To the Members
Your Directors have pleasure in presenting the 69th Annual Report on theworking of your Company for the Financial Year ended 31st March 2019.
The year under report covers a period of 12 months ended on 31st March2019.
The comparative position of the working results for the year under report vis-a-visearlier year is as under:
(Rs in Crores)
| ||2018-19 ||2017-18 |
|Gross Earnings ||4144 ||3617 |
|Gross Profit (before interest depreciation & exceptional items & tax) ||829 ||820 |
|Less : Interest ||246 ||180 |
| ||658 ||610 |
|Depreciation and Impairment ||904 ||790 |
|Profit before exceptional items & tax ||(75) ||30 |
|Exceptional items ||- ||- |
|Provision for Taxation ||(47) ||224 |
|Net Profit ||(122) ||254 |
The above figures have been extracted from the standalone financial statements as perIndian Accounting Standards (Ind-AS). Appropriations:
The working results for your company for the year 2018-19 shows a net loss of Rs.121.99crore. After adjusting an opening credit balance of Rs. 422.67 crores (being balanceRetained earnings brought forward from previous year) and adding items of othercomprehensive income of Rs. 5.64 crores that are recognised directly in retained earningsthere is a credit balance in Retained earnings of Rs. 306.32 crores as on 31stMarch 2019.
Brief Analysis of Financial Performance
SCI has reported a net loss after tax of Rs. 121.99 crores for the financial year2018-19. The Bulk & Tanker segment performed better due to better rates and moreoperating days. The Technical & Offshore segment together with Liner segment haveperformed adversely due to market conditions. This coupled with increased bunker cost andexchange loss has resulted in overall net loss after tax for the year.
The consolidated net loss for the company for Financial Year 2018-19 was Rs. 62.66crores.
Performance and Financial positions of joint ventures and subsidiary included inConsolidated Financial Statements:
(Rs in Crores)
|Particulars ||ILT 1 ||ILT 2 ||ILT 3 ||ILT 4 ||ICSL |
|As on ||31.03.2019 ||31.03.2019 ||31.03.2019 ||31.03.2019 ||31.03.2019 |
|Total Income ||17152 ||18760 ||18800 ||19550 ||0.33 |
|PAT ||7313 ||8051 ||717 ||5633 ||0.016 |
|Equity capital ||15 ||15 ||7 ||29360 ||5 |
|Number of equity shares ||10000 ||10000 ||10000 ||42448300 ||50000 |
|EPS (Rs/share) ||73134 ||80507 ||7170 ||13 ||0 |
|Dividend ||0 ||0 ||0 ||0 ||0 |
|Net worth ||34147 ||34075 ||(13391) ||29738 ||(5) |
Net Impact on Consolidated profits for the year ended 31st March 2019 isincrease of Rs 59.32 crores upon consolidation of above joint ventures and subsidiary andon Net worth is an increase of Rs 202.01 crores.
1.0 Fleet Position during the Year:
During the year under report while there has been no addition of vessels five vessels(M.T.G.G. Singh LPG Nangaparbat LPG Annapurna M. V. Tamilnadu M. V. Lal BahadurShastri) have been decommissioned from SCI's fleet. Thus the overall fleet of SCI stood at61 vessels of 5.606 million DWT at the end of the year.
Fleet Profile during the Year
|Particulars || |
As on 1.4.2018
As on 31.3.2019
|No. ||DWT ||No. ||DWT ||No. ||DWT ||No. ||DWT |
|1. (a) Crude Oil Tanker ||21 ||3674024 ||- ||- ||1 ||147474 ||20 ||3526550 |
|(b) Product Tankers ||13 ||862925 ||- ||- ||- ||- ||13 ||862925 |
|(c) Gas Carriers ||3 ||88705 ||- ||- ||2 ||35202 ||1 ||53503 |
|2. Bulk Carriers ||16 ||1068088 ||- ||- ||1 ||45744 ||15 ||1022344 |
|3. Liner Ships ||3 ||144500 ||- ||- ||1 ||28902 ||2 ||115598 |
|4. Offshore Supply Vessels ||10 ||25238 ||- ||- ||- ||- ||10 ||25238 |
|5. Passenger-Cum-Cargo Vessels ||0 ||0 ||- ||- ||- ||- ||0 ||0 |
|Total ||66 ||5863480 ||- ||- ||5 ||257322 ||61 ||5606158 |
2.0 During the period under report the following vessels were disposed off from SCIfleet:
|Vessel Name ||Type ||Year Built ||DWT |
|G. G. Singh ||Crude Oil Tanker ||1995 ||147474 |
|Nanga Parbat ||LPG carrier ||1991 ||17601 |
|Annapurna ||LPG carrier ||1991 ||17601 |
|Tamilnadu ||Bulk carrier ||2000 ||45744 |
|Lal Bahadur Shastri ||Container vessel ||1993 ||28902 |
2.1 At the end of the year 2018-19 the Company did not have any new build vessels onorder.
2.2 Particulars of Loans Guarantees and investments
Details of Loans Guarantees and Investments are given in the notes to financialstatements.
2.3 Extract of Annual Return
In accordance with section 134 (3) (a) and section 92(3) of the companies Act 2013read with relevant rules an extract of annual return in form MGT-9 as on 31stMarch 2019 is appended to the Directors' Report. The extract of Annual Return isavailable at http://www.shipindia . com/investor-relations/Notice_shareholders.aspx
2.4 Subsidiaries and Associates
Your company has one subsidiary Company and has six Joint Ventures. Investment insubsidiary "Inland and Coastal Shipping Limited" was done on 29thSeptember 2016. It is a wholly owned subsidiary of your company. Pursuant to section129(3) of the Companies Act 2013 a statement containing salient features of oursubsidiary and associates companies in form AOC-1 is appended to the Director's Report.
In accordance to section 136 of the Companies Act 2013 the Audited FinancialStatements of the company are available on our website www.shiDindia.com .
2.5 Particulars of contracts/arrangements with related parties
Particulars of contracts/arrangements with related parties referred to in Section188(1) of the Companies Act 2013 in the prescribed form AOC-2 is appended to theDirector's Report. The details are also available in Note 30 under Notes toFinancial statements'.
2.6 Particulars of Employees
In accordance with Ministry of Corporate Affairs notification no. GSR 463(E) dated 5thJune 2015 Government Companies are exempt from Section 197 of the Companies Act 2013and its rules thereof.
As per Ministry of Shipping's letter no. SS-11013/1/2017-SU dated 22.11.2018 SCI wasdirected for implementation of pay revision of Staff Members w.e.f 01.01.2017 . The samewas implemented in December 2018.
2.7 Company's Policy on Directors appointment and remuneration
The terms of Directors appointment and remuneration are fixed by the Government ofIndia.
Details of Presidential Directives issued by the Central Government and theircompliance during the year and also in the last three years are as follows:
Presidential Directive dated 28.02.2018 regarding implementation of Pay revision ofBoard level and below Board level Executives and Non- Unionized Supervisors of CentralPublic Sector Enterprises (CPSEs) w.e.f. 01.01.2017 was received and the same wasimplemented in March 2018.
2.8 Risk Management
SCI has approved Risk Management framework and risk register to build up a strong RiskManagement Culture within SCI in achieving company's goals and objectives. The entitylevel Risk Assessment includes;
i) Strategic Risk
ii) Operational Risk
iii) Financial Risk
iv) Compliance Risk
In specific SCI has identified risks which includes volatility in freight rates bunkerprocurement exposure delay in revenue transfer etc. In SCI concerted efforts are madefor mitigating / containing and controlling risks.
2.9 Conservation of Energy Technology Absorption
The information pertaining to conservation of energy technology absorption is forminga part of the Management Discussion and Analysis Report.
3.0 Foreign exchange earnings and outgo
(Rs in crores)
|Particulars ||2018-19 ||2017-18 |
|Foreign exchange earned* ||4035.27 ||3459.77 |
|Foreign exchange outgo* ||4221.69 ||3767.53 |
* includes deemed foreign exchange earning and outgo.
3.1 Expenses on entertainment foreign tours etc - FY 2018-19
During the year under report your Company spent Rs.35 lakhs on entertainment Rs. 90lakhs on publicity & advertisements and Rs. 347 lakhs on foreign tours of Company'sexecutives.
MANAGEMENT DISCUSSION AND ANALYSIS
As per addition of new sub clause (i) under clause 1 in Part B (ManagementDiscussion and Analysis) of schedule V of SEBI (LODR) Regulations 2015 the Company hasidentified the following ratios as key financial ratios :
|Particulars || |
|2017-18 ||2018-19 ||2017-18 ||2018-19 |
|Debtors Turnover ||5.3 ||6.2 ||5.3 ||6.2 |
|Inventory Turnover ||7.4 ||8.0 ||7.4 ||8.0 |
|Interest coverage Ratio ||1.16 ||0.70 ||1.28 ||1.07 |
|Current Ratio ||0.71 ||0.61 ||0.71 ||0.61 |
|Debt Equity ||0.61 ||0.53 ||0.60 ||0.51 |
|Operating Profit Margin (%) ||-0.03 ||-0.07 ||-0.02 ||-0.06 |
|Net Profit Margin (%) ||0.07 ||-0.03 ||0.09 ||-0.02 |
|Return on Net worth (%) ||3.58 ||-1.75 ||4.24 ||-0.87 |
Ratio - Details of Significant changes and explanation thereto:
1) Interest coverage Ratio - Interest Coverage ratio for standalone has come down to0.70 in F.Y 2018-19 as compared to 1.16 in F.Y
2017- 18. This is due to increase in finance cost from Rs. 17979 Lacs in F.Y 2017-18 toRs. 24586 Lacs in F.Y. 2018-19 whereas EBIT is reduced to Rs 17101 lacs in F.Y. 2018-19 ascompared to Rs. 20927 in F.Y 2017-18. Finance cost is increased due to variation inExchange rate and Libor rate while EBIT is decreased due to high cost of servicesrendered.
2) Operating Profit Margin (%) - Operating Profit Margin Ratios is decreased as revenuefrom operation is increased from Rs. 346947 lacs in F.Y. 2017-18 to Rs. 392586 Lacs in F.Y2018-19. However Operating loss for standalone has increased to Rs. (29308) lacs in F.Y
2018- 19 from Rs. (11852) lacs in 2017-18 and Operating loss for consolidated hasincreased to Rs. (23376) lacs in F.Y 2018-19 from Rs. (6577) lacs in 2017-18 due toincreased bunker cost and exchange loss impacting operating profit Margin adversely.
3) Net Profit Margin (%) - Net Profit Margin shows significant change as there wasreversal of tax expense (DTL) of Rs 28427 lakhs in F.Y 2017-18 when compared to F.Y.2018-19 which resulted in increased net profit/return of F.Y. 2017-18. Also increasedbunker cost and exchange loss in F.Y 2018-19 impacted net profit Margin adversely.
4) Return on Net worth (%) - Net profit has declined from Rs 25375 lakhs for the F.Y.2017-18 to Rs (12199) lakhs for the F.Y 2018-19 for standalone and from Rs 30650 lakhs forthe F.Y 2017-18 to Rs (6266) lakhs for the F.Y. 2018-19 for consolidated for the reasonsas explained above in Net Profit margin.
The overall scenario under which the Shipping industry operated and which impacted thevarious segments is discussed below.
A. INDUSTRY STRUCTURE AND DEVELOPMENTS
i) World Scenario
The world GDP grew by an average of 3.6% in 2018 compared to the economic expansion ofabout 3.8% in the previous year. The growth estimates are expected to remain flat for2019-20. The subdued growth forecast for 2019 has been arrived at on the basis of multiplefactors viz. trade conflict between US and China uncertainty continuing to persist aboutBrexit strain on macro-economic factors in Argentina and Turkey conservative tilt incredit policies in China disruption in German automobile sector and ongoing normalizationin financial policies of advanced economies leading to overall tightening of globalfinancial flows. The growth outlook for 2019 even though predicted to improve from a weakfirst half still carries with it many downside risks which could hamper the expectedrecovery in second half of the year. In advanced economies the economic growth isexpected to be subdued till the end of 2019 on account of the continuing trade battlewith China & many systemic drags looming over the European economies. Meanwhile EMDE(Emerging Markets and Developing Economies) are expected to grow by 5% in 2019. Howeverthere are many inherent risks in this forecast due to factors such as possibility ofsubdued commodity prices weakened trade cash flows due to slower expansion in advancedeconomies.
