled major ports, • The National Shipping Board, a private and non major ports of the statutory body, which advises the country, into a single comprehensive Central Government on shipping Act. The proposed legislation will club matters; many sections into one which deal with topics that are common in nature • The Directorate General of for both major and non major ports. Shipping, the main administrative There will be a separate section for authority which issues orders and board of trustees, operations and notifications on various aspects of management of major ports which is shipping; exclusive to them. The proposed port legislation could also have provisions • The Mercantile Marine to create a Port Regulatory Authority Department, which comes under Act which would help de-link Tariff the administrative control of Authority for Major Ports (TAMP) from Directorate General of Shipping, the consolidated Act. The powers dealing with the registration and to fix rates may, then, be left to the survey of ships; management of port authority or Government or any other authority so • The Transchart Wing, responsible authorized by the Government. for making shipping arrangements for import cargo under the control Also, it has been observed that in of Govt./PSUs; all the major ports world over, land • The Indian Register of Shipping, a has been leveraged for optimizing classification society. the throughput and increasing the revenue of ports. It is an established The Indian shipping industry, apart practice globally for ports to allot land from the regulations is also governed for carrying out economic activity by the various IMO/ILO instruments including establishing industry to (Conventions & Protocols) ratified ensure captive cargo to the port, by the Government of India and thereby enhancing the sustainability also has to comply with the rules of that port. Port lands have also been and regulations issued by Ministries used to set up Special Economic of Finance, Company Affairs, and Zones (SEZ) aimed at encouraging Commerce and Industry, Government industrial development in and around of India. the port. Other than the above, ports
53 are generally expected to utilize their The objective of the programme is land, with port related activities being for upgrading and modernizing the given the first priority and activities maritime infrastructure in India to bring incidental to the port being treated it to globally comparable standards. as secondary in nature. Hence, optimum utilization of land is a matter The programme consists of projects of continuing importance to all ports. to be completed in 2 phases over Based on this, a Land Policy for Major a period up to 2011-12. The total Ports was issued by the Ministry of investments have been estimated Shipping, in 2004. Land policy is one of at Rs 1003 billion. It consists of a the most important policy frameworks total of 387 projects divided into the guiding the overall functioning of the following: port sector. Recently, the Ministry of Shipping has proposed to issue a • 276 projects for the major ports revised Land Policy for major ports. with an investment of Rs 558 Accordingly a committee constituted billion consisting of 25 projects for by the Ministry of Shipping submitted deepening of channels, 76 for port a draft ‘Land Policy for major ports, development, 52 for procurement, 2010’. According to the policy, every replacement and upgradation, major port shall have a Land use plan 45 for projects related to port covering the entire land owned and/ connectivity and 78 for other or managed by the port. Land can related schemes; be allotted either on licence or lease basis as per land use plan/zoning. • 111 for Shipping and IWT The policy is applicable for all major (Inland Water Transport) with an port trusts, except for land relating to investment of Rs 445 billion. Gandhidham Township of Kandla Port Trust. This policy for land allotment Coastal Shipping: for the promotion will be applicable to all BOT projects of coastal shipping, the following two also. schemes are being initiated:
Recent Initiatives • Coastal Shipping Development Fund (CSDF) for soft lending National Maritime Development for the purpose of acquisition Programme of coastal vessels: Under this scheme, it is estimated that for In December 2005, the Ministry acquisition of coastal vessels an of Shipping, Road Transport and investment of Rs.10,000 crore Highways, Government of India, would be required in the next five unveiled the National Maritime years and the funding pattern for Development Programme (NMDP). the same is Rs.500 crore through
54 budgetary support, Rs. 1500 Tonnage Tax crore from reputed institutional financing and Rs.8000 crore from To facilitate the growth in Indian private investment. shipping industry, Government of India has been taking several • Centrally Sponsored Scheme measures. In the past, under Sec. (CSS) for development of 33AC of the Income Tax Act 1961, coastal shipping infrastructure: shipping companies have been Central assistance will be by way permitted 100% tax exemption on of grant-in-aid. The grant-in-aid their profits transferred to a special through budgetary support would reserve created under this Section. Introducing tonnage tax in lieu of be provided to the tune of Rs.500 corporate tax from 2004-05 and the crore. Out of this, the Central inclusion of dredgers in the tonnage assistance will be limited to 33% tax regime in 2005-06 and also of the project cost; remaining allowing 100% FDI in the shipbuilding 67% being contributed by the sector are some of the measures respective State Government. taken for the development of the industry. The Tonnage Tax system New Perspective Plan helps Indian ship owners to even out their tax burden in the industry, which Ministry of Shipping has decided to is highly cyclical in nature. Also, create a New Perspective Plan for cargo support is extended by the the maritime sector for the period Government by centralizing shipping upto 2020. The New Plan would arrangements through chartering have year-wise project for the wing (TRANSCHART), finalizing all period covering the 12th Five Year import contracts on FOB (Free on Plan and initial period of 13th Five Board), in respect of Government Year Plan. It would include policy owned or controlled cargoes, so as framework for stimulation of capacity to retain control over the shipping expansion as well as growth of arrangements in the country, and maritime sector, supplementary providing support to the vessels. projects for ports development from other infrastructure departments, like Support through TRANSCHART National Highway Authority of India, roads, railways, inland waterways, The Ministry of Shipping also has a dredging mechanization and Chartering Wing (TRANSCHART) modernization plan of major ports which makes shipping arrangements and non major ports, etc. The Ministry at internationally competitive freight has also constituted a sub group and rates for transportation of Government core working group for preparation of owned or controlled cargoes against Perspective Plan 2020. FOB/FAS imports of the Government
55 and in this way gives cargo preference developments that took place, out of to Indian vessels. During the period the recommendations of the COMET 1st January, 2009 to 30th November Report, was the commencement of 2009, 440 ships were finalized by private sector training facilities, which the TRANSCHART for shipment of was restricted only to Government total quantity of 256.18 lakh MT of institutions earlier. In order to meet Government cargoes. The major the requirement of trained manpower cargoes handled during this period in merchant navy, the Directorate were coking coal, crude oil, fertilizer, General of Shipping, currently through fertilizer raw materials, lime stone, various maritime training institutes, iron ore, steel materials, seawater both under public and private sector, magnesia, ballast cleaning machines imparts pre-sea and post-sea training and other liner / project cargoes. Out in engineering and nautical discipline. of total 440 ships, 138 were Indian Currently there are 125 training ships which carried approximately institutes. 99.41 lakh MT i.e. approx 38.80% of total. The main reason for low However, in order to bring uniformity share of Indian vessels was due to in curriculum offered by various inadequate availability of required institutions, the Government proposed type of vessels in Indian fleet for to establish an Indian Maritime carriage of various bulk cargoes and University to facilitate and promote also low participation of Indian vessels maritime studies, research, and for covering the Government cargoes extension work with focus on emerging due to availability of better alternate areas, including marine science and options. However, all efforts are technology, marine environment, being made to use available / suitable socio economic, legal and other Indian vessels to the maximum extent related fields. A step in this direction possible. The shipping arrangements was taken with the registration of the were made as per the requirement of Indian Institute of Maritime Studies indenting departments / PSUs and (IIMS). The safety and the efficiency with their prior approvals. of the ships are crucially dependant on professional ability of the seafarers. Manpower Requirements Great importance has always been attached to maintenance of high There has been a shortfall of quality training. For this purpose there skilled manpower in the shipping are 50 institutes conducting relevant industry since 1990s, which led to courses. the appointment of a Committee on Maritime Education & Training Thrust to Passenger Lines (COMET) under the chairmanship of Dr. C.P. Srivastava [formerly Secretary In the tourism front, international General of IMO (International Maritime cruise shipping is yet another area Organization)]. One of the significant that India is increasingly venturing,
56 as the country promotes international coast of West Bengal, keeping in view travel and tourism. There had been the increasing trade with the South- around 29 cruise ships during the East Asian and East Asian regions. year 2006 which had disembarked Global Expression of Interest has in India especially in Mumbai, Kochi been floated and consultants have and Goa. Many Indians too have been shortlisted. Tenders have also been going for international cruises. been invited and consultant being The Government has considered selected for conducting feasibility bringing in a comprehensive cruise study for development of Port at shipping policy to make India a Colachel in Tamil Nadu. major destination for cruise shipping. Accordingly, the Government has Channel Deepening Projects proposed to build cruise terminals of international standards at major The available depths in entrance/ ports, and proposed to announce a approach channels in Indian ports range of schemes for tour operators. are inadequate for large size new Presently, local cruises have been generation vessels to pass through picking up, and attracting a significant them. As a result, mainline vessels volume of travellers within the country bypass Indian ports. This is particularly for packages from Mumbai to Goa, relevant for container vessels where Mumbai to Lakshwadeep and so on. inadequate depth in the port channels continues to be a major factor Indian Maritime Casualty contributing to transshipment of a Investigation Cell significant portion of Indian-origin/ Indian-bound container traffic in Ministry of Shipping, Government of neighbouring ports outside India. This India has given approval for creation increases the transportation costs of Indian Maritime Investigation Cell for Indian traders. With a view to with the objective of conducting overcoming this challenge, concerted investigation into causes of casualties measures to deepen channels in and incidents in accordance with the various major ports have been taken. provisions of the Merchants Shipping Act, 1958, bearing in mind the Private Sector Participation mandatory tenets of the International Maritime Organisation Casualty Ministry of Shipping has been Investigation. encouraging private sector participation in the major ports, New Deep Sea Ports particularly in the development of berths/terminals on BOT basis. The It has been decided to conduct a capacity augmentation will be mainly feasibility and locational study for through Public-Private Partnership setting up of a deep-sea port, off the (PPP). However, berths will also
