Shipping glut to see 25% fall in SCI investment

Faced with low freight rates and oversupply of vessels, Shipping Corporation of India (SCI) is expected to cut on spends in financial year 2012-13. SCI’s planned expenditure through internal and external budgetary resources might come down by 25 per cent. According to Budget estimates, it would spend Rs 2,128.5 crore in 2012-13 compared to Rs 2,850 crore spent last year.

“The margins are under pressure and spend has to be brought down. Although whatever we spend is part. Debt lenders insist that 20 to 30 per cent has to come from the internal resources which has further restricted cash flows,” S Hajara, chairman told Business Standard.

The public sector undertaking has still got 26 vessels yet to be delivered, of which 10-12 are likely to be delivered during 2012-13. On the issue of this being a good time to acquire ships since the prices are low, Hajara said even at such a reduced level of asset prices, the ships would not yield much profit for their buyers. “During this time if some companies are planning to add to the oversupply it would only stretch the demand supply disequilibrium,” he said. The company recently accepted the delivery of an 80 TBP anchor handling, towing and supply vessel M V SCI Mukta. The company has signed contracts with Bharati Shipyard for acquisition of four such vessels.

For the year 2011-12, SCI’s planned IEBR was Rs 3,712 crore of which it was able to spend Rs 2,850 crore due to poor market conditions.

The shipping industry is not seeing any signs of retrieve in the gloomy freight rate scenario, not for another couple of years at least. The Baltic Dry Index, which tracks the shipping rates for bulk commodities, had sunk to 647 on February 3, the lowest level in 25 years.

According to experts the outlook for a long-term period is better but the opposite is true of the spot market. A part of the tonnage of shipping companies can be fixed for long term and the balance would be spot market.