Increasing presence of India & China in the world trade warrants a special mentionas these two rising powers continue to grow; they stand to leave an increasingly largefootprint on the world stage. China has also put more weight behind the stimulus now thatit has to balance the negative impacts of US imposed trade tariffs. Such factors areexpected to soften the global expansion in 2019. In the year 2020 the world output isexpected to come back on track with growth returning to 3.6%. This may happen due tostabilization in emerging economies such as Argentina and Turkey and strongerperformances by Indian & Chinese economies. Also other contributory factors likeimproved investment sentiment and reductions in drag-like situation in European area arelikely to support the return of global growth to normalcy in 2020.
ii) Global GDP
According to IMF Global Trade Volume growth (goods & services) has been 3.8% in2018 and is expected to shrink to around 3.4% in 2019. In developed countries the tradevolume growth is expected to remain subdued at an average of around 2.8%. The trade ineuro area slowed down more than expected to 1.8% and is expected to lose momentum furtherowing to various country-specific problems being faced by European economies. Germanautomobile market was depressed in part due to delays in declaring new emission standardsfor diesel engines. While in France retail sales & FMCG spending took a hit due torecurring street protests. The United Kingdom economy is still facing a very real threatof a possible No-Deal Brexit aftermath. While in some countries (especially Italy)sovereign banks are under extreme pressure. Japanese economy also remained soft on thebackdrop of natural disasters. One silver lining was the Us economy which remained robustsupported by strong consumption based growth.
In the EMDE (Emerging Markets & Developing Economies) area the growth in tradevolume during the year 2018 was 4.6% in imports & 4.0% in exports. China a majorcontributor to the global economy saw its growth decline due to impacts of traderestrictions imposed by US and tightening of the country's fiscal policy leading to weakinvestment sentiments. The correction in macroeconomic imbalances resulted in mutedprospects of economies of Argentina and Turkey. The aggregate trade volume outlook inEMDEs remained weak and growth forecast remains cautious as there are many downside risksto economic and trade recovery. Overall the world's total trade volume is forecasted togrow by 3.4% in 2019 on the backdrop of widespread underperformance in recent quartersand impending risk masking the prospects of a swift recovery.
Statistics-wise IMF's World Economic Outlook states that global trade volume willexpand by 3.4% in 2019 and gather momentum thereafter to 3.9% in 2020 as against 3.8% in2018.
The global GDP growth and corresponding economic activity directly represents theinternational trade (export and imports) and in turn provides useful pointers to theshipping industry as about 80% of the international trade by volume is carried out byshipping.
iii) Seaborne Trade Fleet & Market
Globally the seaborne oil trade (for both crude & refined products) exhibited agrowth of 1.58% in 2018 as compared to 2.76% growth in 2017. Within the seaborne oil tradedevelopment the Crude oil' trade increased by 1.4% with total figure at 2384million tons in 2018 whereas Product trade' (excluding Fuel Oil) was at 702million tons in 2018 increasing by 1.5%. The crude & product tanker fleets expandedby 0.8% & 0.4% respectively in 2018 (when calculated by gross dwt) as compared tofigures of 4.8% & 5.6% during the previous year. Crude & Product Tanker marketsare expected to be bullish in the second half of 2019 as charter rates go higher owing tostrong growth in diesel trade due to the 2020 IMO regulations and seasonal firm demandtowards the end of the year. Additionally some vessels going to shipyards for fitment ofscrubbers will further tighten tonnage availability resulting in an upward scenario forthe shipping market.
The dry bulk trade showed a moderate growth of 2.3% in volume over the course of theyear 2018 and the forecasts are quite optimistic as the increase in manufacturingactivity in China indicates positive views on the dry bulk trade. Revised upward economicoutlook and the significant growth in manufacturing sector in China are forecasted to bekey factors driving the dry bulk trade. The total dry bulk fleet growth rate was about2.9% in 2018 which is moderately lower than that in 2017 which was 3.73%. The shrinkingbookings and IMO 2020 regulations ensuring inflations in operating costs of aged shipsindicate an upturn in the dry bulk market owing to scrapping of older tonnage as tonnagedemand increases provided cargo growth is maintained.
iv) Indian Scenario
As per Central Statistics Office (CSO) Indian economy grew by a moderate 6.8%(estimated) in FY 2018-19 as compared to the growth rate of 7.2% in 2017-18. The growthnumbers have exhibited a downward trend due to the strain caused by multitude of long-termstructural economic changes. The agriculture/farming sector exhibited a subdued annual GVA(Gross Value Added) growth of 2.9% in 2018-19 while the sector had registered 5.0% GVAexpansion in the earlier period. The power and utility sectors (Electricity Gas WaterSupply and Other Utility Services) also posted an estimated GVA growth at an annual rateof 7.0% in 2018-19 as compared with 8.6% growth rate in the previous year 2017-18.
According to sources from Ministry of Commerce India's exports in value terms improvedsignificantly by 8.75% in 2018-19 while imports also surged up significantly with a spikeof 10.41%. One of the main reasons of imports surging up is the increase in fuel pricesover the year. As per Press Information Bureau & Indian Port Association (IPA) thequantum of Cargo Traffic at India's 9 major ports rose by 3.77% in the period April 2018to December 2018 i.e. cargo traffic rose to around 518.6 million tons in the period April2018- December 2018 period as compared to 499.7 million tons in the corresponding periodin the previous year. Looking at commodity-wise breakdown of cargo traffic the largestcommodity group in the total traffic was PO.L.(Petroleum Oil & Lubricants) witharound 33.20% share followed by Container traffic at 20.8% Thermal & Steam Coal at15.09% Other Misc. Cargo' (10.48%) Coking & Other Coal (8.27%) Iron Ore &Pellets (5.75%) Other Liquid (4.23%) Finished Fertilizer (1.23%) and FRM (0.94%)respectively. This improvement in import performance is the result of many measuresinitiated by the Ministry of Shipping focused towards performance of the ports. Theseinclude mechanization of the terminals focus on improving the TAT (turn-around time)introduction of new processes & practices for quick evacuation of cargo thrust oncoastal transportation expansion/modernization of infrastructure and skill development ofemployees. On the other hand the existing non-major ports especially private portscontinue to grow due to factors such as a diversified cargo portfolio superior operatingefficiency and contemporary infrastructure and the presence of captive cargo streams.
Years of experience in Shipping together with diversified fleet across all majorsegments gives SCI an unique ability to exploit demand growth in any given segment with aquick-mover advantage on the peak of learning curve. New acquisitions have brought downaverage age from 18 years in 2007 to about 10.08 years presently. Longstanding COArelationships with major Indian Oil Refineries offer cargo security & employmentassurance for major part of the tanker fleet.
vi) Opportunities and Threats
In the tanker markets the crude tanker freight rates are expected to remain flat fornext two years. Although the fleet is expected to rise the rise in crude tonnage demandis supposed to render the improved freight rates to the owners. This bullish scenario isconceptualized basis following 4 major factors: upwards trend in US crude oil productiongiving boost to ton-mile demand increased refinery runs as refiners seek to build dieseloil inventories ahead of impending IMO regulations reshuffling of old and obsoletetonnage as owners gear up for upcoming IMO regulation and signs of improved tonnageutilization as traders and oil producers turn towards increased floating storage of extantfuel oil expecting sharp decline in its demand. However there are multiple caveats tothis bullish outlook. Major ones amongst them are: escalations in trade tensions betweenUS and China a stricter US stance on Iran & Venezuela sanctions continued civilunrest in Libya and
the multilateral effects of IMO regulations.
In the dry bulk market the earnings are expected to rise across all segments for thenext 2-3 years. The demand - supply balances in this market are looking quite healthy.Drewry has maintained their optimistic forecast for the coming year while also citing afew probable risks which could halt the positivity. The parameters supporting optimisticfreight levels include shrinkage in tonnage on the face of looming IMO regulations and ahealthy growth in dry cargo demand. Even though the higher rates couldn't materialize inthe first half of 2019 due to multiple supply disruptions across the globe owing tonatural calamities most of the cargo loading zones are returning to normalcy and areexpected to resume full scale operations in the second half of 2019. One of the majorfactors as well as the underlying assumption to the upward-trending forecast is theresurgence of Chinese demand. The de-escalation of tensions between US and China isexpected to provide a trade boost thereby generating dry bulk demand.
Also the Chinese government has announced yet another stimulus package which willpositively impact the country's steel and iron ore demand. China being a major player inthe dry bulk market the growth in Chinese production activity signals handsome growth indry bulk trade. The owners remain optimistic of the dry bulk markets while being cautiousto the inherent risks.
The US crude oil imports are set to remain low and the Asian oil demand is expected toincrease banking on strong GDP performances by the corresponding economies & risingrefinery throughputs. Therefore net global crude trade flow is expected to shifteastwards with Asian appetite being the key driver.
In Indian context the economy is on the growth track and many government initiatives& schemes on giving a boost to manufacturing sector have started to kick in. Thesefactors will translate into a robust oil demand lending a strong hand to import parcelsinto the country as well as coastal movements. SCI is uniquely positioned to cater tothese trades and reap benefits therein.
Rising inequality weak investment and rising protectionism in trade offer a hugechallenge to the long-term global growth. The return of cyclical monetary policytightening in European economies adverse impact of aging population & hence reducedproductivity on GDPs of European countries and Japan the near-constant inflationarypressures hampering growth prospects looming threat of a no-deal Brexit unpredictabilityin US foreign policy as well as timid growth in crude oil demand remain the major macrorisks. Also the possibility of eruption of simmering geopolitical tensions in variousregions across the globe poses a significant threat to the economic activity & as suchpresent a significant macro risk. The recent US decision to re-impose sanctions on Iranwill marginally disrupt the oil trade requiring the other producers to fill in the gap inoil production and may also result in increased crude oil prices. The rising crude oilprices have strained the economies of oil importing countries in both Africa & Asiawho in turn may be forced to cut subsidies and this may consequently hurt secondarydemand.
B. SEGMENTWISE FLEET & MARKET STUDY
a) Crude Oil & Product Tankers
In the year 2018 the global consumption of Crude Oil registered a marginal increase of1.30% to 99.15 mbpd (million barrels per day) over the previous year. It is forecastedthat the oil demand growth shall show rising trends over the next 3 years.
The Indian crude oil demand has been steadily rising over the year 2018 at around 4.4mbpd levels. The rise in crude oil imports of India indicates a busy production activityin the country. The oil demand of the country is likely to grow as the economy gatherspace but crude oil price increase could be a dampener. While OECD oil demand/consumptionis expected to be at subdued levels as that of previous years China & Asia's oildemand is expected to grow at a good pace.
US domestic crude output is likely to increase by about 1 mbpd in 2019 a rise ofstrong 9.09% over the year. In case of US the attractive oil prices due to OPECproduction cuts combined with supply problems of its neighboring oil producer Venezuelawill motivate the country to keep its production at high levels. Strong productionactivity shall also put a dent in US net imports. Meanwhile OPEC countries & theirnon-OPEC allies again restricted their production in 2018 on account of further cuts bySaudi Arabia and steep losses in Venezuela. Both these phenomena along with increase indomestic US production may result in increase in US oil exports which would boost thetanker ton-mile demand.
The improving tonnage demand-supply situation and some tonnage being taken out frommarket to cater to IMO 2020 regulations is bound to have a positive effect on freightrates and same is reflected in the forecasts. The average spot rate yield (TCE) of TD3route of AG/East for VLCC was US$ 21400/day in 2018. The future market in this segmentseems to be in the range of US$ 25500-28000/day impacted significantly by rising USproduction and increasing crude oil demand in Asia and Middle East on account of recentrefinery capacity enhancements in the region. One Year TC rate for VLCC was about US$23800/day in 2018; with a sharp upwards trend being predicted in the next two years. TheSuezmax rate yield on West Africa - North West Europe (TD20) route was about US$11400/day in 2018 which is expected to climb up by about 38.60% year over year. ForAframax the spot rate on AG/Far East route (TD8) was US$7000/day. These freight levelswere weak but a significant rise is expected in coming years across all segmentsoffering a much needed relief to the crude tanker owners. For Product tankers LR1 Spotrate on AG/East route (TC5) was US$ 8000/day in 2018 and expected to exhibit a quitesharp upward trend in 2019 & 2020. One year TC rate for LR1 was US$ 13400/day in2018 which is an improvement over last year's rate however still not enough for ownersto earn sizeable profits. In MR tankers on US Gulf/UKC route the spot rate was as low asUS$ 2200/
day in 2018. One Year TC rate for MR tankers was US$ 13300/day in 2018 and is expectedto be around US$ 13800/day over the next year. The product tanker market also renders abullish outlook on the basis of expected demand surge in diesel oil trade and situationalconstriction of tonnage due to clean tanker owners opting to briefly take their vesselsout of trading for fitment of scrubbers. The bullish forecasts are supported by IEA's(International Energy Agency) estimates of continued year-on-year rise in global oildemand.
Your company has five VLCCs which were mainly employed on a mix of COA voyages &spot voyage charters with Indian as well as foreign charterers. The COA voyages earnedreasonable returns while spot trades faced the wrath of highly depressed markets. YourSuezmax tankers were predominantly deployed with the Indian oil industry and performed COAvoyages under the HPCL COA and spot voyages for other Indian charterers. MT Desh Shaktiwas employed under a time charter with Indian oil PSU. Older Suezmax vessels howeverfaced a few problems in load port acceptances. The COA earnings are based on AFRA whichhas been low to moderate. The time charter and spot voyage rates compare well with marketbenchmarks.
Five LR-I tankers of the Swarna series were employed on Indian coast catering tocoastal crude movement of the Indian oil industry. They also had a few other kinds ofemployment such as lighterage operations FPSO loadings and floating storage etc. Theirearnings compare well with market levels. Another LR-I tanker MT Swarna Kaveri was used asa CPP tanker for Product cargoes. It was employed with Scorpio LR1 pool. Your GP producttankers in the Swarajya Series were well employed with Indian charterers on time charter& sporadic voyage charters and their earnings are in line with market averages.