57 be constructed by the port, where of road connectivity, focus was laid operational requirements necessitate on port connectivity and hinterland the ports to construct and operate the connectivity, which connects to the berth out of their own resources. source of cargo such as iron ore, coal, etc. A number of multimodal projects The preferred route for private have been taken up in all the major sector participation is through open ports. The projects on roads and rail competitive bidding in which the connectivity are implemented mainly bidder offering the highest percentage by the National Highways Authority of of revenue share to the major ports India (NHAI) and Ministry of Railways, is selected. Tariff Authority for Major respectively. In a number of instances, Ports (TAMP), which is an independent the ports have made significant statutory authority, fixes the tariffs financial contribution for execution of to be charged from the port users the connectivity projects. by the private operators. For fixing the upfront tariffs, TAMP shall follow National Maritime Complex a normative cost based approach. At present, India has 1029 ships These tariffs will act as ceiling and will having 10.1 million GT. There are 12 be indexed to inflation and the private major ports in the country in addition operators are free to charge below to a large number of non-major public these ceilings. It may be mentioned and private ports within the domain that PPP projects have been awarded of the various states. Seafaring is for development and construction of an old and respected profession in berths / mechanization in respect of India. Indian seafaring officers are Kolkata, Vishakhapatnam, Paradip, employed in ships of many foreign New Mangalore and Mormugao Port flag. Shipping cannot be embraced Trusts. as a profession in the absence of necessary competence in seafaring Multi-modal Transport skills. For this purpose international conventions exist, as adopted by the For better rail-road connectivity UN specialized agency in this regard, to enhance trade, a Committee namely, the International Maritime of Secretaries (CoS) under the Organization. Also, the maritime Chairmanship of Member Secretary, training and education to the private Planning Commission with Secretary sector opened up. With the objective (Shipping), Secretary (RT&H), of showcasing various facets of Indian Secretary (Environment and Forests) maritime industry, the Government and Member Traffic (Railway Board) has decided to establish a National as members was constituted. In case Maritime Complex at Chennai.
58 Box: 2 Shipping Trade Practices Bill
A Bill to provide for bringing transparency in trade practices adopted by maritime transport logistics service providers in respect of: a) services rendered by them for arranging transportation of containerized cargo; b) registration of such service providers and their obligations; c) mode and manner of fixing tariff by the service providers; and d) export and import, and for matters connected therewith or incidental thereto. The aim of the Bill is to infuse some degree of transparency in the business and to make the charges public.
The Shipping Trade Practices Bill, 2006 was aimed at shipping intermediaries across all cargo handling categories, and later the Shipping Trade Practices Bill, 2008 was made applicable only to containerized cargo. However the new proposal put forward by the Ministry of Shipping, Government of India, will apply to maritime logistical service providers such as container ship owners, non-vessel operating common carrier, customs house agents, forwarding agents and other players in the chain.
According to the Shipping Trade practices Bill, service providers are required to register with the Government. The service providers would also be required to publish their rates, mode and manner of fixing tariff and display it on their premises or website, when the Bill comes into force. The Bill draws reference from the rules of US Federal Maritime Commission (FMC), an independent regulatory body that governs the US shipping trade. The Commission’s strategic goal is to protect the public from unlawful, unfair or deceptive ocean transportation practices and resolve disputes. It also handles the maritime antitrust regulation.
The Bill, once put into force, will help in speeding up the maritime grievance redressal, necessary to avoid the need to resort to legal recourse that takes years to settle and also help the exporters and importers who pay arbitrary and exorbitant charges for the services provided mostly by unregistered players.
Source: Exim Research.
59 4. Indian Shipbuilding Industry
Shipbuilding, which includes, begins and each ship is custom made shipyards, marine equipment for the owner. It may take around 1 manufacturers, and a large number to 3 years for the delivery of a new of service and knowledge providers, ship. The buyer orders a ship in is an important and strategic industry anticipation of its future use and in a number of countries around the sometimes it is done with an advance world. Shipbuilding is a globalized, charter agreement which makes it technology-based, and capital important for the shipyard to deliver intensive industry. The industry is the ship within the specified time. This influenced by developments in the feature makes delays in shipbuilding shipping industry and the market unacceptable at times, and thus the dynamics. One of the unique factors buyers prefer to place orders with of the shipbuilding industry is that a established shipyards who have a ship is sold before the construction good track record.
Exhibit : 6
World Shipbuilding Statistics In Numbers
Source: World Shipbuilding Statistics-Lloyd’s Register Shipbuilding Statistics, March 2010, Shipbuilders Association of Japan
60 Exhibit : 7
World Completions by Type of Vessels, 2008
Source: World Shipbuilding Statistics-Lloyd’s Register Shipbuilding Statistics, March 2010, Shipbuilders Association of Japan
The world shipbuilding statistics bulkers (10.5%). LPG/LNG vessels shows that during 2009, the world (4.1%) and passenger vessels (1.4%) orderbook was close to 9226 ships, were two categories which showed which was around (-) 18.6% less the least orders in 2008. compared to previous year. It is evident from Exhibit: 6 that new India currently has around 32 orders during 2009 was also lower shipyards, owned by: Central than the previous years. In fact, after Government (6), State Governments 2007, new orders for shipbuilding (2), public listed private shipyards had reduced by almost half in 2008 (3), and privately held (around 22) and 2009. However, completions of shipyards. However, the major share the shipbuilding orders have shown of the present ship-building capacity improvement over the years. in India is held by eight public sector yards, with Cochin Shipyard Limited During 2008, around 17% of the new and Hindustan Shipyard Limited orders received were for dry cargo having capacity and infrastructure to vessels followed by chemical tankers build vessels of 1.1 lakh DWT, and (14.2%), containers (13.2%), and 80,000 DWT, respectively. Barring
61 Exhibit : 8
Orderbook of Select Countries and the World
Source: World Shipbuilding Statistics-Lloyd’s register, Shipbuilding Statistics, March 2010, Shipbuilders Association of Japan
these two shipyards, the majority of South Korea (1675), Japan (1286) private sector shipyards have limited and Europe (447). India stood at the ability to build vessels in respect of sixth position in the world order book, capacity and size of the vessels. after Vietnam (287). (Exhibit: 8) Also India’s capability of building technologically advanced ships, like India has been witnessing increase LNG carriers are relatively less. in the order book position over the years, which has largely resulted According to the world order book from export orders. The bulk of position, during 2009, Indian the orders have been in the small shipyards had an order book of close ship segment, comprising offshore to 260 ships constituting 1% share in supply vessels, anchor handling tugs terms of GT, and 2.8% share in terms and cargo, although CSL (Cochin of number of bookings. China was top Shipyard Limited) has exported in the list with the largest number of some large and medium ships. bookings of 3523 ships, followed by Offshore segment is attractive mainly
62 Exhibit : 9
Indian Shipping: Orders Booked Till 2011-12
Source : Maritime Advisory because oil and gas companies in-house design capability, infusing have contractual and regulatory new technology, developing skilled commitments to the government to workforce, adopting appropriate explore blocks awarded to them, fiscal measures and industry-friendly which in turn require ships so that regulations, so that Indian shipbuilding exploration can be initiated. Such can achieve credibility for delivering factors could encourage foreign quality ships on time. players to invest in Indian offshore sector, which will help improve India’s According to the Report of the Task technical know-how in the field and force on Ship Building and Ship prevent shipbuilding delays. This Repair Industry, constituted by the shows that the potential for exploring Planning Commission, Government export opportunities is significant of India most of the ships, including for Indian shipping industry. It may dredgers, imported by Indian owners be mentioned that the ship-building are fully exempted from customs technology and facilities in India may duty making the existing shipbuilding require significant upgradation to industry totally unprotected in India. cater to the requirements of overseas In fact, customs duty of about 35% buyers. Majority of the orders were is imposed on all capital equipment from Europe. required for shipbuilding which inflates the cost of shipbuilding in the For integrated growth of the country compared to other countries. industry, there is a need to create an Hence, in the current scenario, it R&D base along with developing becomes cheaper to import a ship
63 due to the exemption of customs duty academic institutions should develop on import of all ships and dredgers. curriculum for developing skill sets, The Task Force has also suggested to covering entire spectrum from implement a single window clearance basic ship-building trade to high- system for according clearance to end research, in collaboration with new shipyard projects, covering land universities of leading maritime acquisition, environmental clearance, nations. power and water etc., so that project implementation is not delayed. Apart Although India occupies a small from this, an expanding shipbuilding percentage of the global shipbuilding industry would require a large trained market, the Indian shipbuilding work force, covering all areas in industry is well positioned for growth. the techno-economic spectrum of According to a study by the Indian shipbuilding. Therefore, universities/ Shipbuilders Association, the industry
Exhibit : 10
Ship-Breaking Statistics for Select Countries 2008
Note: Total world disposals: 707 vessels Source: World Shipbuilding Statistics-Lloyd’s register, Shipbuilding Statistics, March 2010, Shipbuilders Association of Japan
