Baltic Index Downtrend Affects Ship Acquisition
During January to June,1996, 19 ships aggregating only 1,38,903 gross registered tonnage (GRT) were added to the Indian fleet compared with 25 ships aggregating 4,03,987 grt added during the corresponding period last year.
This has serious implications for fleet modernisation and expansion. At present, about 41 per cent of the total Indian fleet of 7.01 million grt is over 15 years, 20.7 per cent over 20 years and 20.5 per cent between 15 and 19 years.
Shipping circles consider any vessel over 15 years as due for replacement as it attracts lower freight rates. The safety afforded by such a vessel too is questionable, stated sources at the Indian National Shipowners Association .
The major reason for the drop in ship acquisition is that a specific sum under external commercial borrowings (ECBs) has not been earmarked for the shipping industry. Besides, loans through the ECB route have been hemmed in by restrictive maturity periods.
There is a need to earmark $500-700 million as ECBs per annum for the shipping sector. The three-year average maturity period insisted upon for loans up to $15 million and 7 years for loans above that, too works to the industry's disadvantage, sources said.
They point out that the alternative financing route is by raising forex loans through SCICI which charges an interest of at least 3.5 per cent over Libor. Such loans also attract an interest tax of 3 per cent making the cost of credit prohibitive. The shipping industry's plea to be treated as an export industry to escape such restrictive norms have fallen on deaf ears.
The other factor that has discouraged vessel acquisition has been the continuous downward movement witnessed in the BFI. It touched a record high of 2,352 in May, 1995, but soon started moving downwards. At present, it hovers around the 1,100-mark. Consequently, fewer orders were placed for ships.
Another consistent demand of the shipping industry has been enhancing the rate of depreciation from the present 20 per cent to 40 per cent as in the case of other modes of transport. Sources apprehend that the worst is not over as yet.
The Minimum Alternative Tax of 12.9 per cent that was slapped in this year's Budget is expected to exacerbate matters.
The other inhibiting Budget proposal has been the restriction on carry forward depreciation to eight years.
So far, shipping companies were using these funds for equity servicing and repayment of loans.