The three MR product tankers in the Swarna series were gainfully employed with Indianas well as Foreign charterers and their earnings are comparable with the market. MT SwarnaMala was deployed on Spot voyages with foreign charterers for long periods during thefinancial year. MT Swarna Kalash and MT Swarna Pushp were deployed along Indian coastemployed in a profitable mix of time & voyage charters supporting coastal productmovements.
The two LR-II tankers MT Swarna Jayanti and MT Swarna Kamal were employed with foreigncharterers in a mix of pools & voyage charters. Their returns were stable and in linewith available markets.
Earnings of your coiled / double hull Aframax tankers were in line with markets alongwith the average of benchmark yields under TD8 (Arabian Gulf to Singapore) and TD14(Indo-Australia) routes on the back of COA voyages and triangulation spot voyages owing tointermittent fuel oil arbitrage trades which minimized ballast voyages. The Aframaxesmainly performed India centric - AG / Far East / Red Sea voyages.
Tanker trade is currently undergoing a paradigm shift. OPEC's decision to continue theproduction cuts upcoming big increases in the refinery capacities of Middle East andAsia and rise in US exports due to increased oil prices are some of the major factorswhich will have significant impact on tanker markets. Rising Asian oil demand shall mean alot of tonnage shift in that region. Also US crude oil production is forecasted toincrease; hence there will be a spike in US crude exports for near future. Meanwhile risein Middle Eastern and Asian refinery capacities shall mean a lot of inwards cargo flowsbeing generated in these regions. The ship owners who plan accordingly and position theirships smartly in prospective basins will stand to reap benefits of positional advantage.
The looming IMO 2020 regulations present a challenge as well as an opportunity. Thebunker composition change shall generate new demand for Diesel Oil which mean shiftingprominence of established trade routes and formation of some new trade routes. The demand-supply balances are looking reasonably optimistic thereby offering an opportunity forship owners to earn handsome returns provided they operate their fleet efficiently. Dueto change in bunker mix owing to IMO 2020 requirements there will be stockpiling ofDiesel Oil and shedding of high sulfur Fuel Oil which is supposed to generate new cargoflows. Since Asia & especially China are growth drivers for the product oil demandtrade routes of MEG-SEA AG-Far East may get lot of employment especially for Clean MR& LR-I tankers.
With its diversified and modern tanker fleet your company's vessels stand to secureplenty of gainful employments and the company is well-equipped to withstand contingentmarket pressures.
Risks and Concerns
The most flagrant cause for concern across all segments of tankers and bulk carriers isthe paradigm shift to be caused by IMO 2020 regulations. The fate of a lot of ships willdepend on implementation and enforcement framework adopted by IMO. Apart from IMOregulations the major factors affecting the seaborne trade are mostly geopolitical. Thecancellation of waivers by US for trade with Iran possibility of tensions re-eruptingbetween US and China continued crisis in Venezuela hampering its oil production andongoing civil unrest in Libya could hamper overall global trade. This would put a strainon tanker trade bringing the freight levels down. Also there are secondary factors suchas decrease in European refinery runs increasing use of pipelines by Russia to exportoil.
On products trade front the threat to oil demand due to geopolitical issues may hamperthe trade. The compatibility of vessels with new bunker grades needs to be tested.Possibility of oil movement slowdown due to various trade skirmishes threaten to spoil theparty for product tanker owners.
b) Dry Bulk
The benchmark Baltic Dry Index (BDI) rose marginally to an average of 1252 in 2018-19against an average of 1204 in 2017-18 registering a moderate 3.99% increase reaching itshighest average monthly value in August 2018
When compared to 2018 dry bulk trade is set to exhibit a trade growth of 1.40% in2019 with ton-mile demand growing by an estimated 2.03%. The dry bulk global trade isexpected to grow on an average of 1.5 - 2.3% for subsequent 3 years. The dry bulk markethas been underperforming for the past several years but for the recent 3 quarters or so.Naturally this has put a strain on newbuilding orders over the years & theresultantly the fleet growth has slowed down which has been beneficial for rate levels.In the year 2019 it is projected that 221 dry bulk ships will be sold for demolition asagainst 61 dry bulkers in the previous year. Such high scrapping numbers are mostlybecause of impending IMO 2020 regulations and reduced fleet size is an encouraging signfor future dry bulk market.
With regards to trade of dry bulk to and from India since the indigenously producediron in China is not of sufficiently high grade the country's imports of iron are set torise giving boost to ton-mile demand in the region. The probability of demolitions ofolder tonnage on account of looming IMO's Ballast Water Management System & revisedSOx emission guidelines may further improve the demand-supply balance lending asupporting hand to the rates.
With regard to Non-Coking Coal India's imports are predicted to remain constant fromthe levels of 172.96 million tons in 2018 to a forecast of around 183.31 million tons for2019.
India's urea imports stood constant recording a meager 0.1% decline year on year to49.83 lakh tons last fiscal (data available from April to December 2018) on the basis ofsteps taken by the government to increase indigenous fertilizer production. The countrywhich is among the world's top three consumers of urea produces about 22 million tonsurea as against the annual domestic demand of about 30 MMT. India imported 4.983 millionmt of urea in first 3 quarters of fiscal 2018-2019. Urea movements into India which is akey cargo for dry bulk vessels and is part of minor dry bulk commodities has for the lastfew years been a "supporting trade" for bulkers ranging from Handysize toPanamax. Grain trade provided a positive support to the dry segment during the FY18-19.Seaborne trade (imports) of major grains remained constant recording a negligible declineof 0.3% in the year 2018 with major exporters being USA Australia Canada RussiaArgentina and European Union. On demand side encouraging trends are there with factorssuch as growing population increasing demand from Asian & African countries &increase in ton-miles in the grain trade.
Global steel production is projected to increase by 2.55% in 2019 with strongproduction from China India EU and other countries. The causes of this growth in steelproduction are overall increase in industrial activity rise in Global GDP & rise insteel-intensive sectors such as construction & automobiles. India's steel productionis expected to grow at the fastest rate among major steel producers. In 2018 India hasbecome the 2nd largest steel producer in the world.
In the year 2019 One-year Time Charter rate of Handymax is projected to be US$ 9400/-PDPR whereas for Supramaxes the same is US$ 11100/- PDPR. In the Panamax segment theone-year TC rate in 2019 is forecasted to be US$ 11100/- PDPR. In the upcoming years thefreight rate estimates exhibit an upward trend with market forecasts showing handsomeincreases year-on-year.
The company's dry bulk fleet now comprises of eight modern Supramax vessels of around57000 dwt each & seven modern Panamax / Kamsarmax dry carriers of around 80-82000dwt as on 31st March 2019. The bulk carriers fleet is very young with anaverage age of about 7 years. The earnings of our dry bulk fleet were in line withmarkets. Our dry bulk carriers were also employed on Indian coast with a few coastal timecharters & voyage charters whose earnings compare well with markets. In order tomaintain a healthy cash flow your company preferred fixing the bulk carriers on trip timecharter and short-to-medium term time charters.
It is fairly optimistic outlook of the dry bulk markets. The freight levels areexpected to be on the rising trend. There is a significant upside to the dry bulk trade aseven though there were many disruptions to the dry bulk loadings in the first half of2019 still the markets maintained reasonably good freight levels. This trend was aptlyreflected in BDI in Q4 of 2018-19. BDI opened higher at 1271 and then fell sharply to 595due to supply disruptions; however it again recovered due to overall positive trend inmarkets. China plans to boost its economy via a stimulus package to offset the ill-effectsof the high trade tariffs imposed by US. The effects of stimulus announcement are alreadybeing felt as there is a definite buzz in the Chinese production sector. This is hugeopportunity for all the dry bulk owners worldwide. Also a lot of tonnage is predicted tobe offloaded since it would not be economical for much of the older tonnage to operate thevessels profitably in light of IMO 2020 regulations.
The resurgence of some loading areas is a welcome development in the dry bulk trade.The Brazilian iron ore exports are expected to spike during the next few quarters asapprovals from authorities have been obtained. The supply disruptions in Australia andMozambique are on the path to complete resolution as full resumption of operations is nowin sight. The port of Kamsar in Guinea is expected to emerge as a major exporter ofbauxite driving a lot of vessel movement from the West Africa region and this would givea boost to ton miles. Strategically positioned vessels to avail these trade opportunitieswould provide healthy returns to dry bulk carrier owners.
India's continued push to phase off pet coke has caused a big spike in its coal importsin the recent years. The Indian coal imports are expected to rise coming year too. This isa welcome development for our dry bulk ships which are hauling a good chunk of the importcoal cargoes for India.
India has launched many schemes such as "Saubhagya Yojna' which plan to electrifyall the left out Indian households. Such ambitious plans for boosting domesticelectricity along with focus on creation of Industrial infrastructure is expected togenerate a significant demand for electricity. Government has also proposed other projectslike Bharatmala' which plan to create an unprecedented road network in India byconstructing roads spanning thousands of kilometers. The coal steel & cement neededto implement these schemes will see a high demand growth. This elevated demand willcontribute to increased demand for dry bulk tonnage both for coastal movements as well asfor imports. Shrinking fleet profiles due to a high number of scrapings / demolitions (onaccount of various reasons such as -lack of sustaining capacity costly overhauls requiredto comply to IMO regulations etc.) may create tonnage vacuums across the markets & drybulkers in respective trades stand to take advantage of the same.
Risks & Concerns
In the dry bulk segment although the freight levels are on the upside the oversupplyhas not completely vanished yet. There is always a possibility of local oversupplysituation in some regular trade routes. Continued occurrence of local volatility is liableto adversely impact the rates. Additionally the declining cost of renewable energy &its growing acceptance & compatibility remains a concern for the traditional coalimporters. In India Coal India which is the major coal producer continues to increaseits domestic production and this thrust to reduce coal imports might adversely affect theseaborne coal trade to India. More recently the high tariffs by the US on its Chineseimports & subsequent retaliatory steps initiated by China may hamper a lot of the drybulk trade.
Also natural calamities had caused loading disruptions in a lot of regions in theglobe affecting major loading hubs in Australia Mozambique and other West Africancountries thereby affecting the resultant dry bulk trade. Advent of renewableenergy-centric policies & use of renewable energy sources as a means of mass-scaleproduction poses a significant threat to the dry bulk trade. Many countries are shiftingfocus from traditional energy sources towards renewable sources & are actively takingstrategic initiatives for the same. This will not only reduce the demand for shipping oftraditional energy sources like coal & oil but bring their prices down which willmake extant shipping costs unviable. This puts a question mark on future of traditionaldry bulk cargo like coal.
IMO 2020 is on the horizon and the concomitant regulatory changes pose a major concernto all dry bulk owners globally. The high cost of scrubbers and uncertainty around rate ofreturn on investment uncertainty around availability of IMO compliant bunkers and costsof bunkers in the near future constitute major risks for dry bulk carrier operators.
Domestic factors such as ban on iron ore mining in Goa / Karnataka lengthy legalprocess involved in clearing the procedures to re-start the mines high export duty oniron ore in India will continue to negatively affect the growth of dry bulk demand onIndia export-centric dry bulk trades.
Supply disruptions due to natural calamities (for example cyclone Veronica inAustralia Idai in Mozambique) as well as geo-political issues (US-China trade skirmishdelays in obtaining authority approvals for starting operations of Brazilian iron oremines) could put a strain on cargo stem availability. Limited cargo stems could putpressure on freight levels.
Grain and fertilizer trades are seasonal and could be relatively short term in naturewith uncertain parcel sizes which require timely positioning of tonnage to exploit thetrade.
SCI with critical mass in Panamaxes is catering to transportation of three majorcommodities such as Iron ore coal and grain which are prone to be affected by economyslowdowns. View slowdown in these major trades globally the earnings of Panamaxes maysuffer.
The absence of long-standing COAs & similar assured business opportunities stand tomake your company's dry bulk trade volatile & open for adverse impacts by the marketforces. One more aspect that may turn charter rates volatile is delayed scrapping of thevessels (especially older tonnage) on account of temporary spikes in freight rates whichcould lead to recurrence of over capacity situation in the market.
The macro economic factors such as interest rate volatility subsidies on petroleumproducts volatile rupee value vis a-vis the dollar and inflation continue to plague theNational demand. Shipping being a derived demand may be negatively affected by thesefactors.
LNG is playing a major role in the energy markets with many countries turning tonatural gas to meet their energy needs. LNG trade has increased from 100 million tonnes in2000 to 319 million tonnes in 2019.
50% of the global LNG demand growth upto 2035 is expected to come from Asia with thetraditional demand centres remaining relatively stagnant. With the increasing thrust oncleaner fuels the Asian markets have seen rapid increase in the usage of liquifiednatural gas (LNG) in 2018 with the global demand for LNG increasing by 27 million tonnes.Pursuant to the increased environmental measures Chinese imports alone surged by 16million tonnes in 2018 up by 40% from 2017. The global demand is expected to rise to 384million tonnes by 2020.