64 can grow at a rate of more than infrastructure, trade and shipping 30%, and this rate of growth could services. The indirect potential of be achieved through supportive shipbuilding industry in employment measures by the Government, generation and contribution to GDP is including incentives for shipyards. therefore tremendous. The dynamics of India’s economic growth will As growth in international trade continue to create demand for new results in increased global and ships, and ship-building capacity domestic demand for new vessels, within the country needs to be Indian shipyards have certain augmented to cater to this demand. advantages over shipyards in If the domestic ship-building capacity developed nations. India possesses is augmented, the benefits to the a large pool of technical workers, and economy would be manifold, with its cost of workforce is relatively low, spillover effects on other associated/ compared to most other shipbuilding ancillary sectors, and generation of countries. Apart from this, the Indian employment. navy usually gives orders to Indian shipyards based on national interests. Ship-repair industry This will also act in favour of the Indian shipbuilding industry. The global ship repair market is estimated to be worth US $ 10 billion Also, there is a need to replace the to US $ 12 billion, with Singapore old ships in the country. According holding a share of 20%; India, on to Indian National Shipowners the other hand, has only a share of Association, about 50% of Indian about US $100 million4. There are a ships are aged 20 years or more total of 35 SRUs (Ship Repair Units) and needs to be replaced. The world registered with the Director General ship breaking statistics for 2008 also of Shipping, Government of India, of shows that, of the total world disposals which only 7 SRUs namely - Alcock of 707 vessels, 28% were from India Ashdown & Co Ltd, Chennai Port followed by Bangladesh (24%), China Trust, Cochin Shipyard Limited (5.4%) and Pakistan (3.5%) (Exhibit: (CSL), Garden Reach Shipbuilders 10). This shows that there will be a & Engineers Ltd. (GRSE), Hindustan need for more vessels in the future and Shipyard Limited (HSL), Mumbai Port the domestic shipyards should strive Trust (MbPT) and Mazagaon Dock towards getting these contracts. Limited (MDL) have been given the permanent approval as SRUs. The Shipbuilding acts as a catalyst for major SRUs in the country are CSL, overall industrial growth due to spin HSL, Western India Shipyard, MDL, offs to other industries, including and ABG shipyard. Western India steel, engineering equipments, port Shipyard is the only shipyard in India,
4 Maritime Advisory
65 which is dedicated to ship repairing trade routes. Currently, shiprepair activity. is primarily undertaken in Dubai dry docks, Singapore, Bahrain and Since India is located strategically Colombo dockyards. The shiprepair on the international trade route, the industry in India will also get business country can offer ship repair and from the Indian shipping industry, maintenance services to ships plying which has about 50% of ships owned, from west to east in the trade route. older than 20 years. As the older ships This represents increasing market require more frequent and extensive potential for the shiprepair business, shiprepair and maintenance, Indian as ship owners may prefer to repair ship yards could gear themselves to their ships without deviating from their service them.
66 5. ROLE OF SHIPPING IN MITIGATING CLIMATE CHANGE
Over 90% of world’s volume of trade According to International Energy is carried across the world’s ocean Association, the CO2 emissions and shipping vessels. Like all modes fuel consumption by the shipping of transportation, that use fossil sector have been increasing over fuels, ships produce carbon dioxide the years owing to technological emissions that significantly contribute advancement and also growth in to global climate change and ocean trade around the world. From a level acidification. Besides carbon dioxide, of 562 million tonnes of CO2 in 1990, the emissions have doubled to 1050 ships also release a handful of million tonnes in 2007. The fuel other pollutants like black carbon, consumption by the shipping industry Nitrogen Oxides (NO2) and Nitrous has also increased during this period, Oxides (N2O) that also contribute to from a level of 179 million tonnes the problem. Compelling scientific to 333 million tonnes. (Exhibit:11) evidence and a better understanding However, compared to other sectors, of the economics of climate change shipping is the least environmentally have moved the issue to the forefront damaging form of commercial of the agenda in international shipping. transport, and compared with land One of the major differences in the based industries, is a comparatively shipping industry is that, unlike other minor contributor to marine pollution sectors which contribute to climate from human activities. According to a challenge, shipping is one of the very study (Second IMO GHG Study 2009) few industries which may also get by International Maritime Organisation impacted by climate change, through (IMO), shipping industry contributed associated factors such as rising sea 4% to the total CO2 emissions during levels, extreme weather events and 2007, and comparatively lesser than rise in temperatures. Indian shipping the other sectors. (Exhibit: 11). industry, thus, has a significant role to play in addressing this formidable In the case of CO2 emissions from challenge. International Marine Bunkers5,
5According to International Energy Agency (IEA), international marine bunkers comprise of all fuels delivered to sea going ships of all flags, including warships and fishing vessels. Consumption by ships engaged in transport in inland and coastal waters not included. The revised 1996 IPCC guidelines used by UNFCCC have slight difference in the definition. According to UNFCCC international marine bunkers comprise seagoing ships of all flags that are engaged in international transport, whereas national navi- gation refers to fuel used for navigation of all vessels not engaged in international transport.
67 Exhibit : 11
Trends in CO2 Emissions and Fuel Consumption by Shipping Industry
Source: IEA Statistics in CO2 Emissions from fuel combustion
Exhibit : 12
Comparison of CO2 Emissions from Shipping & Other Sectors in the Total World Emissions
Source: Second IMO GHG Study 2009
68 Exhibit : 13
Comparison of CO2 Emissions Between different modes of transport
Source: : Report by International Chamber of Shipping
Singapore was having the highest and USA had shown a decline from emissions in 2007, constituting a being the highest emitter in 2007 to share of 15.9% in the total emissions of be replaced by Singapore. China and CO2 by international marine bunkers. Singapore were the countries which This was because Singapore had had shown considerable increase the busiest marine bunkering centre, of emissions over the years. India’s as also one of the world’s top export share was very minimal owing to refining centres. Exhibit 14 shows an minimal bunkering activities in the increasing trend of CO2 emissions country. Major refinery activities from Singapore over the years to in all these countries are located become the highest emitter in 2007. near important international marine Singapore was followed by USA shipping routes and ports. (15.7%), China (9%), Netherlands (8.3%) and UAE (7.2%). The share of The wide-ranging impacts of climate UAE in the total emission remained change, including that arising out almost the same over the years, of maritime transport underscores
69 the need to integrate climate number of mitigation measures aimed considerations into strategies for at reducing emissions of greenhouse transport planning and development. gases from international shipping. Increasingly, it is being recognized that considered and concerted actions are On the pollution front, International urgently required to ensure effective Maritime Organisation (IMO) has control of greenhouse gas emissions been tightening the levels of NOx and to establish the requisite adaptive (nitrogen oxide) and SOx (sulphur capacity in the shipping industry, oxide) emissions from ships, and especially in developing countries. ship-owners are made to opt for reducing emissions by means of low Recognizing the importance for sulphur fuels, and fixing of catalytic the maritime transport sector of converters etc. contributing to global efforts at reducing emissions of greenhouse In shipping, greater speeds lead to gases, IMO has established a Marine more fuel consumption, and thus the Environment Protection Committee emissions level also increase. Hence, (MEPC), which is considering a experts opine that reducing the speed
Exhibit : 14 World’s Largest Emitters of CO2 From International Marine Bunkers
Source: IEA Statistics in CO2 Emissions from fuel combustion
70 of the vessel can help in fuel savings met by low-emission sources, such and thereby contribute to emissions as wind or solar energy6.Some of reductions. According to IMO the measures suggested by industry (International Marine Organization), experts from OCEANA (international speed reduction of 10% across global organization focused solely on ocean fleet would reduce emissions by 23%. conservation) for conserving energy During the spike in fuel prices in the in shipping industry include: year 2008, shipping lines have been voluntarily reducing their speeds. • Improved hull design to achieve reductions in emissions through Another suggestion mooted by IMO is reduced fuel consumption; to shift from heavy fuel oils to marine diesel oil and marine gas oil, which • A bulbous bow can increase a ship’s fuel efficiency by reducing will help in reducing CO2 emissions. Switching to low-sulfur fuels would its wavemaking resistance; reduce emissions of fine particles, • A stern flap, a small plate that including black carbon, as well as extends behind a ship’s transom, carbon dioxide, nitrogen oxides and lengthening the bottom surface nitrous oxide, and enable the use of of the hull, to reduce a ship’s other emissions control equipment resistance and thus increase fuel that the sulfur levels in residual fuel efficiency; would otherwise impede. Some of the other measures that are suggested • Applying special coatings include: ‘weather routing’, which is to propellers to reduce fuel used to establish the shortest time use by four to five percent, route or the most economical route while simultaneously reducing from a departure to arrival point by maintenance requirements. applying available information of the The cost of coatings is likely to weather condition, viz. wind, wave be paid back through saving in and current; fleets should begin to maintenance cost within a year. implement longer-term measures to reduce pollution and thereby global Even though India, compared to other warming, such as fuel efficient design nations, has very less emissions from of new ships and engines created the shipping industry, the players specifically for slow steaming; the should concentrate on reducing use of cold ironing at ports, where emissions on a sustainable basis. ships shut off their diesel engines Indian ship building industry should and are connected to shore-based also pay attention in building ships power for their electrical needs, which that will be fuel efficient and hence reduces direct emissions in port reduce emissions in the future. areas and allow energy needs to be Shifting to LNG-based fuel vessels
6 Report on Shipping impacts on climate, Oceana
71 would also contribute to achieving shipping services are important. lesser emissions from Indian shipping Impact of climate change will vary from industry, as also in terms of reduction country to country; hence, actions in fuel cost. should be tailored according to the Given the critical role of maritime circumstances of different countries transport, efficient and well functioning and regions. Increased focus on ports and services are a necessity responding to the climate challenge is for all the activities ranging from important for the long-term prospects production to export. Hence, cost of the maritime transport sector, and efficient and sustainable international more generally for global trade.
