Thursday, 29 September 2011

Are Indian Shipping Companies moving away from shipping?

Indian shipping companies are on a diversification spree, say media reports, indicating that some of the biggest names in the domestic industry have announced plans to expand into new ventures, even new sectors. The moves are seen as a response to analyses that indicate a further slowdown in the industry in the next few quarters as shipping comes to grips with the financial crisis that has stymied economic growth around the world.

A bevy of announcements have been made in the past few weeks, including at shareholders' meets; new ventures include offshore services, mining and dredging. Both the largest public sector company- Shipping Corporation of India, and the biggest private player, Great Eastern Shipping, are expanding their offshore services, while Mercator Lines, having recently purchased a coal mine in Indonesia, says it is looking at other acquisitions in that country.

Market sources say that SCI is planning a subsidiary for its offshore operations, much like Great Eastern has done. The latter company, it is learnt, plans to make Singapore the hub of its global operations. Other smaller setups are looking at shipbuilding, logistics and container freight stations to drive revenues in an otherwise sluggish shipping market.

"We have to de-risk ourselves from the capital-intensive shipping business and focus on something that relies more on human capital. That is why we are betting big on the offshore business," says Ravi K Sheth, Greatship's MD. Even smaller players like Varun and Garware are looking at offshore oil exploration more seriously in fields as far away as Brazil and SE Asia.

SCI in particular is sitting on a large war chest that has allowed it to announce plans that will push for renewal of its aging shipping fleet. The public sector giant announced yesterday that it would spend Rs 3,700 crore this financial year to acquire 24 new vessels. This is not counting the 29 ships that are already under construction. CMD S Hajara also indicated that SCI had not reversed its earlier decision on acquiring stakes in private shipyards, but refused to say when these plans would materialise. "When your bottom lines are under pressure, I cannot say when the plan will be implemented," he said.

Companies are obviously finding it prudent to diversify. Mercator Lines Chairman HK Mittal says of his company's plans, "We are looking to acquire more coal mines, especially in Indonesia where we have been operating for sometime. Our pending order book for dredging is close to Rs 400 crore and our dredgers are occupied for the next one year." 

Mercator is slated to expand its dredging operations in India. "Although we continue to invest in new shipping assets, the revenue contribution from the division in the company's total turnover shall continue to decline and the shipping division will be a support service for our other business verticals", Mittal added.

The industry has been plagued with rising fuel costs, falling freight rates and squeezed margins for quite a while. Earlier optimism that the worst was over has given way to increasingly circumspect projections by ship-owners as market conditions continue to bite. Bunker rates have shot up alarmingly over the last ten weeks, and some analysts have almost simultaneously predicted that Indian shippers' revenues from core businesses could be hit by as much as 25% later this year. 

Deloitte India's Director Hemant Bhattbhat is one of them. "We will see a 20-25% decline in revenues for shipping companies due to the rising cost of crude oil and the unstable global market. Companies who have started moving away from the general business into specialised areas are the ones that will survive in the long run," he says.

1 comment:

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