On the supply side Australian LNG exports are catching up with the long time leadingsupplier Qatar and are expected to rise by 10 million tonnes in 2019.
Global LNG supply is expected to rise by 35 million tonnes in 2019. Both Europe and thedeveloping economies in Asia are likely to absorb all the additional supply. Investment innew supply projects is picking up however given the rapid and continued rise in thedemand supplies need to increase pace.
With a situation of over-supply of LNG ships increased competition and ever changingmarket dynamics LNG buyers tended to sign shorter smaller and flexible contracts from2014 through 2017. However new LNG projects require long-term LNG sale agreements tosecure financing and in order to enable developers to go ahead with new projects themismatch needs to be resolved. Encouragingly the average length of the contracts signed byLNG buyers increased from about 6 years in 2017 to about 13 years in 2018. And the globalcontracted volume has more than doubled to 600 million tonnes in 2018.
Global proposed liquefaction capacity has reached 875.5 MTPA with majority in the USand Canada. The global regasification capacity has continued to increase to 851 MTPA in2018.
The LNG players are simultaneously looking at alternate options such as FloatingStorage Regasification Units (FSRUs) Small LNG carriers for coastal LNG shippingFloating Liquefied Natural Gas (FLNG) carriers etc for quickly addressing the growingdemand. Three FSRU projects with regasification capacity of 84 MTPA came online in 2017.In 2018 about 7 FSRUs are under construction for projects in new markets like BahrainBangladesh India and Panama.
India is targeting to raise the share of natural gas in energy mix to 15% from current6% by 2025 and for increasing imports the import terminal capacity is expected to doubleto 47.5 MTPA by 2022. Reducing carbon emissions by increasing use of LNG as a transportfuel is on the priority list of the government and is working in line for setting up therequired infrastructure.
Your company jointly owns and operates 3 LNG carriers under long term charters withcharterers Petronet LNG Limited India for transportation of LNG predominantly from Qatar.The 4th LNG carrier is under long term charter to Exxon Mobil LNG Services B.VNetherlands. In order to ensure its presence in the new areas of the LNG market yourcompany is exploring opportunities for participation by ownership and in operations ofFSRU small LNG carriers and coastal LNG shipping.
Your company has built up a pool of trained LNG officers and the experience ofindependent technical operation of LNG tankers has helped to provide ship managementservices. Your company is jointly working with one of its Japanese partners and willstart training its LNG officers on construction and operations of FSRU from 2019. SCIsuperintendents have been posted at Korean shipyard for supervision of an underconstruction FSRU.
SCI and GAIL had signed a Memorandum of Understanding for cooperation in transportationof 5.8 MMTPA LNG sourced by GAIL from U.S. terminals. In line with the objectives underthe MOU SCI has been awarded two contracts one for assisting GAIL in In-Chartering ofLNG ships and the other for Post-fixture Management services to GAIL for theirIn-chartered vessels which will be carrying LNG from USA to India. The initial contract isfor a period of three years effective from 2018. This collaboration between GAIL and SCIaims to augment the natural gas supply through LNG imports.
NTPC Vidyut Vyapar Nigam (NVVN) is coming up with a 50 MW LNG based generation plant inthe south Andaman Island estimated to be operational by mid of 2020 . The plant will beoperated through Duel Fuel ie. LNG (sourced from FSRU) or HSD (sourced from IOCL). NVVM isdue to come with a tender shortly inviting bids for providing end to end logistics and LNGto the power plant being planned in Adaman & Nicobar islands. The projectinfrastructure would need construction of a terminal & jetty structure FloatingStorage & Regasification barge (FSRB) and a small-scale LNG carrier about10000-20000 m3 to load LNG from Indian/overseas terminal for discharge at Port Blair.SCI given its experience in operating LNG ships and terminals is interested in operatingthe terminal the FSRB and the small LNGC in addition to being an investor in theproject. SCI is joining hands with Indian and Overseas partners to form a Consortium whichwill endeavor to participate in ensuing tendering process..
KLPL Terminal Management
Your company has successfully performed the Port and Marine Services Contract at theKLPL Dabhol Terminal for further 4 years i.e. 2015 - 2019. The SCI team successfullyhandled 72 LNG tanker calls at the Dabhol LNG receiving terminal and the total importedLNG under the contract stands at 13.24 million cbm. The contract is due for renewal.
Continued rise in usage and penetration in rural areas has resulted in average growthof 8.4% in India's LPG consumption making India the second largest LPG consumer in theworld at 22.5 million tonnes. As per the projections the Indian LPG consumption isexpected to grow to 30.3 million tonnes by 2025 and 40.6 million tonnes by 2040. SCI isexploring the possibilities of acquiring additional LPG carriers which would serve theIndian demand. Informatively SCI had acquired VLGC Nandadevi in 2017 to ensure SCI'scontinued presence in the LPG segment.
DISCUSSION ON FINANCIAL PERFORMANCE WITH RESPECT TO OPERATIONAL PERFORMANCE
The financial performance of the tanker segment has been largely influenced by lowearnings on the VLCCs Suezmax and Aframax segments where SCI has had a mix of cross tradecharters market linked Contract of Affreightments and Time charter businesses toeffectively hedge employment and earnings risks. On the smaller segment product carriersand LR I dirty carriers; the employment was mainly to meet the domestic product andindigenous crude movements on long term contracts and time charter business. Positivegeographical concentration in niche coastal business segments has ensured positivereturns. However with globally weak tanker markets there was strong competition incoastal & product trades which limited earnings to some extent. Internationally asharp fall in market across the company's usual trade routes resulted in very lowearnings. Also a noteworthy chunk of potentially lucrative earnings opportunities waslost due to vessel related incidents and technical issues on the vessels. As a result ofthe weak market the tankers segment gave a very subdued performance.
The dry bulk segment is still recovering from historically bad period and loss of keycargoes such as Iron ore from India resulting in nonprofitable ballast voyage legs therebyreducing earnings. Although some relief was offered by coal cargoes & minor bulks aswell as profitable coastal trades earnings remained subdued & close to break-evenlevels due to low freight markets especially in the latter part of 2018. Few profitabletrades emerged during the year where dry bulk charter rates went into profitable levelsbut this upturn was short-lived & the markets stabilized to their depressed levelswhich are currently below profitable levels. The dry bulk segment therefore had alackluster performance financially however the same is showing potential for goodearnings in view of lower rate of fleet growth and projected rise in dry bulk trade.
2 LINER & PASSENGER SERVICES
A Industry Structure & Developments
i) World Scenario:
The Shipping industry is undergoing structural changes affecting almost all segmentswithin the industry and impacting the foreseen new building requirements towards year2035. Apart from ongoing technological advancements and increasing regulatory pressure onthe industry the geopolitical situation slowing pace of overall seaborne trade growthand general global economic uncertainties have also affected the forecasts.
While the prospects for seaborne trade are positive these are threatened by the tradewars and increased inward-looking policies. Escalating protectionism and tit-for-tattariff battles may potentially disrupt the global trading system which underpins demandfor maritime transport. Consolidation activity in liner shipping continued unabated i.ethe liner shipping industry witnessed further consolidation through mergers andacquisitions and global alliance restructuring.
As of January 2018 the top 15 shipping lines accounted for 70.3% of all capacity.Their share has increased further with the completion of the operational integration ofthe new mergers in 2018 with the top 10 shipping lines controlling almost 70% of fleetcapacity as of June 2018. Liner shipping alliances and vessel upsizing have made therelationship between container shipping lines and ports more complex and triggered newdynamics where shipping lines have a stronger bargaining power and influence. Increases inthe size of vessels and the rise of mega-alliances have heightened the requirements forports to adapt. While liner shipping networks seem to have benefited from efficiency gainsarising from consolidation and alliance restructuring for ports the benefits did notevolve at the same pace. This dynamic is further complicated by the shipping lines oftenbeing involved in port operations which in turn could redefine approaches to terminalconcessions. Technological advances in the shipping industry such as blockchainapplications cargo and vessel tracking autonomous ships and the Internet of Thingshold opportunities for the global shipping industry.
ii) Indian Scenario
The Indian ports and shipping industry plays a vital role in sustaining growth in thecountry's trade and commerce. India is the sixteenth largest maritime country in theworld with a coastline of about 7517 km. The Indian Government plays an important rolein supporting the ports sector. It has allowed Foreign Direct Investment (FDI) of up to100 per cent under the automatic route for port and harbor construction and maintenanceprojects. It has also facilitated a 10-year tax holiday to enterprises that developmaintain and operate ports inland waterways and inland ports. The Indian Government plansto develop 10 coastal economic regions as part of plans to revive the country's Sagarmala(string of ports) project. The zones would be converted into manufacturing hubs supportedby port modernization projects and could span 300-500 km of the coastline. The governmentis also looking to develop the inland waterway sector as an alternative to road and railroutes to transport goods to the nation's ports and hopes to attract private investment inthe sector. This is expected to boost the coastal shipping and SCI is an active partner inthe above projects of GOI. Under the Sagarmala Programme the government has envisioned atotal of 189 projects for modernization of ports involving an investment of Rs 1.42trillion (US$ 22 billion) by the year 2035.
iii) Strength & Weaknesses
Liner Division of SCI has vast experience in the trade which is the most formidableforce instilling confidence in the cargo interests / owners who continue to lend theirinvaluable support to SCI. The customer friendly approach at all the levels and SCI'scustomized services puts SCI ahead in the league. The wide network of the agents allacross the world provides and facilitates for localized contacts in markets to offercustomised logistics solutions. Operating partnerships have been forged withinternationally recognized container carriers in select consortia to enhance coverage andfrequency on the major trading routes. SCI is a licensed MTO in India and also hasInternational Freight Forwarding License. Breakbulk operations are largely profitable andpassenger services provided by SCI provide stable source of revenue not to mention thevital link that supports the islander's to the mainland. Efforts are on to expand theIndia-centric focus to garner the benefits of economies of scale.
iv) Opportunities & Threats
Govt. of India is taking lot of initiatives and is making huge investments to increasethe capacity of the Indian ports. Under the Sagarmala Programme the government hasenvisioned a total of 189 projects for modernization of ports involving an investment ofRs 1.42 trillion (US$ 22 billion) by the year 2035. Ministry of Shipping has set a targetcapacity of over 3130 MMT by 2020 which would be driven by participation from theprivate sector. Non-major ports are expected to generate over 50 per cent of thiscapacity. India's cargo traffic handled by ports is expected to reach 1695 million metrictonnes by 2021-22 according to a report of the National Transport Development PolicyCommittee. This is expected to result in significant improvement in operatingprofitability in the future. New operating alliances are expected to contribute byallowing global carriers to further synergize network efficiencies and vessel deploymentoptimization bringing about higher savings. Improving economic conditions in the US andEurope is expected to boost market fundamentals and support carriers in their effort torestore freight rates. An improvement in liner operating profitability is also expected toact as a catalyst for higher charter vessel demand and higher charter rates. Despiteimproving market fundamentals the industry has to overcome challenges in the year aheaddue to increase of mega-ship deliveries. The break bulk sector continues to maintain goodpotential in respect of ocean freight arrangements of General cargoes Over-DimensionalCargoes (ODC) Project cargoes Heavy Lift cargoes etc. on account of the GovernmentDepartments / PSUs and other GOI organizations.