72 6. Challenges and Strategies
Challenges worldwide. There are also international regulations on operations of ships, Onerous tax regime such as International Convention for the Safety of Life at Sea, International According to a Research Paper by Convention for the Prevention of Ministry of Finance, Government of Pollution from Ships, Convention India, the shipping industry is facing on the International Regulations significant tax burden, though the for Preventing Collisions at Sea, tonnage tax has been introduced. International Convention on Loadlines, The paper lists out taxes such as International Ship and Port Facility, minimum alternate tax, dividend Security Code, and International distribution tax, withholding tax liability Safety Management Code. There on interest paid to foreign lenders, are also international regulations withholding tax liability on charter hire for seafarers, such as International charges paid to foreign ship owners, Convention on Standards of Training, seafarers taxation cost to employers, certification and Watch-keeping wealth tax, sales tax, VAT on ships for Seafarers, and ILO Merchant and spares, lease tax on charter hire Shipping Convention. charges, customs duty on import of certain categories of ships, stores, UNCTAD initiated the development spares and bunkers, and services tax. of the 1978 UN Convention on the The Research Paper is of the view Carriage of Goods by Sea (called that such tax regime makes Indian the Hamburg Rules). The UN ship owners to prefer to own vessels Convention on Code of Conduct for outside India. Liner Conferences (1974) provides for the national shipping lines of Multiplicity of regulations developing countries to participate on an equal basis with the shipping Shipping industry, catering to lines of developed countries. The the demand across continents, UN Convention on International is regulated by both domestic Multimodal Transport of Goods and international regulations. (1980) establishes a single liability Internationally, the International organizational structure for the Maritime Organisation has a set of international carriage of given rules to ensure safe, secure and consignments of goods entailing efficient shipping, besides the labour use of more than one mode of standards required for seafarers transport. The UN Convention on
73 Conditions of Registration of Ships on September 2010, India had 693 (1986) introduces new standards vessels under coastal trade, and 336 of responsibility and accountability vessels under overseas trade with for the world shipping industry and a total of 1029 ships in total. High defines the elements of the genuine transportation costs, port delays, link that should exist between a ship poor turnaround time of coastal ships and the state whose flag it flies. Some on account of over-aged vessels, of the UN conventions have not come and inadequate mechanical handling into force as there is a minimum facilities are some of the other requirement of number of contracting reasons for the declining share of parties, as also a minimum share in Indian shipping tonnage in India’s terms of tonnage of the contracting overseas trade. Continued slippages parties. in the share of Indian shipping in the carriage of India’s overseas Domestically, there are several acts trade is in turn causing a drain on that regulate the Indian shipping precious foreign exchange in terms industry, such as: The Merchant of payment of freight charges, which Shipping Act (1958), The Inland could otherwise be used for other Vessels Act (1917), The Coasting high priority imports or for building Vessels Act (1838), and The up indigenous infrastructure. One of Multimodal Transportation of Goods the major reasons for the declining Act (1993). Besides, there are also share in overseas trade has been the other statutes that govern the shipping age profile of the shipping vessels in industry indirectly. These include: The India. Majority of the Indian shipping Indian Ports Act (1908), The Dock fleet contains ships which are over 20 Workers (Regulation of Employment) years of age. This makes the Indian Act (1948), The Seamen’s Provident vessels non competent with the Fund Act (1966), and The Inland foreign vessels. Waterways Authority of India Act (1985). Apart from this, under this competitive global scenario, all countries face the The wider regulatory framework challenge of continuously having to makes stricter entry barriers into upgrade and modernize their maritime the industry, and adds cost to the transport system in order to cope compliance of such regulations. with the rapid increase in volume of cargo throughput. This requires Declining share of Indian shipping the adaptation of new and improved tonnage in India’s overseas trade technology in both the vessels as well as the landside operations of Development of Indian shipping ports and land transport facilities. The tonnage as given in Table: 16 shows increasing size and sophistication of that over the years the share of ships and port facilities require heavy Indian shipping in overseas trade capital investment, which is one of has declined. From 85% in 1981, the major problems faced by Indian it has declined to 32% in 2009. As shipping industry.
74 Table: 16
Development of Indian Shipping Tonnage
Source: Ministry of Shipping, Government of India
75 Declining cargo support fleet with a certain degree of stability in an otherwise violently cyclical As per the existing Government market. policy, all import contracts are to be finalized on FOB (Free On Board) Manpower shortage basis in respect of Government owned / controlled cargoes on behalf One of the major problems faced of Central Government Department/ by the shipping industry is the State Government Department and shortage of manpower. India is not Public Sector Undertaking under able to provide adequate number of them, with a view to retain control seafarers to man Indian flag vessels. over shipping arrangements within This is mainly because not enough the country, and for providing cargo young people seem to find seafaring support to Indian flag vessels by an attractive and appealing career providing first right of refusal. For with many of the officers preferring meeting the above objective, the to sail on-board foreign flag vessels policy provides for centralized owing to discrepancy in taxation shipping arrangements through the policies. Industry experts opine that Chartering Wing (TRANSCHART) in over-regulation of the industry, owing the Ministry of Shipping. As regards to which people on board have to Chartering of vessel for movement of carry on lots of job responsibility in a cargoes on private account the same very short time, was another reason. are regulated through the Director Increasing global outsourcing of crew General of Shipping by granting has led to ships carrying a mix of permission to private charters people from different countries and after taking into consideration the this is making seafarers homesick. availability of Indian flag vessels by Earlier, one of the attractions of the granting first right of refusal. career was a sailor could get to see the world. Such opportunities have been Data collated by Ministry of Shipping, reduced with growing automation and Government of India, on Government shortening of turnaround time in ports. owned / controlled cargoes handled Many ports accommodate tankers at by the chartering wing of Ministry of SBM (single-buoy mooring) facilities, Shipping, shows that the share of which mean the vessel is miles away Indian vessels in moving cargo under from shore. TRANSCHART has been declining over the years. The only way the shortage of seafarers can be managed is by creating Cargo support in favour of national a workplace environment that is shipping is very important, since attractive to applicants, and corporate reservation of national cargoes for values that are aligned to wider social national fleet provides the national interests. Though the International
76 Table - 17
Progress of TRANSCHART Statement Showing Quantities of Import and Export of Government Owned Controlled Cargoes Handled by the Chartering Wing, Ministry of Shipping, Government of India
Source: Ministry of Shipping, Transchart Wing Note: Includes Liner an Bulk cargoes
77 Labour Organization (ILO), the IMO US $ 3,300 in Colombo, Sri Lanka, (the IMO has designated 2010 as the and US $ 5,700 in Jebel Ali, United “Year of the Seafarer”), and shipping Arab Emirates. This makes the Indian industry organizations began helping ports non competitive compared to stimulate initiatives for recruitment to other foreign ports. High prices into the industry a couple of years would normally deprive a port, a part ago, it is considered that the ultimate of its patronage (vessels and cargo solution lies with the industry itself. owners) and thus reduce demand for port services. High port calling costs Congestion in port and connectivity High port charges, like port dues, berth with hinterland hire, pilotage and cargo-handling charges, in India are also affecting Indian ports are the gateways to India’s the Indian shipping industry. India is international trade, and are handling known to be having high ship calling over 90% of foreign trade. Though the cost as compared to other competitor bulk of Indian trade is carried by sea countries in the region. According to routes, the existing port infrastructure industry sources, port calling costs for is insufficient to handle trade flows a ship that can carry 1,200 standard effectively. The current capacity at cargo containers is US $ 19,000 major ports is overstretched. The (` 8.4 lakh) at Kochi. The rate is major ports together have a capacity
Table: 18
Capacity Utilization at Major Ports
Source: Annual Report 2009-10, Ministry of Shipping, Government of India
