New entrants may help shipping companies

Orders from non-shipping companies, that have announced their foray into high seas by planning a captive fleet, may help shipping companies ride out the ripple effect of the global financial crisis.

It may also help these non-shipping companies — Tata Power, Reliance Natural Resources Ltd (RNRL) and Vedanta Resources’ Sesa Goa — to get a better bargain on the price front as they negotiate with the cash-strapped shipping lines.

Tata Power, RNRL and Sesa have all announced plans to build a captive fleet either to support its overseas mining interests or to haul raw material back home.

Shipbuilding yards have been logged with orders and delivery schedules stretch up to four years. But the global financial turmoil has had a contagion effect, with Indian shipping companies finding it difficult to fund the new buys due to heavy dependence on overseas debt, mostly Scandinavian and Nordic banks.

In rough weather

In the current financial situation, it may be difficult for domestic shipping companies even to arrange for funds required to replace their ageing fleet. Even if funding is available, at times, the cost is likely to be much higher than before.

“After Lehman Brothers, the world has changed. In 2008, no more business is likely to be done in shipping financing. I don’t think it will come back before the end of 2009,” said Tobias Konig, managing partner of Hamburg-based shipping investment firm Konig and Cie GmbH and Co KG, at the recently-concluded India Shipping Summit.

“In the midst of the current crisis, we may not be able to maintain the equity to debt ratio of 20:80 as flows from banks are drying up,” said B K Mandal, director-finance of SCI. India needs an estimated investment of $20 billion to maintain its fleet at current levels and also to expand capacity to meet rising demand.