B Segment-Wise Performance
1 Liner Vessels: The table below shows the profile of your Company's owned liner fleethaving total container carrying capacity of 8800 TEU.
|Type of Ships || |
As on 31.03.2018
|Scrapping || || |
As on 31.03.2019
|No. ||Dwt (MT) ||No. ||Dwt. ||No. ||Dwt. ||No. ||Dwt (MT) |
|Fully Cellular ||3 ||144500 ||- ||- ||1 ||28902 ||2 ||115598 |
Both container vessels namely MV SCI Chennai and MV SCI Mumbai are 11 yrs old. As on31.03.2019 4 in-chartered container vessels having total Net Tonnage of 64978 MT wereoperated by your Company. In addition to the above owned and in-chartered vessel yourCompany also has cargo loading rights on 19 vessels of its partners in various consortiaarrangements that your Company has with leading shipping lines such as MediterraneanShipping Company (MSC) Shreyas Shipping etc. to name a few. Your Company continued todeploy its owned / operated Container vessels in the following sectors:
2 Container Services
i) Himalaya Service (Erstwhile ISE Service)
The UK-C Cellular Container Service commenced in 1994 with SCI as a single operatoroperating three vessels with 1800 TEU capacities which was later upgraded to a fixed dayweekly service operating with seven vessels of similar capacity. The service from May2009 was operated in consortia comprising of two partners viz. SCI and mSc with eightvessels of which two vessels were contributed by SCI. Since end-Feb 2016 the consortiacontribution has been changed to one SCI vessel. This strategic reduction has been done toimprove profitability of the service. The service is operated on round voyage duration of56 days.
ii) IPAK Service
In a slot swap arrangement between SCI and MSC SCI has been allotted 200 TEUs slots byMSC which operates IPAK service in exchange for similar slots allotted to MSC on the ISEservice.
iii) India / Far East Cellular Service (INDFEX 1)
This service was closed in June'2018 and M.V Chennai was deployed in PIX2 service.
iv) SCI Middle East India Liner Express (SMILE) Service & Pan India Service (PIX2):
SMILE and PIX2 services seamlessly links up Persian Gulf with East Coast of India andWest Coast of India thereby strengthening and expanding SCI's presence in the CoastalShipping Sector. The joint operation on this route will be a force multiplier for SCIwhich will provide a high quality of Coastal Services on fixed day fixed window basis withpotential for even bigger expansion in Coastal and near Coastal trades with specialemphasis on the East Coast of India ports. Two services viz. SMILE and PIX2 with theirservice rotations makes it feasible to connect pan-Indian ports with an improved transittime. SCI seeks to cooperate with other Indian Companies to work out the besttransportation solutions for the trading community vis-a-vis commercially economicallyviable and environmentally feasible options. SCI connected west coast of India to southernand eastern ports of India viz Katupalli / Krishnapatnam / Vizag / Haldia / Kolkata during2016-17 and the Pan India service got stabilized during 2017-18 thus promoting GOIinitiative Sagarmala' and increased coastal shipping.
v) Portblair Services
Your Company started a new standalone service in Dec'2018 with 2 in-chartered vesselsconnecting Kolkata - Chennai - Port Blair route providing connectivity for cargoes fromWest and East coast of India to Port Blair.
vi) ECX Service:
Your Company started standalone service in March'19 with 1 in-chartered vessel forproviding connectivity for WC / ECI cargoes on Tuticorin / Kattupalli / Krishnapatnam/Haldia route.
vii) Feeder Operations
SCI makes feeder arrangements with Common Carriers' between various destinationson the Indian subcontinent.
viii) Slot swap arrangements:
SCI enters into slot swap arrangements with service providers depending upon traderequirements.
ix) Break-Bulk Services
SCI arranges carriage of breakbulk cargoes on space charter basis from various regionsacross the globe including USA Europe and Far East for imports on account of theGovernment Departments / PSUs and other GOI organisations which includes Shipments ofOver-Dimensional Cargoes (ODC) / Project cargoes / Heavy Lift cargoes / IMO Class ICargoes etc. and also containers.
x) Domestic Passenger-Cum-Cargo Service:
In addition to International operations SCI with ten (10) managed vessels (owned byA&N Administration) operates domestic passenger and cargo transportation servicesbetween the Mainland and the Andaman & Nicobar (A&N) group of islands andinter-islands on behalf of the Government of India. Also 17 numbers of Foreshorepassenger vessels of A&N Administration are technically managed by SCI.
xi) Other Coastal Services
SCI also manages Oceanographic & Coastal Research vessels on behalf of GovernmentAgencies / Departments viz. three vessels owned by Geological Survey of India underMinistry of Mines and one vessel of National Centre for Antarctic & Ocean Researchone vessel of Centre of Marine Living Resources and Ecology and three vessels of NationalInstitute of Ocean Technology under Ministry of Earth Sciences.
3 Manned & Managed Vessels
The following table shows the profile of the Passenger-cum-Cargo vessels and othervessels managed by your Company on behalf of the various GovernmentalOrganizations/Departments:
|Type of Ships || |
As on 31.03.2018
Scrap/ Redelivered (Nos.)
As on 31.03.2019
|Nos. ||Pax. Cap. ||Cargo Cap. (MT) ||Nos. ||Pax. Cap. ||Cargo Cap. (MT) |
|Pax-Cum-Cargo ||10 ||6317 ||5200 ||0 ||1 ||9 ||5763 ||4220 |
|Cargo Ships ||1 || ||500 ||0 ||0 ||1 || ||400 |
|Other vessels ||17 Foreshore & 8 Research ||1599 ||100 ||0 ||0 ||17 Foreshore & 8 Research ||1601 ||250 |
|Total ||36 ||7916 ||5800 ||0 ||0 ||35 ||7364 ||4870 |
The pattern of deployment of these vessels is as follows:
Three vessels for carrying Passengers and cargo between the Mainland and Andamanand Nicobar Islands.
Six vessels and One Cargo ship for Inter-Islands run (A&N Islands).
Seventeen vessels for Fore Shore Sector run (A&N Islands).
Eight Research vessels of GSI NCAOR NIOT CLMRE carrying out scientificexpedition in the Indian Coast.
SCI's marketing team continues to make regular customer calls through its own officesand also through agents appointed at various ports in India and abroad in order to marketits container and break-bulk services. Meetings with the agents are held periodically andSCI representatives also participate in various trade meets at important locations inIndia. Your Company has obtained Freight Forwarding and Multimodal Transport Operator(MTO) licenses and continues to use its vast experience and large agency network to render3PL (Third Party Logistics) services to the customers. This helps your Company to retainthe clients while generating additional revenue.
Under the new Foreign Trade Policy (2015 - 2020) India aims to increase its share inthe global trade to 3.5% by 2020. Incentives to agricultural exports and extension of thesame under Merchandise Exports from India Scheme to units in SEZ are part of the new FTPThis is aimed to integrate with Make in India and Digital India initiatives. Multipleinfrastructure projects eyeing to improve India's logistics efficiency and hinterlandconnectivity will boost the country's box trade in the coming years. Some of the keyprojects that will be a game changer when fully operational is (A) Multi-modal terminalunder Jal Marg Vikas project: The 170 crore multi-modal terminal at Varanasi under theJal Marg Vikas project will be a major logistics hub connecting North India to North EastIndia. The government will also develop 35 multi-modal logistics parks for freightaggregation and distribution multi-modal transportation and warehousing. (B) Port basedmultiproduct SEZ at JNPT first of its kind a port-based SEZ at JNPT will be developedwith Free Trade Warehousing Zone Engineering Goods sector Electronics & Hardwaresector and Pharma sector. (C) Dedicated Freight Corridor (DFC) DFC will provide logisticssupport for the Make in India initiative. Two of the three DFCs are scheduled to beoperational in the next three years. DFC will reduce the inland transit timesignificantly. (D) Sagarmala programme The Indian government is implementing theSagarmala programme in phases spanning over 20 years from 2015-35.
E. Risks & Concerns
The prolonged economic struggles of most shipping lines have made the maritime sectormore sensitive to risk than other modes of transport. The most common maritime risks havetraditionally been relatively predictable: natural disasters mechanical failures andhuman error. Now however the incredible growth of international trade and theintroduction of new technologies mean that shipping industry risks are evolving.
Once seen as a marginal problem for shipping cyber risk is now considered one of thetop threats. Ship data recorders have shown that human error accounts for about 75% to 90%of marine accidents amounting to more than $1.6 billion in losses. Numbers like thesehave spurred interest in autonomous ships that could move cargo more safely. In order forthis to work the industry will need to determine how much human backup would be needed toavoid collisions between manned and unmanned vessels.
The most economic and environment friendly mode of transportation is yet to recoverfrom the effects of boom - bust phase of growth and recession triggered by the recessionof 2008. Global demand continues to remain weak amidst heightened uncertainty stemmingfrom factors such as trade policy and low commodity and oil prices. The industry continuesto suffer from this weak demand and over capacity environment which has constrainedfreight rates and dampened profitability in most shipping market segments. Coupled withthe international geopolitical developments viz. rebalancing of Chinese economy towardsdomestic demand the emerging trade policy direction of United States of America (USA) andlooming trade war between China and USA continued Brexit conundrum Spiraling Inflationin Venezuela Political instability in Turkey Iran sanctions etc. the world economy andtrade has been thrown into an uncertain and challenging territory which could put theglobal trade recovery at risk with inevitable consequences for wider economy.
F. Discussion on Financial Performance With Respect To Operational Performance
Your Company's liner segment registered a loss of Rs. (89.60) crores in FY 2018-19 asagainst profit of Rs 79.66 crores in 2017-18. The Operating Income reduced from Rs. 676.38crores in 2017-18 to Rs. 632.63 crores due to reduced volumes and low freight levels. Youmay like to note that your Company is adopting various cost saving measures accruing tothe liner services viz. considerable saving on feeder and transshipment costs by reducingcarrying cargoes to non-base ports better inventory management control on repair costsof vessels and containers. However the volumes and freight levels have not favoredthereby resulting in losses. Our on time schedule reliability on our servicesparticularly in Europe sector continues to be very good and comparable or better than theglobal players.
G. Measures Taken By Us to Improve Our Services & Operations
Liner Division is ensuring that General Rate Increases are being strictly implementedkeeping in mind the market sentiments and demand- supply gap. Performance of eachContainer Service is being reviewed monthly from the point of view of profitability. Linerdivision closed its service on Far East sector as it was in continued losses. Ultra slowsteaming planned / achieved on the container ships. Fuel additives are also being used tosave on fuel consumption. Liner division has already expanded its Coastal and FeederServices and is trying for further expansion. SCI's strategy has been to use our IndianFlag ships on these routes when Indian Flag commands a premium and to use Foreign Flagvessels on the other routes. Foreign companies dominate in Indian Sub-continent feederroutes and provide seamless connections. By mutual cooperation with the other IndianCompanies through slot exchange it is envisaged that feedering freight would be retainedwithin the country which would also help in minimizing the working capital requirementsfor the Division. Further ports like Kandla and newly emerging container ports in EastCoast of India like Kattupalli Krishnapatnam and Vizag are offering substantial discountson transshipment costs and storage charges and by using these ports optimallysubstantial system costs reductions are being achieved. Our focus is to maintain rightsized leased equipment inventory to optimum levels to make services sustainable andundertaking firm negotiations with leasing companies and vendors for achieving desiredresults. Aging inventory is being replaced by the younger fleet at better terms. We areidentifying niche sectors to commence new services like feasibility study been done forintended services viz. Ex-India / Maldives Ex-India / Myanmar / Bangladesh / Thailandextending Coastal Services to include Iranian port(s) viz. Chabahar & Bandar Abbas.Other feasibility studies been
conducted for services like Ex-India / East African ports. Liner division has sloweddown on new acquisitions for now with ISE / Himalaya Service and is continuing to operatewith one in-chartered vessel of about 8500 TEU capacity. No CAPEX expansion planned thisyear so far. But option are kept open and Division is scouting for second hand vessel(s)if it fits commercial requirements. Engagement with landside Logistics PSU firms viz.CONCOR Balmer Lawrie CWC etc. for offering seamless multi-modal services between Inlandlocations and ports on the Indian Coasts as well as overseas ports. We have alsoundertaken feasibility study for setting up owned or jointly operated CFS / ICDs forvarious viable routes and also freight forwarding operations. We are also in discussionwith "Inland Waterways Authority of India" for undertaking their commercialoperations on NW1 and NW2.
H. Important Developments
Commencement of Portblair services and ECX services by in chartering 3 vessels; 2vessels are deployed on Portblair services and 1 vessel on ECX service.
I. Information Technology:
SCI has a robust ERP system in place. A Disaster Recovery Site is built at Kolkataoffice to ensure business continuity during any emergency. Periodic System Audits arecarried out on internal controls & cyber security and the recommendations are beingimplemented. E-tendering platform is being extensively used for procurements which enabletransparency and efficiency in procurement processes. Vendor Bill Tracking &Monitoring system is implemented to have a better control on settling invoices. Systemsare GST compliant. New IT system has been implemented to centrally register and track theVendor invoices seamlessly till the final settlement. The system ensures transparency andefficiency. SCI website www.shipindia.com is completely revamped with a new look andaccessibility. Other IT initiatives such as implementation of Business IntelligenceDashboard are being implemented. Hardware refresh project has been kick started to havethe latest hardware for a better performance.
3 TECHNICAL & OFFSHORE SERVICES
A) Industry Structure and Developments
i) World scenario
The offshore support vessels industry is dependent on utilization of rigs E&Pactivities and other activities in oil fields which in turn depends upon strategicdecisions of energy security by oil and gas producers shifts in Government policies andlong term crude oil price trends. As per industry outlook global oil demand wouldcontinue to grow and is not expected to peak before 2040. The demand for conventional gasis also on the rise in the long term. Offshore upstream capex is set to increase 10% peryear through to 2022 driven largely by deepwater spending and offshore LNG projects. Thenumber of offshore rigs under contract rose to 492 in the beginning of 2019 up from 472in January 2018.
ii) Indian scenario
Historically India's domestic production of oil and gas has fallen short of itsburgeoning energy requirements compelling our country to rely on imports. In view ofstable crude oil prices there has been increase in import of crude and private playersare avoiding any new exploration and discovery activities. Though there is an increase inconsumption of crude by the country over the years the requirement is majorly fulfilledby import of crude / petroleum products. The country's oil consumption grew from 184.7million tonnes in 2015-16 to 211.6 million tonnes in 2018-19. In contrast India's crudeoil output fell from 36.9 million tonnes in 2015-16 to 34.2 million tonnes in 2018-19 asper PPAC (Petroleum Planning and Analysis Cell) data. The outcome of ONGC and otherE&P operators tender shows that the expected per day rates for offshore assets arefirming up in end of 2018-19 and freight market is showing some upward movement. Howeverrates are still below breakeven for various categories of the vessel requirements.