78 of 574.77 million tonnes per annum While the priority for improved port (MTPA) handling traffic of 560.96 performance usually focuses on million tonnes during 2008-09, and its waterfront and other landside the capacity utilization during this development within the perimeter period was 96.7% (Table: 18). The of the port, development of the capacity utiilisation at major ports has supporting infrastructure in terms been increasing over the years owing of road and rail connectivity also to growing trade. During 2001-02 the acts as an impetus and a catalyst capacity utilization was 83.6%, which to a superior port performance. has peaked to 99.7% during 2007-08, Resulting from the dynamic growth signifying increasing congestion in all registered by the ports in cargo the major ports. volumes, enhanced port connectivity has become essential to facilitate an The situation of limited capacity and improved port performance. high demand has inevitably resulted in port congestion. This results in Strategies overstretched berths leading to pre- berthing delays and longer ship Increasing investment in shipping turnaround time. Indian ports are industry not on par with some of the major international ports, though in the One of the major challenges faced recent years, major investments by Indian shipping industry is the in port modernization have been competition from foreign shipping undertaken. companies which have structural and cost advantages. One of the Another major challenge faced disadvantages of Indian shipping, by Indian shipping industry is the vis-à-vis its global counterparts, has relatively low hinterland connectivity been the average age of Indian fleet with the ports. Indian ports are finding being higher than the world average. it difficult to handle additional traffic The world fleet average stood at 13.9 because of slow evacuation from years in 2009, while in India, the ports. Therefore, it is important that average age of fleet was 15.2 years. connectivity of major ports with the Around 50% of operating fleets in hinterland is augmented not only to India has an average age of over ensure smooth flow of traffic at the 20 years. This makes Indian fleets present level but also to meet the less competitive, as mostly younger requirements of projected increase in vessels, which are below 15 years traffic. Table : 19 shows the movement old, are often preferred, as they tend of cargo by major transport categories. to provide high and more transparent It may be understood that hinterland collateral value catering to additional connectivity is very low for most of the funding flexibility for management. cargo handled in the country. Some estimates put the investment
79 Table: 19
Movement of Cargo by Major Transport Categories
Source: Rail Road Connectivity of Major Ports, Report of Committee of Secretaries, GOI,
80 required for replacement of old ships providing significant financial support in Indian shipping industry at about to their national shipping industries, US $ 50 billion. either directly or indirectly. India too had a financial assistance scheme for Shipping analysts feel that there is ship building industry, which came to a pressing need for the Government an end in the year 2007. Government to take on the role of a facilitator and is considering a modified support create opportunities for a healthy scheme for Indian ship builders. business climate to attract fresh investments in the shipping sector. Developed countries have evolved The old ships are being used by various innovative structured models the ship owners primarily due to for financing shipping industry. Norway low investment capacity to buy new has evolved the kommandittselskap ships, and the tremendous shortage structure (KS Model), which is a tax- in the availability of ships. Usage of deferral vehicle employed to finance old ship is highly risky apart from ship acquisitions. The German being operationally more expensive. adopted the ‘Kommanditgesellschaft’ Further, several countries around the (KG) model for financing of various world have banned certain class of projects including that of shipping ships, as per their build and age, to industry. Both KS and KG models be operated from their ports. A large operate more or less on similar part of the current order book of the principles. Such models would be best shipyards would go towards replacing suited for Indian shipping industry too. these old vessels and the incremental According to the Directorate General growth in capacities would be of Shipping, Government of India, additionally catered by orders placed innovative methods are required to outside India. raise the needed resources. One such suggestion was exploring the It may be mentioned that shipping possibility of creating innovative is a capital intensive industry; financing models like German KG vessels constitute almost 90% of Model for shipping finance in India. the fixed assets of a typical shipping company. Financing is considered as The German KG fund has a track a specialty sector due to the unique record of around 40 years; it is a charecteristics associated with the special corporate form of partnership shipping industry, such as volatile where the investors are shareholders markets, international service, mobility or corporate partners of the KG-funds. of assets etc. Globally, term lending, Profits from these funds are taxed supported by collateral and mortgage, only at personal level and also act as has been the most prevalent form of a tax saving instrument. According to financial assistance for the shipping the articles of partnership agreement, industry. Governments have also been the KG-shareholders have their rights
81 of profit participation, information • KG fund, being a corporate entity enquiries, direct company’s control can be designed for different and voting right. However, they can business activities and tax assign part of these rights to a trust schemes. company in order to facilitate the fund’s operation. According to the articles of partnership agreement, the investors have their Some of the special features of the rights of profit participation, information KG Model are: enquiries, direct company’s control, and voting right. Some of the sectors • It is closed-end fund bound to for which the KG funds were utilized a fixed investment period with are given in Exhibit: 15. relatively long term investment horizon generally 5 to 15 years; The main objective of the German • The fund has no marked to market KG model is the project financing by risks; individuals participating in projects • The investors are high networth and no special corporate legislation is individuals from private necessary to set up the model. The households; general concept of a KG is understood and accepted by private investors, • The minimum subscription financing banks, business partners amount is around Euro 15,000 and other stakeholders. and above;
Exhibit : 15 Select Sectors Using KG Funds
Source: German Ocean Invest
82 Box - 3 Basic Structure of the KG Model7
• A KG has one general partner and one or several limited partners (who are the private investors). In most of the cases, the general partner of a German KG is a limited company. The limited partners may be participating in the KG directly or via a trustee. Often the KG has an advisory board representing the investors by monitoring the management of the general partner.
• By establishing a limited company as the general partner, the overall exposure of the investment is limited to the raised equity of the limited partners plus the equity of the limited company.
• For private investors, being limited partners of the KG, the risk of each investor is generally limited to the amount of his single investment.
• Each private investor is participating in the profit and losses of the KG, in proportion to his equity stake, compared with the total equity.
• The purchase of the assets acquired by the KG is partly financed by the equity provided by the investors and partly leveraged by bank loans.
• The KG receives income from lending, time chartering ships or making use of media rights or insurance policies. The KG is liquidated after the assets have been sold. Depending on the risk profile, the KG may invest in single assets or groups of assets. The investment of the limited partners is bound until liquidation (closed-end fund).
• The contributions to the fund will get tax exemption. The fund buys ships, and charters them out to experienced ship operators. The model works like a mutual fund but, instead of investing in equities, the fund directly buys physical assets. The investors will benefit both from the tax exemption and from the earnings.
7Report by Watson, Farley & Williams
83 The main attractions of the Germany’s relatively safe investments backed by KG model are the benefits available long term charters. under the German Tonnage Tax. The Tonnage Tax was introduced into the Strengthening shipbuilding German Income Tax Act, in 1999, in industry order to promote standardization of the taxation of shipping companies Shipbuilding acts as a catalyst for within the EU. Under the KG model, overall industrial growth due to spin the tax benefits from Tonnage Tax offs to other industries, including steel, engineering equipment, port will be directed towards the individual infrastructure, trade and shipping. investors, and the KG’s income tax, The dynamics of India’s economic which is based on net tonnage rather growth has created, and will continue than corporate profit, will lead to a to create a demand for new ships, much reduced tax burden for the most of which will have to be built investors. abroad due to inadequate indigenous capacity. On the other hand, the Compared to other investment benefits to Indian industry and avenues, investment in shipping potential for employment generation sector is relatively safer because from shipbuilding and the associated the operational risks get covered ancillary industry would grow manifold, by a variety of maritime insurances if India builds ships for meeting its like freight insurance, loss of hire entire tonnage requirements. insurance, etc. Moreover ship- investment generates cash flows According to industry sources, only from leasing or sales, making shipbuilding nations around the the income structure quite simple and world have been enjoying subsidy transparent. as high as 40% from their respective Governments on new ship-building Indian shipping industry does cost. With such support not available not attract much of the requisite for the shipyards in India, they are investments, at present. The German relatively uncompetitive in the global KG Model would help the Indian market place. Further, the existing ship shipping industry in mobilizing building capacity is quite inadequate necessary funds for the shipping in the context of growing trade. Thus, companies, as also would serve as in addition to Government support for an effective investment tool for high ship building activities, it may also be net-worth individuals, who would essential for Indian shipyards to take benefit from tax exemption and certain concrete steps to improve also earnings. The Indian shipping their bottom line. Proper management industry can also use this model of shipyards would improve their for the purpose of purchasing LNG productivity and track record on vessels as they are perceived to be quality and delivery of the vessels.
