Shipping Sector Fails To Meet Target

A downtrend in the dry bulk freight market during 1996 and severe financing constraints -- which still persist -- resulted in the shipping industry failing to meet the Eighth Plan target of seven million gross registered tonnes (grt).

The industry, which had actually crossed the seven million grt mark in December 1995, managed to achieve only 6.92 million grt at the end of the 8th Plan (March 31, 1997), according to sources in the Indian National Shipowners Association (INSA).

INSA, the apex body of Indian ship-owners, fears a further fall in tonnage during the first year of the 9th Plan (1997-98).

 

This, in turn, could lead to further reduction in the participation of Indian ships in India's overseas trade.

In 1995-96, Indian ships carried about 27.8 per cent of the country's cargo, against the 8th Plan target of 45 per cent. In fact, the figure dropped drastically from the 1987-88 high of 40.7 per cent.

A total of only 3.22 lakh grt was added in 1996 against 8.78 lakh grt in 1995, representing a fall of over 63 per cent. With 2.78 lakh grt being deleted in 1996, the tonnage cut practically equalled the tonnage added during the year.

The pace of deletions has gathered speed in 1997, although precise figures are not available at present. What is even more worrying is that the average age of the Indian fleet is now between 14 and 15 years. Ships above 15 years are normally replaced in order to maintain safety standards.

The major reason for the drop in ship acquisition is that a specific sum under the external commercial borrowings has not been earmarked for the shipping industry. "There is a need to earmark $500 million to $700 million per annum as ECBs for the shipping industry. The three-year average maturity period for loans up to $15 million and seven years above that too works to the industry's disadvantage.

This in reality means repaying the loans over a 7-to-15 year period. International lenders are not willing to lend for such long periods,'' say INSA sources.

Ship acquisition in 1996 also fell because of the depressed freight rates in the dry bulk cargo market, in which Indian shipping lines have a substantial exposure. At one point, the Baltic Freight Index, a key indicator of freight rates in this segment, plummeted below the 1,000 mark from a record 2,352 points in September 1995.

Indian shipping tonnage crossed the seven-million grt mark in December 1995. This was mainly facilitated by the reduction in age norms for ship acquisition on the recommendations of a committee headed by the-then director general of shipping, R Vasudevan.

The primary objective of the reduced age norms was to enable the shipping industry to meet the 8th Plan target. This was considered especially important as the industry had failed to meet the 6th and 7th Plan targets of 7.5 million grt.

But the shipping industry failed to reach even a reduced target, lamented INSA sources. The ship acquisition target has been actually lowered in the liberalisation era, which has seen a spurt in India's international trade, they added.