With crude prices above US$ 67 per barrel mark and considering self-sufficient policyby governments of most of the developed and developing countries for the requirement ofenergy resources the E&P activities throughout the world are expected to show upwardtrend soon and hence the requirement of offshore assets may also rise. Further severalbig oil companies shall restart offshore drilling due to the improved efficiency and lowerbreakeven prices. Industry experts project that the global oil demand shall grow by around1 million barrels per day (mb/d) on average each year till 2025 thereafter averageannual demand growth is expected to slow down to around 0.25 mb/d. The Indian market withupward movement of crude oil prices and the Government of India's intervention onreduction of oil import bill E&P activities on Indian coast is expected to rise. Withmore E&P activities more offshore assets will be required.
B OFFSHORE ACTIVITIES:
1 Information relating to the year under review viz 01.04.2018 to 31.03.2019:
1.1 SCI owned Offshore vessels:
Your Company's owned offshore fleet comprises of 10 vessels i.e. 02 nos. 80T AnchorHandling Towing & Supply Vessels (AHTSVs) 04 nos. 120T AHTSVs 02 nos. PlatformSupply Vessels (PSVs) and 02 nos. Multi-Purpose Support Vessel (MPSV).
During the year one 120 T BP AHTSV viz. SCI Kundan continued to remain on long termcharter with ONGC and 2 MPSVs continued their charter with DRDO. The remaining 2 nos. 80TAHTSVs 3 nos. 120T AHTSVs and 2 nos. PSVs were predominantly operating in the spotmarket/short term charter. With continued efforts your company has been able tosuccessfully obtain business from various reputed national/international/private clients.
2 O&M of ONGC owned vessels
2.1 Mobile Offshore Drilling Units (MODU)
In view of the expertise of your Company in management of offshore vessels ONGC hadawarded long term contract for Marine Man Management services of their two MODUs viz."Sagar Vijay" and "Sagar Bhushan" respectively for a period of 06years.
Your company continued the O&M of these ONGC owned MODU vessels on cost-plus basisand the present contracts are valid till 30.06.2022 and 18.07.2022 respectively.
2.2 Newly acquired OSVs by ONGC
Your company continues to provide Operation & Maintenance (O&M) services ofseven OSVs newly built by M/s ONGC at M/s Pipavav Defence and Offshore Engineering CompanyLtd. These vessels are being managed by your company since their deliveries which beganfrom 2013 onwards. These O&M contracts have been awarded on cost-plus basis till31.03.2023.
2.3 Specialized vessels
During the year 2018-19 your Company continued the Operation & Maintenancemanagement (O&M) of ONGC's 2 Multi Support Vessels (MSVs) ("Samudra Sevak"& "Samudra Prabha") and one Geotechnical Vessel (GTV) ("SamudraSarvekshak") on nomination basis under Cost plus' arrangement. The existingcontract for GTV is valid upto 31.03.2021. Although the contract for MSV Samudra Prabhawas valid till 31.03.2019 and the extension is under process w.r.t. the contract for MSVSamudra Sevak ONGC invoked the Clause of Special Conditions of Contract and directedhanding over of vessel w.e.f. 16.03.2019. Accordingly your company has handed overSamudra Sevak on 16.03.2019.
Your Company has also continued the Operation & Maintenance management (O&M) ofONGC owned Well Stimulation Vessel (WSV) "Samudra Nidhi" on cost plusbasis' since the vessels delivery in year 1986. Your company has been awarded 6 years longterm contract by ONGC for Samudra Nidhi valid till 31.03.2023.
3 Emergency Towing Vessel (ETV) 2018
On request of Directorate General of Shipping (DGS) this year also your companyprovided one Emergency Towing Vessel (ETV) "SCI Panna" for emergency servicesin the monsoon period on West Coast of India and East Coast of India for a total ofabout 133 days w.e.f. 21.07.2018 till 30.11.2018.
4 DRDO Project
Defence Research & Development Organization (DRDO) had placed its requirement withSCI for hiring of two support vessels for a firm period of 4 years plus 1 year extensionoption. Accordingly SCI had acquired two secondhand/resale MPSVs "SCISabarmati" and "SCI Saraswati" customized to suit requirements of DRDO.These vessels are being utilized to meet support requirements towards DRDO's strategicmissions of national importance. Further in 2018 Indian Navy has availed the services ofSCI vessel SCI Sabarmati' for conducting Sea Acceptance Trials (SAT) for its newDeep Submergence Rescue Vehicle (DSRV) equipments. Your company is proud to have beenassociated & assisted the Indian Navy in successful completion of the trials on theWest coast of India.
5 Risks and Concerns
The per day charter hire rates in the spot market is generally higher than the longterm rates (industry average) however there are more operational challenges and loss ofemployable days during frequent change of charter in spot market for obtaininginspections/ clearances. With majority of assets of your company on spot it entails therisk of average utilization of assets to be on the lower side. However despite the sameyour company has achieved revenue operating days of 75% compared to the industry averageof 60% in Asia- Pacific region.
Entry of new players in the Indian market with low capital expenditure is major concernand challenge for your company. However your good company is keeping contacts with manyE&P operators and EPC contractors with expected future requirement for offshorevessels for their offshore activities. Simultaneously your company is also continuouslyon look out for any long term employment for these vessels not only in the Indian watersbut also in Foreign waters.
6 Strengths and Weaknesses
Your company has a diversified fleet of offshore vessels with 02 nos.80T AHTSVs 04nos. 120T AHTSVs 02 nos. PSVs and 02 nos. MPSVs thus enabling it to cater torequirements of various clients in the offshore market. Your company also owns a fleet ofyoung offshore vessels thus giving a technological advantage compared to the oldervessels in the market.
Your company has always focused on employing its vessels on long term basis with ONGCwhich is the biggest E&P Company in India.
However dependence for majority activities on one client has its own disadvantagesespecially considering the de-hiring of vessels by ONGC in 2016. Your company isconstantly making efforts to increase its clientele by chartering vessels to other reputedplayers.
7 Opportunities and Threats
The Government has made some major policy changes in exploration and licensing sectorfor enhancing domestic exploration & production of oil and gas. Further with increasein crude oil prices and increase in oil import bill the E&P activities are expectedto rise thereby creating shipping demand for offshore assets in Indian coast. Also thesanctions on Iran are expected to increase the E&P activities worldwide and so is thedemand for offshore assets.
Many marginal and new players have taken advantage of the low prices of distressedassets of troubled offshore players and have entered the Indian market. Entry of newplayers and availability of old offshore assets at lower price are leading to highcompetition resulting in charter hire rates in ONGC's recent tenders to be very low and ithas not been gainful for offshore assets of your company to be employed at these lowlevels.
C) Technical Services:
1 Technical Consultancy Services
During the year under report the Company continued to provide technical consultancyservices to A&N Administration Union Territory of Lakshadweep AdministrationGeological Survey of India Union Territory of Daman and Diu Administration (UTDD) andother Government Departments for their various ship acquisition projects. By the end ofthe year another Government organization namely M/s. Sardar Sarovar Narmada Nigam Limited(SSNNL) appointed SCI as the consultant for selection of integrated operator for runningpassenger ferry vessels at Statue of Unity site Kevadia Gujarat. Further SCI expects toadd few more clients in its technical consultancy portfolio.
2 Tonnage Acquisition Programme
During the year under report your company did not make any addition as stated earlierin the Board Report. The reason being the company is cautiously looking into acquisitionproposals and impact of the assets. Your company also desires to reduce the gap ofgestation and therefore always strives to look at the proposals for second handacquisitions.
3 Eco-Friendly and Conservation of Energy
As a policy your Company remained committed to environmental protection as perInternational Convention for the Prevention of Pollution from Ships. Necessary steps havebeen taken to minimize air pollution and oil pollution from ships.
Your company has taken necessary steps to meet IMO's fuel oil data collection systemdirective as per IMO directives to report fuel oil consumption data from 01st Jan'2019.
SCI is getting geared-up to meet IMO's 0.5% sulphur fuel regulation effective fromJanuary 2020 and required action is being initiated on all vessels by respective OperatingDivisions to make the fuel tanks ready for bunkering of low sulphur fuel well before theregulation comes in force.
All engines fitted on board are meeting applicable NOx emissions requirements. For theexisting vessels your company had developed a Ship Specific Energy Efficiency ManagementPlan (SEEMP) to improve and monitor energy efficiency in ship operations. Usage ofeco-friendly refrigerants installation of Ballast Water Treatment plants availability ofInventory of Hazardous Materials on most of its ships usage of TBT free paints etc aresome of the measures showing your company's commitment to Eco-friendly policies andconservation of energy.
4 Technology Absorption Adoption and Innovation
The SCI has taken all steps to comply with requirements of The International MaritimeOrganization's MARPOL ANNEX VI aimed at Controlling Air Pollution and setting limits onEmissions to the Atmosphere from Ships. On the new vessels SCI has voluntarily acceptedhigher than mandatory requirements on emission standards.
For 700T oil tanker vessel under construction for UTL Administration SCI as thetechnical consultant has recommended various optional features such as double hullprotection for the cargo tanks installation of sewage treatment plant and incineratoronboard portable tank cleaning machines cupro-nickel piping for ballast water / seawater systems etc. which proves your company's commitment to technology absorption.
Similarly for 500/1200 Passenger vessels under construction for A&NAdministration SCI had recommended adoption of certain technological up gradations forpassenger comfort and operational efficiency.
5 Situation in Coastal operation and Offshore areas
The DG Shipping had come out with guidelines on Right of First Refusal (RoFR) whichfocuses on Indian built vessels over Indian flag tonnage. The revised guideline haspotential to impact the Indian shipping industry; however the same is currently inabeyance in the High court.
Further the low asset prices have prompted many Indian ship owners to test the localoffshore markets by aggressively bidding in the ONGC tenders. At the same time withchanges made by Government in awarding blocks for oil & gas would definitely benefitthe offshore sector and inturn your company' revenues.
6 Measures taken to improve services and operations
During the year greater emphasis has been given on preventive and planned maintenancefor cost effective operations and maintenance of OSVs. The available downtime was wellutilized for maintenance and overhauls of machinery.
ONGC has changed the technical requirements for deployment of PSVs in their new tenderwhich involves enhanced rescue capabilities. Your company has already initiated steps toupgrade the two PSVs in its fleet to meet the new technical requirements of ONGC.
Further your company has already entered into long term rate contracts with OriginalEquipment Manufacturers (OEMs) of major spare suppliers so as to benefit from thediscounted rates and streamline un-interrupted supply to our vessels.
IV International Safety Management Cell
The SCI has introduced the Safety Management System by setting up a dedicatedInternational Safety Management (ISM) Cell which has developed structured and documentedprocedures in compliance with the International Management Code for Safe Operation ofShips and for Pollution Prevention (ISM Code) in accordance with the resolution A.788(9)of the International Maritime Organization (IMO) and SOLAS Chapter IX.
The SCI has laid the foundation of the Safety Management System (SMS) by recognisingthat the cornerstone of good Safety Management is a commitment from the top managementcoupled with the competence attitude and motivation of individuals at all levels thatdetermines the expectations of a good Safety Management System.
The SCI has complied with all the functional requirements of the ISM Code whichincludes the Safety Occupational Health & Environment Protection Policy and Drug& Alcohol Policy.
As regards Safety Management Certificate (SMC) for SCI fleet all ships are put up forperiodical/ renewal SMC audits within time frame and respective SMCs are accordinglyendorsed.
The requirements of various amendments to ISM Code and Statutory regulations fromIMO/Flag are also complied with.
Towards addressing all emergency related issues dedicated contact numbers remainmanned 24 hours in the operating divisions:
The achievement of time-bound certifications was the result of the SCI's strength ofprofessional experience planning training execution systematic analysis and qualityexpertise which is an asset for any world-class ship operator or owner. The SCI is alsoin a position to provide such management expertise to other national/ international shipoperators.
Awards & Appreciation:-
First Prize for 'Best Enterprise - Navratna' awarded to SCI at the 29thNational Meet of Forum of Women in Public Sector (WIPS) on 12th February 2019
HR Excellence Award at the Governance Now 6th PSU Awards on 17thJanuary 2019
Ranked 1st among the Key Organizations under the Swachh Bharat Mission 2019 -Swachh Survekshan initiative of the Ministry of Shipping (assessment exercise conducted byQuality Council of India appointed by the Indian Ports Association).
AMVER' award by U.S. Coast Guard's (USCG) for outstanding contribution to AMVER(Automated Mutual-assistance Vessel Rescue) system which ensures quick and efficientrescue of disabled and distressed ships at sea saving lives and ensuring continuity ofshipping operations on 27 August 2018
Excellence award for "Contribution to women in CPSEs" in recognitionof SCI's commitment to the principles of gender diversity and
equality at the workplace reflected by the representation of women across hierarchicalgrades including SCI Board at ICC's (Indian
Chamber of Commerce's) PSE Excellence Awards 2018 on 29th August 2018
"Best Employer Of the year (Indian Flag) - (Sapphires of the Ocean)"at Seajob Indian Anchor Awards 2018 (organized by Sealine Group) on 20thOctober 2018 (through Online Polling).