84 The shipyards are also required to Some of the countries are reportedly adopt modern marketing techniques extending fiscal / financial support, and strategies. concessional credit, aiming at development of shipping activities. In both the naval and commercial India too had provided financing sectors, mere increase in infrastructure support for ship building activities, will not ensure achievement of which came to an end in 2007. It is desired results. For integrated growth reported that Chinese Government of the industry, there is also a need has introduced stimulus package for to create an R & D base, develop in the shipbuilding industry. According house design capability, infuse new to this stimulus package, the Chinese technology, develop skilled workforce, Government would, amongst other and adopt appropriate fiscal and things, offer a 17% subsidy on regulatory measures, so that Indian prices for Chinese ship buyers until shipbuilding can achieve credibility as 2012, offer preferential interest a source for delivering quality ships in rates to Chinese shipbuilders, raise time. China’s shipbuilding capacity to 50 million deadweight tonnages by 2011, encourage banks to finance An expanding shipbuilding industry shipbuilding through issuance of would require a large trained work USD bonds in order to minimize force, covering all areas in the techno- cancellations, and assist the two economic spectrum of shipbuilding. largest shipyards in China - China Universities for shipbuilding State Shipbuilding Co Ltd., and technology should be created, in China Shipbuilding Industry Corp., to collaboration with universities of engage in mergers and acquisitions, leading maritime nations in order encouraged by the creation of an to provide well trained and capable investment fund and the injection of human resource, covering the entire capital. It is reported that South Korea spectrum, from basic shipbuilding is also providing such incentives trade skills to high-end research. to the shipbuilding industry. In the above context, it may be appropriate Also single window clearance to revive the scheme to support system needs to be brought into the Indian ship building industry to place for according clearances to cater to the growing needs of India’s new shipyard projects covering land international trade. acquisition, environmental clearance, power and water etc., so that project Developing adequate container implementation is not delayed. The freight stations present requirement to obtain multiple clearances from various departments To increase the competitiveness of acts as a deterrent to attracting the country’s exports in the global investment into this sector. market, by reducing the transaction
85 Table: 20 List of Towns of Export Excellence
Towns of Export Product ICD or CFS No. State Excellence Category existing in region
1 Tirupur Tamil Nadu Hosiery Yes 2. Ludhiana Punjab Woollen Knitwear Yes 3. Panipat Haryana Woollen Blanket No 4. Kanoor Kerala Handlooms Yes 5. Karur Tamil Nadu Handlooms Yes 6. Madurai Tamil Nadu Handlooms Yes 7. AEKK (Aroor, Ezhupunna, Kodanthuruthu&Kuthiathodu) Kerala Seafood Yes 8. Jodhpur Rajasthan Handicrafts Yes 9. Kekhra Uttar Pradesh Handlooms No 10 Dewas* Madhya Pradesh Pharmaceuticals, Yes Leather products 11. Alleppey* Kerala Coir Products Yes 12. Kollam* (Quillon) Kerala Cashew Products Yes 13. Indore Madhya Pradesh Soya Meal and Yes Soya Products 14. Bhilwara Rajasthan Textiles Yes 15. Surat Gujarat Gems and Jewellery Yes 16. Malihabad Uttar Pradesh Horticulture Products No 17. Kanpur Uttar Pradesh Leather Products Yes 18. Ambur Tamil Nadu Leather Products No 19. Jaipur Rajasthan Handicrafts Yes 20. Srinagar Jammu & Kashmir Handicrafts No 21. Anantnag Jammu & Kashmir Handicrafts No
Source: Department Of Commerce, Ministry of Commerce and Industry, Government of India Note : *Places which have ICD/CFS in less than 50 kms. * Dewas has in Indore * Alleppey has in Cochin * Kollam has in Kottayam
86 cost (both absolute and implicit cost) and more trade related activities. in exports, the Government of India Hence, overall logistics development is laying stress on developing a has become very essential, number of container freight stations especially in the transportation (CFSs) in the country. Modern and sector. In order to be competent technologically advanced CFSs play with the global majors, India needs a significant role in effective custom to offer exemplary transportation clearance activities in the port, and services along with logistics services thereby shorten the turnaround time by integrating the two segments. of ships. More CFSs need to be Logistics is defined as the process developed in the vicinity of export of planning, implementing, and clusters across the country. Mapping controlling the efficient, cost effective of existing network of CFSs with the flow and storage of raw materials, Towns of Export Excellence (Table: in-process inventory, finished goods 20) shows that the CFS network and related information from point needs to be strengthened further. of origin to point of consumption, so It may be mentioned that Towns as to meet customer requirements. of Excellence are identified by the The integrated logistics value chain Ministry of Commerce and Industry, consists of three key links or segments Government of India, if the value which are transportation, warehousing of production in the identified town and value added services. exceeds ` 750 crore. Global shipping majors, like other Integration of shipping and segments of the conventional transport logistics industry, are increasingly getting integrated with the emerging global It is important to note that the logistics and supply chain activities, economy today is experiencing more owing to both external and internal
Table: 21 Comparison of Logistics Cost
Source: Transport Corporation of India, KPMG Analysis Note: 3 PL or Third party logistics providers typically specialize in integrated operation, warehousing and transportation services that can be scaled and customized to custom- er’s needs based on market conditions and the demands and delivery service require- ments for their products and materials.
87 dynamics. Many firms are entering commodity has become the demand into the enhanced canvas of offering of the industry. The development logistics solutions, such as door-to- of India’s logistics companies has door delivery systems, integrating lagged behind their global peers, as with rail/road haulage movements is reflected in logistics costs of Indian of cargo, customs brokerage, companies being high at 13% of cargo consolidation, packaging/ GDP (Table: 21), mainly due to lower re-packaging, and distribution outsourcing of logistics functions by services, thereby substantially corporates. The lower outsourcing, consolidating their market position, in turn, is due to a multi-layered tax system, lower outsourcing of and supplementing their ocean manufacturing activities, and poor freight income. The global shipping infrastructure. industry is thus going through a major redefinition by undertaking logistic It is due to the regulatory environment, integration of their cargo operations. extensive fragmentation and inadequate infrastructure that led to In India, the market for logistics the inefficiencies in the logistics sector service providers is highly fragmented. in India. Extensive fragmentation While most of the existing players means the low capacity of the players are performing various functions to develop the industry as a whole. of logistics, provision of integrated In India, inadequate port facilities logistics service for any kind of have become a bottleneck to the
Exhibit : 16
Turnaround Time at Select Ports (in Hours)
Source: KPMG analysis
88 development of shipping. The major is very important and useful for the reasons for this have been the higher shipping industry in particular. turnaround time at ports and high cost of administrative delays. According to With the strategies being taken up an analysis by KPMG, the turnaround by few industrial houses to reduce time at ports for India has been 84 operational costs and enhance value hours when compared to 7 hours in addition throughout the value chain, countries such as Hong Kong and importance of integrated logistics has Singapore. (Exhibit: 16). got a new dimension. Outsourcing of logistics service to specialized service However, the Government and providers, having considerable industry have been recognising expertise in the industry, has become logistics as strategic industry, as the a trend. Overall, the role of integrated backbone for continued growth. Key logistics services is expected to policies and infrastructural growth are increase in the economy leading to facilitating shift in the logistics industry betterment of value chain. towards improved performance. With large vessels and more complicated Creation of adequate warehousing network systems handling millions of boxes and parcels, shipping lines and facilities logistics providers need to integrate and handle information. In addition, Warehousing and storage is also an the evolving business landscape integral part of the logistics industry and increasing competition across and plays a very important role in industries, is creating the need for the shipping industry. Warehousing more efficient and reliable logistics and storage has undergone lot of services than what exist today. changes over the past decade and internationally warehousing has been However, traditional transport classified into three types, viz., private companies, courier companies and warehousing, public warehousing and freight forwarders have emerged as contract warehousing; amongst them integrated logistics service providers contract warehousing is popular. Since by leveraging on their existing ports act as an interface for seaborne infrastructure and experience. They trade movement, most of the major not only provide the prime functions ports in India provide warehousing like transportation, warehousing, facilities to its users through its own packaging, clearing and forwarding, warehouses, as also with those but also provide value added privately-owned warehouses located services, such as order processing, within or outside the port arena. documentation of sales tax and excise duty, invoicing, collection of With an increasing number of ships bills, inventory management, and calling at Indian ports, storage and others. This kind of development warehousing facilities need to be