The Offshore Marine Awards for Owners and Operators" at Sea Trade andMaritime Awards (Middle East Indian sub-continent & Africa) on 28thOctober 2018.
Shipping Company of the Year-Coastal' at the 6th Samudra Manthan Awards on5th December 2018.
Third prize (Organization Category) under Swachh Sarvekshan' conducted byIndian Ports Association
Individual Awards (apart from those bestowed on SCI)
Capt. Anoop Kumar Sharma C&MD SCI was awarded Maritime Personalityof the Year' 2019 at 4th India Maritime Awards on 21st June 2019 atMumbai. India Maritime awards is organized by Daily Shipping Times.
'Best Women Employee - Executive' awarded to Mrs. Sangeeta Sharma DirectorLiner & Passenger Services of the Shipping Corporation of India Ltd. at the 29thNational Meet of Forum of Women in Public Sector (WIPS) on 12th February 2019
India Maritime Award for 'Woman Professional in Shipping & Logistics' wasconferred upon Mrs. Sangeeta Sharma Director (Liner & Passenger Services) of theShipping Corporation of India Ltd. for her outstanding contribution in the shippingbusiness on 22nd June 2018.
Excellence Award for his Outstanding Contribution to the Indian Publicsector' was conferred upon Capt. Anoop Kumar Sharma Chairman & Managing Director ofthe Shipping Corporation of India Ltd. at ICC's (Indian Chamber of Commerce's) PSEExcellence Awards 2018 on 29th August 2018.
'The Maritime Standard Outstanding Achievement Award' prestigious IndividualAward was conferred upon Capt. Anoop Kumar Sharma Chairman & Managing Director ofthe Shipping Corporation of India Ltd at The Fifth Annual Maritime Standard Awards on 15thOctober 2018.
"Offshore Marine Award for owners & operators" was awarded to SCIby Seatrade Maritime Award in the category at the function held at The Atlantis The PalmDubai on 28.10.2018.
Memento received as Note of Thanks from JFD Team to The Captain and Crew of M.VSCI Sabarmati to recognise joint participation with the Indian Navy in the IN DSRV SeaAcceptance Trials - System 1 2018.
Appreciation from Shri Venkatesan Scientist G & Head of Ocean ObservationSystem National Institute of Ocean Technology Ministry of Earth Sciences Chennai to theCaptain Officers and crew of M.V. Sagar Nidhi in getting valuable data.
Appreciation letter dated 07.11.2019 from Sri Lanka Navy Headquarters Colomboto the Master M.V. Vishva Vijay for the Assistance rendered to transfer a patient ashoreto save a life at sea.
Corporate Award for HSE Excellence 2017-18 - in recognition to the ProfessionalExcellence and outstanding performance in Health Safety and Environment Management wasadjudged to Rig M.V.Sagar Vijay as the Best Offshore Drilling Rig received from ONGC on29.01.2019.
SCI's Drug & Alcohol Policy:-
SCI has implemented new Drug & Alcohol Policy prohibiting drug and alcohol abuseboth ashore and afloat for the health and welfare of its employees operational safety andthe environment from 03rd May 2016.
The SCI has successfully implemented the ISPS Code on all vessels on internationalvoyages and coastal trade vessel as per the Administration requirement.
SCI is committed to the following objectives to fulfill the requirements of itssecurity policy:
Security of its ships and their crew passengers and cargo
Support to its ships in implementing and maintaining the Ship Security Plan.
Integrated Management System (IMS)
SCI is now in compliance with IMS (ISO 9001:2008 - Quality Management System ISO14001:2015 - Environmental Management System and BS OHSAS 18001:2007 - Occupational Healthand Safety Management System) on board all vessels and shore establishments.
The required certification was obtained on 27th April 2018 from IRQS validtill 22nd December 2019.
V PERSONNEL AND ADMINISTRATION FLEET PERSONNEL
1. There is a shortage of senior Floating Staff officers especially in the ranks ofMasters & Chief Engineer Officers. The Fleet Personnel Department is trying tomitigate the shortage by recruiting officers on direct contract and through manning agentsby offering market-related wages which have been revised significantly in the Main Fleetand Offshore Sector.
2. To facilitate development of employees with an aptitude for learning and forimproving their in-born skills the department organized the following seminars andtraining programmes:
i. Professional Development Course for ratings from 31.01.2019 and 01.02.2019.
ii. Professional Development Seminar for the senior officers on 31.01.2019 and01.02.2019 covering topics like Maritime Labour Convention Automation and ControlEngineering SEEMP Risk Management Vetting Requirements Safety and Security IssuesVessel Resource.
3. The Shipping Corporation of India Ltd. (SCI) was awarded with the MostCompassionate Employer of India Seafarers' by the NMDC Central Committee for being thepioneer and for continuing to make special efforts for the welfare and development of theIndian seafarers. The Award & Citation was conferred during 56th NationalMaritime Day Celebrations 2019 held on 05th April 2019 at Y B. ChavanAuditorium Mumbai.
4. Fleet Personnel department has started conducting a two days Shipboard OrientationWorkshop at MTI for fleet officers to enhance the quality of our seafarers and their levelof awareness of the continuous evolving shipboard developments. Superintendents from ISMCell BNT Vetting and Fleet Personnel Department conduct the workshop. Workshop shall beconducted once in every month improving on the contents with every workshop. Thisinitiative will help us to grow as a knowledge based learning Company.
5. Computer Based Assessment & Evaluation Test was inaugurated by our CMD on06.03.2019. The Assessment Program is now fully functional. All Floating Officersincluding Masters & Chief Engineer Officers are put through the Assessment priorposting on vessels.
MARITIME TRAINING INSTITUTE
Your company's Maritime Training Institute (MTI) at Powai has successfully obtainedapprovals and commenced four new courses in the year 2018 viz. Second Mate (F.G.)Competency Course Radar Observer's Course (ROC) Automatic Radar Plotting Aids (ARPA) andElectro-Technical Officer (ETO) course. Presently four batches of Diploma in NauticalSciences (DNS) at Powai campus are underway. Pilot batch of ETO course consisting of 39participants including 5 female participants commenced from 03rd December2018 and successfully completed on 30th April 2019. SCI-MTI Powai hascommenced one batch of Graduate Marine Engineering (GME) this year. Regular ManagementDevelopment Programs Guest lectures seminars professional development programs andskill enhancement programs are being conducted for all ranks of officers petty officersratings and shore officers to enhance their competence and build a sense of belonging inthem towards the company. Shipboard Orientation Workshops are conducted on monthly basisat SCI-MTI to refresh and enhance competencies and skills of floating personnel of thecompany. Management Development Programs for mid level and senior level officers SoftSkill based workshop for Posting Officers finance for non-finance professionals areconducted to ensure that our institute is self sustaining.
Your Company's Training Centre - Maritime Training Institute at Powai Mumbai has beenassigned GRADE A1 (Outstanding) rating by Class NKK after the inspection as per theComprehensive Inspection Programme Guidelines of the Director General of Shipping.
Your Company's Training Centre at the Maritime Training Institute at Powai Mumbai hasconducted 326 Courses for 5030 participants and the total man-days trained during thisyear is 105435. These included 89853 man-days for SCI's personnel and 15582 man-days forpersonnel from other companies.169 SCI shore personnel were provided 417 man-days ofin-house training.
MTI is actively participating in Swachh Bharat drive within the campus and in publicplaces. Cadets trainees faculties and staff are involved in the activity- planned atregular intervals. In line with Govt.'s vision SCI-MTI contributed massively in theswacchta pakhwada from 17.09.2018 to 02.10.2018 and organized various cleaning driveswall painting poster making competition essay writing competition slogan writing roadrallies and nookad nataks in the vicinity of MTI Powai for increasing awareness.
Information towards major achievement during the year under review i.e. FY 2018-19Academic Achievements:
A. SCI-MTI has commenced four new courses in the year 2018-19:
Second Mate (F.G.) Competency Course
Radar Observer's Course (ROC)
Automatic Radar Plotting Aids (ARPA)
Electro-Technical Officer (ETO) course
B. Pass Percentage of SCI-MTI for DNS batches successfully increased to 82% in June2018 IMU examination for Semester II. Pass Percentage for DNS students increased to 75% inDecember 2018 IMU examinations for Semester I.
C. SCI-MTI has commenced customised training program in year 2018-19 for Corporateclients in "Industrial Marine safety & Survival" including HindustanPetroleum Corporation Ltd Larson & Tubro Mitsui OSK Lines (India) Ltd RelianceIndustries Cathedral School & Aneri Constructions.
D. SCI-MTI became a Wi-Fi enabled campus since June 2018. Wi-Fi facility is provided tocourse participants for research based assignments and project works.
E. SCI-MTI has continued saving on its electricity bills by approx. 50 - 60% on monthlybasis as its solar power generation capacity was enhanced to 0.5 MW in early 2018.
F. SCI-MTI is also utilizing the in-campus natural waste (leaves etc) to create manureand Lake/Well Water for gardening work in MTI campus.
G. SCI-MTI has taken initiative to get PNG connection for Galley and officer quarters.This will help MTI to take another step towards green campus and will also reduce the costof fuel in the dining block.
Business Development Initiatives
H. SCI-MTI has aggressively communicated about its pre-sea courses (DNS and GME) tovarious schools colleges and coaching institutes for increasing awareness of MerchantNavy as a career and about academic and career opportunities with SCI-Maritime TrainingInstitute.
I. The Fleet Safety Awards function was held at the MTI Auditorium on the 01stFebruary 2019.
J. SCI-MTI hosted the Maritime Quiz competition under National Maritime Day Celebration(NMDC) on 04.04.2019.
Material developments in Human Resource / Industrial Relations front including numberof people employed
The total manpower as on 01.07.2019 is 675 (excluding CVO and Board level members) outof which 595 are officers and 80 are staff members. One Fire and Security officer wasrecruited in the financial year 2018-19.
With a view to meet the present and future challenges and be a globally competitiveCorporation a number of capability development initiatives and employee engagementactivities were introduced in the year 2018-19. To familiarize the employees with thechallenges faced by the organization and encourage them to discuss their concerns andshare their ideas/ strategies a quarterly interactive forum with top Management calledSCI LEAP' was introduced. SCI-Empower' Chairman's Trophy for Young Managerswas launched to provide a platform to accelerate their development and growth. SCIExplorer' a HR General Management bi-monthly e-magazine was also launched. SCI Apexaward scheme for individual and group achievements was introduced to recognize theperformance of the employees. Various training programmes both in-house and externalincluding General Management Training programmes have been conducted for the employees fordevelopment of their skill sets and domain knowledge.
HR policies have been revamped to ensure the processes are systematized and updated tobe on par with the best practices in the industry. The pay revision of Staff Members ofSCI w.e.f 01.01.2017 has been implemented in December 2018.
Your company is complying with all government guidelines as applicable from time totime in respect of reservation policy so as to empower the weaker sections of the society.
Annual Statement showing the representation of SCs STs and OBCs as on 1stJanuary 2019 and number of appointments made during the preceding calendar year:
|Name of the Public Enterprise: The Shipping Corporation of India Ltd. |
|Groups || |
Representation of SCs/STs/OBCs (As on 1.1.2019)
Number of appointments made during the calendar year 2018
|By Direct Recruitment ||By Deputation/ Absorption |
|Total no. of employees ||SCs ||STs ||OBCs ||Total ||SCs ||STs ||OBCs ||Total ||SCs ||STs |
|1 ||2 ||3 ||4 ||5 ||6 ||7 ||8 ||9 ||10 ||11 ||12 |
|Executives A ||600 ||120 ||48 ||93 ||0 ||0 ||0 ||0 ||7 ||1 ||0 |
|Non Executives B ||63 ||21 ||4 ||3 ||0 ||0 ||0 ||0 ||0 ||0 ||0 |
Name of the Public Enterprise: The Shipping Corporation of India Ltd.
|Groups ||Representation of SCs/STs/OBCs (As on 1.1.2019) ||Number of appointments made during the calendar year 2018 |
|By Direct Recruitment ||By Deputation/ Absorption |
|Total no. of employees ||SCs ||STs ||OBCs ||Total ||SCs ||STs ||OBCs ||Total ||SCs ||STs |
|C ||19 ||6 ||1 ||0 ||0 ||0 ||0 ||0 ||0 ||0 ||0 |
|D ||1 ||0 ||0 ||0 ||0 ||0 ||0 ||0 ||0 ||0 ||0 |
|Total (Executives in Grade A' plus Non - executives) ||683 ||147 ||53 ||96 ||0 ||0 ||0 ||0 ||0 ||0 ||0 |
- At MTI we have followed centre's policy of reservation during the cadet admissions.We had admitted the DNS cadets as per the table below:
|Intake ||Batch ||ST ||SC ||OBC ||GEN |
|Aug 2018 ||48 & 49 ||4 ||14 ||26 ||36 |
|Feb 2019 ||50 & 51 ||1 ||11 ||36 ||32 |
|Intake ||Batch ||ST ||SC ||OBC ||GEN |
|Dec 2018 ||ETO-01 ||00 ||07 ||08 ||24 |
Your company is committed to the principle of equal employment opportunity and strivesto provide employees with a work place free of discrimination. All HR activities ofrecruitment placement promotion transfer separation compensation benefits andtraining ensure equal opportunities for skill enhancement and career progression.