89 upgraded manifold. Domestic ports Service, cost and time advantage suffer from inadequate storage are direct benefits of such parks, and facilities, which result in delay in outsourcing of value-added services, consignment delivery. In the coming which are traditionally performed in- days, the number of ships calling house, would further increase the at Indian ports is likely to increase competitiveness. Logistic parks across manifold. This will result in huge the globe provide ample reference unloading of cargoes, which needs to points and are excellent showcases be stored properly before being sent against which India’s logistics parks to the final destination. Therefore, a could be modelled. Indian railways major investment opportunity lies in have identified 11 sites in the Delhi- setting up warehouses that not only Mumbai corridor for developing multi- provide storage facilities, but also modal logistics park. offer services in packaging of goods, so that they do not get damaged Tapping LNG business during transit. In order to harness India’s power and Creation of multimodal logistics fertilizer projects, LNG (Liquefied parks Natural Gas) is being imported by India. If transportation of LNG is taken Another trend has been the up by the shipping industry, it would establishment of multi-modal logistics provide significant volume of business parks. These multi-modal logistics for the shipping industry. However, hubs have been planned to provide many shipping companies may not total transport solution and other have adequate resources to buy LNG value-added services to industry in vessels to engage in this business. and around the dedicated freight According to industry sources, a LNG corridors. Each logistics park will vessel costs around US $ 200 million; have a container terminal for both therefore, it is important for the Indian domestic and international operations, shipping companies to build strategic mineral-handling terminals, cement tie-ups with foreign counterparts so and fertilizer terminals, automobile that they do not miss out this business terminals, storage and distribution, opportunity. as well as transshipment facilities, conventional, cold storage and It may be mentioned that the state- product-specific warehouses as well owned Shipping Corporation of India as hotels, banks, food parks and (SCI) has already started building entertainment centres. Such trend strategic tie-ups through collaborative would open up new avenues and approach. SCI has joined hands with opportunities for manufacturers, Mitusi Osaka Shosen Kaisha (OSK), retailers, suppliers, and logistic a consortium in Japan, to build LNG players to improve their supply chain. vessel to serve India’s needs. Even
90 the private companies have shown it may be mentioned that cargo interest in LNG transportation. support in favour of national shipping Although the Indian shipping is prevalent, since reservation of companies are interested in LNG national cargoes for ships carrying transportation, low level of experience national flags provides a certain and the volume of investment act degree of stability in an otherwise as major hindrances. Hence, it is violently cyclical market. Such support necessary for the industry to develop enhances the competitive strengths and explore new avenues to engage of national shipping companies, and in such activities. thereby contributes to the growth of national fleet. According to Office Bilateral shipping / cargo of Maritime Administration of US reservation schemes Department of Transportation, USA Bilateral shipping arrangements are is providing cargo preference to considered to be an effective tool to US national flags, of Government- ensure cargo support to the Indian impelled cargo, with 100% preference shipping companies. In this context, for military cargo, and export cargo
Box : 4 India’s Offer under WTO’s Maritime Transport Services
The Commitments by India under Maritime Transport are made in accordance with the General Agreement on Trade in Services. All commitments are subject to domestic law, entry requirements, rules and regulations and the terms and conditions of the Directorate General of Shipping, Reserve Bank of India, or any other competent authority of India. For supply of Maritime Auxiliary Services, through commercial presence under Mode 3, it will be only through Indian registered company.
Under limitations to market access, India has offered that under Liner Shipping, atleast 40% of cargo carried by liner shipping companies must be reserved for Indian flag ships. Preference will be given to Indian flag vessels (for dry, liquid, and gas other than LNG) for Government cargoes, Government owned / controlled cargo. Indian flags will have the first right of refusal for carrying such cargo and only thereafter can foreign flag ships be allowed to be in-chartered / taken on international rental basis.
Source: India’s Revised Offer dated August 24, 2005; Ministry of Commerce and Industry, Government of India
91 supported by US-Exim Bank; 75% Conclusion preference for agricultural cargo (governed by the Food Security Act The Indian shipping industry has of 1985); and 50% Civilians Agencies been growing in the last two decades; however the competitive position of Cargo (governed by Cargo Preference the Indian shipping industry needs to Act of 1954). be strengthened. Government of India has been supporting the growth of the India too is providing cargo support to industry through various measures. Indian ships, through TRANSCHART, Government has a role to develop for movement of Government owned/ Indian port sector, which would controlled cargo. However, there has contribute to the growth of the Indian been decline in support provided shipping. The players in the shipping through TRANSCHART, as, pursuant and associated sectors have also a to trade liberalization, there has role to play for the development of the been decanalisation of imports of industry, for it to carve a niche in the world shipping map. Indian shipping various items, which reduced the industry needs to team up with foreign quantum of such support to Indian consortium of fleet owners to tap the ships. According to a study by UN- growing LNG transportation business. ESCAP, the lower share of Indian Indian ship builders must focus on shipping in the carriage of country’s benchmarking their own processes overseas trade is due to the terms of to international standards to improve trade being used by India’s trading the efficiency, delivery time, price and partners, who by and large have quality. Innovative financing measures such as German KG model may be been entering into shipping contracts adopted to encourage fund flow into favourable to them. In the above this sector. It is therefore essential context, Government may consider for India to put together all such including cargo reservation schemes strategies, that would lead to optimal in the negotiations under the bilateral/ and effective contribution towards regional trade agreements. developing the shipping industry.
92 ANNEXURE 1: INDIAN SHIPPING : TOP TEN PROJECTS
Source: Indian Industry: A monthly review, March 2010
93 ANNEXURE 2: The IMO Package for Reducing CO2 OF Shipping INDUSTRY
The IMO Marine Environment in order to encourage emission Protection Committee has already reduction; developed a package of measures for reducing shipping’s CO2 emissions, Governments at IMO have also agreed with an agreed timetable for adoption. key principles for the development of Inter alia, these include: regulations on CO2 emissions from ships so that they will: • A system of energy efficiency design indexing for new ships 1. Effectively reduce CO2 (similar in concept to the ratings emissions; applied to cars and electrical appliances); 2. Be binding and include all flag states; • A template for a Ship Energy 3. Be cost effective; Efficiency Management Plan (SEEMP) for use by all ships. 4. Not distort competition; The SEEMP allows companies 5. Be based on sustainable and ships to monitor and improve development without restricting performance with regard to various trade and growth; factors that may contribute to CO2 emissions. These include, inter 6. Be goal-based and not prescribe alia: improved voyage planning; particular methods; speed management; weather routing; optimizing engine power, 7. Stimulate technical research and use of rudders and propellers; hull development in the entire maritime maintenance and use of different sector; fuel types; 8. Take into account new technology; • The ingredients for possible economic measures that could 9. Be practical, transparent, free of be applied globally to shipping fraud and easy to administer.
94 ANNEXURE 3: RELEVANT POLICIES CURRENTLY UNDER CONSIDERATION AT IMO’s MEPC
Relevant policies currently under such as voluntary agreements to consideration at the Marine improve EEOI and to implement Environment Protection Committee SEMP); of IMO include: • Policies aimed at improving the • Policies aimed at reducing design efficiency of fleet (eg. maritime emissions irrespective market based instruments such of the ship design, operation or as the EEDI levy, the EEDI levy energy source e.g. market-based benefit scheme; command and instruments such as emissions control instruments such as the trading; mandatory EEDI limit for new ships; and voluntary measures, • Policies aimed at improving such as voluntary agreement the operational fuel efficiency to improve EEDI and voluntary of the fleet (eg. market based standards; instruments such as the Energy Efficiency Operational Indicator • Polices aimed at reducing fuel (EEOI) levy, the Energy Efficiency life cycle carbon emissions, such Design Index (EEDI) levy/benefit as policies that favour the use scheme; command and control of natural gas or biofuels (eg. instruments such as the mandatory market based instruments such as EEOI limit, mandatory EEOI differentiated levy and command reporting, and the mandatory and control instruments such as ship efficiency management plan fuel life-cycle carbon emissions (SEMP); and voluntary measures standard and a biofuel standard).
95 ANNEXURE 4: BUSINESS PARTNERS INVOLVED IN ESTABLISHMENT OF KG FUND
A number of business partners are • The Bank: The ship financing involved in the establishment of a bank provides mortgage loans, KG-fund. In case of a shipping fund, bridge-financing and other loan- they are: related currency- and interest swap businesses as well as bank • KG-Investors: The KG-Investors guarantees to the KG Fund; subscribe fund’s shares trough a trust company or by themselves. • Supervisory agent for the They are the ultimate beneficial disposition of fund’s capital: owners of the KG-fund; External tax-consultants or layers can be independent supervisors • KG-House: The KG-House that have the assignment to is the fund’s issuing house. review the disposition of funds Its business includes fund’s capital; conception, projection, marketing and roadshow activities. The KG- • Examiner of the funds’ House is also responsible for prospectus: Before the fund’s the acquisition of funds’ equity prospectus is issued by the KG- shares; House, an independent agent will check the prospectus about its • The Trust: The Trust takes completeness, clearness, trueness the responsibility of funds and plausibility. The purpose of administration. During the fund’s the prospectus’ examination is to life-span, the trust company disclose adequate information of informs the KG-investors about the fund’s risk and chance in its the fund’s performance; investment return.
Source: German Ocean Invest
96 RECENT OCCASIONAL PAPERS OP. No. Title 76. Institutional Support to SMEs : A Study of Select Sectors 77. Indian Handicrafts : A New Direction for Exports 78. Israel and India : A Study of Trade and Investment Potential 79. Indian Handloom : A Sector Study 80. Mumbai as an International Financial Centre - A Roadmap 81. Indian Export and Economic Growth Performance in Asian Perspective 82. The Architecture of the International Capital Markets : Theory and Evidence 83. International Technology Transfer and Stability of Joint Ventures in Developing Economies : A Critical Analysis 84. The People’s Republic of Bangladesh : A Study of India’s Trade and Investment Potential 85. Australia and New Zealand: A Study of India’s Trade and Investment Potential 86. Machine Tools: A Sector Study 87. Agro and Processed Foods: A Sector Study 88. Currency Risk Premia and Unhedged, Foreign-Currency Borrowing in Emerging Market 89. Mercosur: A Gateway to Latin American Countries 90. Indian Silk Industry: A Sector Study 91. Select COMESA Countries: A Study of India’s Trade and Investment Potential 92. Sri Lanka: A Study of India’s Trade and Investment Potential 93. Potential for Export of IT Enabled Services from North Eastern Region of India 94. Potential for Export of Horticulture Products from Bihar and Jharkhand 95. Increasing Wage Inequality in Developed Countries: Role of Changing Trade, Technology and Factor Endowments 96. Essays on Trade in Goods and Factor Movements Under Increasing Returns to Scales 97. Export of Organic Products from India: Prospects and Challenges 98. Export Potential of Indian Medicinal Plants and Products 99. Select Southern African Countries: A Study of India’s Trade and Investment Potential 100. BIMST-EC Initiative: A Study of India’s Trade and Investment Potential with Select Asian Countries 101. Some Aspects of Productivity Growth and Trade in Indian Industry 102. Intra-Industry Trade In India’s Manufacturing Sector 103. Export Potential of Indian Plantation Sector: Prospects and Challenges 104. Fresh Fruits, Vegetables and Dairy Products: India’s Potential For Exports to Other Asian Countries 105. Biotechnology: Emerging Opportunities for India
97 106. ASEAN Countries: A Study of India’s Trade and Investment Potential 107. Essays on Globalisation and Wages in Developing Countries 108. Select West African Countries: A Study of India’s Trade and Investment Potential 109. Indian Leather Industry: Perspective and Export Potential 110. GCC Countries: A Study of India’s Trade and Export Potential 111. Indian Petroleum Products Industry : Opportunities and Challenges 112. Floriculture : A Sector Study 113. Japanese & U.S. Foreign Direct Investments in Indian Manufacturing : An Analysis 114. Maghreb Region: A Study of India’s Trade and Investment Potential 115. Strengthening R & D Capabilities in India 116. CIS Region: A Study of India’s Trade and Investment Potential 117. Indian Chemical Industry: A Sector Study 118. Trade and Environment: A Theoretical and Empirical Analysis 119. Indian Pharmaceutical Industry : Surging Globally 120. Regional Trade Agreements: Gateway to Global Trade 121. Knowledge Process Outsourcing: Emerging Opportunities for India 122. Indian Mineral Sector and its Export Potential 123. SAARC: An Emerging Trade Bloc 124. Indian Capital Goods Industry - A Sector Study 125. Financial Liberalization and Its Distributional Consequences 126. ECOWAS: A Study of India’s Trade and Investment Potential 127. Indian Textile and Clothing Industry in Global Context: Salient Features and Issues 128. Fair Trade : Fair Way of Enhancing Export Value 129. Indian Automotive Industry: At The Crossroadss 130. CARICOM : A Gateway to the America 131. IBSA : Enhancing Economic Co operation Across Continents 132. MSMEs and Globalisation: Analysis of Institutional Support System in India and In Select Countries 133. International Trade, Finance and Money: Essays in Uneven Development 134. Sikkim: Export Potential and Prospects 135. Mizoram: Export Potential and Prospects 136. Floriculture: A Sector Study 137. Biotechnology Industry in India: Opportunities for Growth 138. Indian Gems and Jewellery: A Sector Study 139. SADC: A Study of India’s Trade and Investment Potential 140. Innovation, Imittion and North South Trade : Economic Theory and Policy 141. Comesa (Common Market for Eastern and Southern Africa): A Study of India’s Trade and Investment Potential
98 EXPORT-IMPORT BANK OF INDIA HEADQUARTERS Centre One Building, Floor 21, World Trade Centre Complex, Cuffe Parade, Mumbai 400 005. Phone : (91 22) 22172600 Fax : (91 22) 22182572 E-mail : [email protected] Website : www.eximbankindia.in
Indian Offices Overseas Offices
Ahmedabad ADDIS ABABA Sakar II, Floor 1 , Bole Kifle Ketema Next to Ellisbridge Shopping Centre, Kebele - 19, (03/05), House No. 015-B Ellisbridge P. O., Ahmedabad 380 006. Addis Ababa, Ethiopia, Phone : (079) 26576852/26576843 Fax : (079) 26577696 Phone : 00-251-116-630079 E-mail : [email protected] Fax : 00-251-116-610170 E-mail : [email protected] Bangalore Dakar Ramanashree Arcade, Floor 4, 18, M. G. Road, Bangalore 560 001. Floor 1, 7, rue Félix Faure, Phone : (080) 25585755/25589101-04 Fax : (080) 25589107 B.P. 50666, Dakar, Senegal E-mail : [email protected] Phone : (221 33) 8232849 Fax : (221 33) 8232853 Chandigarh E-mail : [email protected] PHD House, Floor 1, Sector 31-A, Dakshin Marg, Chandigarh 160 031 Dubai Phone : (0172) 2641910/12/39/49 Fax : (0172) 2641915 E-mail : [email protected] Level 5, Tenancy 1 B, Gate Precinct Building No. 3, Chennai Dubai International Financial Centre, UTI House, Floor 1, 29, PO Box No. 506541, Dubai, UAE. Rajaji Salai, Chennai 600 001. Phone : (97 14) 3637462 Phone : (044) 25224714/25224749 Fax : (044) 25224082 Fax : (97 14) 3637461 E-mail : [email protected] E-mail : [email protected]
Guwahati Durban Sanmati Plaza, Floor 4, Near Sentinel Building, G. S. Road, Guwahati 781 005. Suite 117, Aldrovande Palace, Phone : (0361) 2462951/2450618 Fax : (0361) 2462925 6, Jubilee Grove, Umhlanga Rocks, 4320, E-mail : [email protected] Durban, South Africa. Phone : (27 31) 5846118/19 Hyderabad Fax : (27 31) 5846117 Golden Edifice, Floor 2, E-mail : [email protected] 6-3-639/640, Raj Bhavan Road, Khairatabad Circle, Hyderabad 500 004. London Phone : (040) 23307816-21 Fax : (91 40) 23317843 E-mail : [email protected] 88/90, Temple Chambers, 3-7, Temple Avenue, Kolkata London EC4Y OHP, Vanijya Bhawan, Floor 4, (International Trade Facilitation Centre), United Kingdom. 1/1 Wood Street, Kolkata - 700 016. Phone : (44) 20 73538830 Phone : (033) 22833419/22833420 Fax : (033) 22891727 Fax : (44) 20 73538831 E-mail : [email protected] E-mail : [email protected] Mumbai Singapore Maker Chambers IV, Floor 8, 222, Nariman Point, Mumbai 400 021. 20, Collyer Quay, Phone : (022) 22823320 / 92 / 94 Fax : (022) 22022132 # 10-02, Tung Centre, E-mail : [email protected] Singapore 049319. Phone : (65) 65326464 New Delhi Fax : (65) 65352131 Ground Floor, Statesman House, E-mail : [email protected] 148, Barakhamba Road, New Delhi 110 001. Phone : (011) 23326625/6254 Washington D.C. Fax : (011) 23322758/23321719 1750 Pennsylvania Avenue NW, E-mail : [email protected] Suite 1202, Washington D.C. 20006, Pune United States of America. Phone : (1 202) 223 3238 44, Shankarseth Road, Pune 411 037. Phone : (91 20) 26403000 Fax : (91 20) 26458846 Fax : (1 202) 785 8487 E-mail : [email protected] E-mail : [email protected]
99