Your company's efforts are reflected in the representation of women across varioushierarchical grades. At present women constitute around 20.56% of total workforce at shoreestablishments of your company.
SCI has been the pioneer in India with regards to recruiting women for jobs on boardits fleet. Presently 2 Masters 6 Chief Officers 2 Second Engineers 34 Second/ThirdOfficers 6 Third/Fourth Engineers and 2 Nurses are women serving on various types ofships.
Other than above there are 10 Women Trainee Nautical Officers and 1 Woman TraineeMarine Engineer.
Your company encourages active involvement in the activities of the Forum of Women inPublic Sector (WIPS) since its inception. WIPS Western Region under the aegis of SCOPEhas appreciated your company's efforts by conferring the "Best Enterprise Award (1stPrize)" under Navratna Category.
Policy to prevent sexual harassment in workplace
Your company promotes gender equality and has been taking proactive measures to preventany Sexual Harassment at workplace. Your company has constituted a committee comprising ofsenior women executives and a woman representative from the NGO Pratham to enquire intocomplaints of Sexual Harassment at the workplace.
Corporate Social Responsibility (CSR) and Sustainable Development (SD)
The Corporate Social Responsibility vision of your company articulates its aim to be acorporate with its strategies policies and actions aligned with wider social concernsthrough initiatives in education public health women empowerment and other areas ofsocial upliftment. Your company has framed its CSR policy in line with the guidelinescontained in the Companies Act 2013 and Companies (CSR Policy) Rules 2014 notifiedtherein" and constituted a CSR - SD committees as per the act to coordinate andoversee the implementation of CSR initiatives. The Corporate Social Responsibility Policyis available on the website of the company i.e www.shipindia.com under "About us -Policies". The budget available for CSR initiatives in the year 2018 - 19 as perapplicable provisions was Rs. 4.20 Crores. Against the available budget your companyallocated Rs. 4.20 Crores against following initiatives in the year 2018 - 19:
1. Promotion of Education -
a) Annual Grants have been awarded to meritorious students from weaker section of thesociety viz. SC/ST/BPL candidates pursuing Ocean Engineering/Naval Architecture/NauticalScience/GME courses at premier institutes (IMU's IIT's & MTI) to encourage andsupport Maritime Education in the country.
b) Support to Friends of Tribals Society (FTS) for setting up 100 Ekal Vidyalayas underthe unique project One Village One School One Teacher'.
2. Eradicating Hunger & Malnutrition -
Support to Akshaya Patra Foundation for provision of mid-day meals to 2500 schoolchildren.
3. Women Empowerment & Gender Equality -
Skill Development training of 201 women in apparel sector in association with ApparelMade-Ups & Home Furnishing Sector Skill Council (AMHSSC).
4. Employment Enhancing Vocational Skills for Divyangjans -
a) Technical Skill Development training to the 197 divyangjans to make them capable andself-dependent in association with National Handicapped Finance & DevelopmentCorporation (NHFDC.
b) Empowerment of divyangjans by distribution of assistive devices to them inassociation with Artificial Limbs Manufacturing Corporation of India (ALIMCO).
5. Promoting Preventive Health Care -
Augmentation of facilities at Kayakalp an AYUSH Hospital established at VivekanandaMedical Research Institute Palampur in association with Vivekananda Medical ResearchTrust Palampur.
6. Swachh Bharat Abhiyan & Ganga Rejuventaion -
a) Constructions of 19 nos. of schools toilets at various schools run by BharatSevashram Sangha.
b) Distribution of re-usable cloth bags at various municipal schools in view to theplastic ban in Maharashtra.
c) Contribution to the Clean Ganga Fund of Government of India for strengthening theNational Mission for Clean Ganga.
Against the allocation of Rs. 4.20 Crores Rs. 2.03 Crores have already been spent andbalance will be released on achievement/completion of project specific timelines.
VI. Material Orders of Judicial Bodies / Regulators
Details of significant and material orders passed by any Regulator Court TribunalStatutory and quasi-judicial body impacting the going concern status of the company andits future operations shall be disclosed - Nil
VII. Implementation of Official Language Policy
In order to comply with the Official Language policy of the Government your companyreiterated its commitment and made all out efforts to promote and popularize the usage ofHindi in its day-to-day affairs during the year under report. As per the Annual Programmeissued by the Ministry of Home Affairs your Company conducted various Hindi programmes/competitions at a regular interval. Hindi Unicode computer workshops were also held everymonth to impart training in Hindi typing and translation on computers.
This apart your Company has also created an atmosphere to spread the usage of Hindithrough email correspondence by way of Quarterly Hindi correspondence incentive schemeunder which the eligible employees are being rewarded every quarter with cash incentives.
During Hindi Pakhwara in September 2018 an appeal made by CMD was emailed to allemployees to enhance the usage of Hindi in official noting and correspondence. YourCompany also attended Town Official Language Implementation Committee (TOLIC) meetingsduring the year under report.
It is matter of great pleasure that your company's Head Office located in Mumbai hasbeen declared as 2nd prize winner in Region 'B' for its excellent performancein Hindi implementation under the Rajbhasha Shield Scheme of the Ministry of Shipping forthe year 2017-18.
VIII. Procurement of Goods and Services
Your company enters into rate contract on periodical basis for procurement and supplyof high value and safety items like Marine Lubes Marine Paints Charts Wire ropes LSA /FFA Life Rafts etc both at Indian ports and major foreign ports like Singapore andFujairah. This ensures timely supply of right quality goods / services to the vessels atreasonable price.
During the financial year 2018-19 your Company continues to support the micro andsmall scale Enterprises (MSEs) by procuring a 25.51% of its supplies of goods and servicesfrom MSEs as against the set target of 25% in line with the revised Public ProcurementPolicy. Further your company actively participates in the programs organised by theMinistry so as to make MSEs aware of the SCI's requirements.
IX. Protection & Indemnity (P&I) Insurance
Protection and Indemnity (P&I) Insurance cover entered with 3 Group P&I Clubsfor your company's fleet for the policy year 2018-19 commencing from 20.02.2018 has beennegotiated by your Company. Your Company after protracted negotiations was able toobtain a reduction of 3.47% in the renewal premium over the expiring premium resulting ina net reduction of USD 178727 towards renewal premium for policy year 2018-19.
Further your company is glad to inform you that Group P&I Clubs have refunded 5% -10% of the annual premium for the policy year 2017-18 to your company (and other members)in view of their better financial performance.
X. Appointment and Remuneration Policy:
The appointments in your company are done in accordance with Government of Indiaguidelines. The remuneration to the senior management and other shore employees of yourcompany is governed by the Presidential Directives issued by the Ministry of Shipping andDepartment of Public Enterprises (DPE) from time to time which form the remunerationpolicy of your company.
XI. Right to Information Act 2005 (RTI ACT 2005)
A suitable mechanism has been put in place for dealing with the requests and appealsunder RTI Act 2005. The RTI manual is posted on the Company's website. Your Company hasbeen complying with the provisions of the Act within the stipulated time limit providedunder the Act. As on 31.03.2019 your Company has disposed off most of the applicationsand appeals received from the parties.
XII. JOINT VENTURE COMPANIES
India LNG Transport Co.(No.1) (No.2) and (No.3) Ltd
SCI has entered into three JVCs with three Japanese Companies viz. Mitsui O.S.K.Lines(MOL) Nippon Yusen Kabushiki Kaisha (NYK) and Kawasaki Kisen Kaisha Ltd (K Line) alongwith Qatar Shipping Company (Q Ship) in case of ILT No. 1&2 and Qatar Gas TransportCompany (QGTC) in case of ILT No. 3 each owning and operating an LNG tanker deployed inthe import of a total of 7.5 million metric ton per annum of LNG for the Dahej Terminal ofM/s Petronet LNG Ltd (PLL). SCI is the first and only Indian company to enter into thehigh- technology oriented & sunrise sector of LNG. SCI is the manager for these threecompanies managing the techno-commercial operations of 3 LNG tankers.
India LNG Transport Co. No. 4 Ltd
SCI had entered into 4th JV formed in Singapore with the same threeJapanese companies viz. Mitsui O.S.K.Lines (MOL) Nippon Yusen Kabushiki Kaisha (NYK) andKawasaki Kisen Kaisha Ltd (K Line) along with Petronet LNG Limited (PLL) to own andoperate one 173000 CBM LNG Tanker for transporting 1.44 million metric tons of LNGprimarily from Gorgon Australia to India/China for charterers M/s Exxon Mobil ServicesB.V. Netherlands. SCI is the manager for this company and is managing thetechno-commercial operations of the tanker.
SAIL SCI Shipping Pvt Ltd (SSSPL)
SCI and SAIL had co-promoted a JVC "SAIL SCI Shipping Pvt Ltd" (SSSPL) whichwas primarily to cater to SAILs shipping requirements. The JVC was incorporated on19.05.2010. However due to continued depressed freight levels the JVC could not justifytonnage acquisition and both the Boards of SCI & SAIL decided to voluntarily wind upthe company. The company is in the process of winding up.
Irano Hind Shipping Company Ltd. (IHSC)
The decision for dissolution of the Company taken by the Cabinet has been reiterated bythe Ministry of Shipping and steps in this regard are being taken. Determination of assetsand liabilities of the Company is being undertaken after which closure of the company asper the process stipulated under the Iranian Commercial Code will be achieved.
Inland and Coastal Shipping Limited
India has a long coastline admeasuring 7500 km. and a large network of river systems.Despite this very little attempt has been made to interlink these natural assets for aseamless environment friendly transport system. In a bid to remedy this lacuna duringthe Maritime India Summit 2016 the Inland Waterways Authority of India (IWAI) enteredinto a Memorandum of Understanding with The Shipping Corporation of India (SCI) on 15thof April 2016 to develop this field of domestic transport. Both parties agreed to worktowards tapping the synergies of high sea shipping coastal shipping and inland waterwaysto establish an integrated system of water transportation across the hinterland thecoasts and the high seas.
For this purpose the SCI Board approved the formation of a dedicated subsidiarycompany of SCI based in Kolkata. The Company has been named as "INLAND and COASTALSHIPPING LIMITED" (ICSL). The subsidiary company is working on development of aviable business plan on this segment.
XIV. SPECIAL PURPOSE VEHICLE Sethusamudram Corporation Ltd.
The Government of India had constituted Sethusamudram Corporation Limited (SCL) toraise finance and to undertake activities to facilitate operation of a navigable channelfrom Gulf of Mannar to Bay of Bengal through Palk Bay (Sethusamudram Ship ChannelProject). As per the
Government directive this project is to be funded by way of equity contributions fromvarious PSUs including the SCI. As on FY 2016-17 SCI has invested Rs. 50 crore in theproject. Work suspended since 17.09.2007 consequent to an interim stay by the Hon'bleSupreme Court for carrying out dredging operations in Adam's bridge area. Pending a finaldecision on alternative alignment all the dredgers were withdrawn since 27.7.2009.Supreme Court's final hearing on the matter was scheduled on 06.04.2018 however thehearing was withheld indefinitely. Circular resolution dated 11.03.2019 was passed forseeking additional grant of Rs. 115.72 crores from the Government to settle the dues ofDredging Corporation of India for the dredging works carried out in Sethusamudram ShipChannel Project and also a proposal to Ministry of Shipping for winding up of SCL alongwith fund position.
XV. Memorandum of Understanding (MOU) with the Ministry of Shipping
The MOU for the financial year 2019-2020 was signed on 10.05.2019. The MOU finalizedas per the guidelines issued by the Department of Public Enterprise (DPE) for the yearincorporates performance targets in sync with the changing dynamics of the shippingscenario. Apart from the Financial parameters as per the DPE requirementsSector-Specific Operational Human Resource Management and CPSE Conclave Action PointsParameters have also been incorporated in the MOU for achieving sustained overall growth.SCI's Composite Score for MOU 2017-18 was evaluated by the DPE at 72.07 and SCI was thusgraded "Very Good" for FY 2017-18. The MOU for the financial year 2018-19 wouldbe due for evaluation by the DPE in November 2019.
XVI. Details of shares lying unclaimed
The details of the shares issued pursuant to FPO remaining unclaimed and lying in theescrow account the voting rights of which shall remain frozen till the rightful owner ofsuch shares claims the shares are given as under:
|Details ||No. of Shareholders ||No. of Shares |
|1 Aggregate number of shareholders and the outstanding shares in the suspense account lying as on 01.04.2018 ||4 ||436 |
|2 Number of shareholders who approached for transfer of shares from suspense account till 31.03.2019 ||2 ||274 |
|3 Number of shareholders to whom shares were transferred from suspense account till 31.03.2019 ||2 ||274 |
|4 Aggregate number of shareholders and the outstanding shares transferred to IEPF on 27.12.2018 ||2 ||162 |
|5 Aggregate number of shareholders and the outstanding shares in the suspense account lying as on 31.03.2019 ||0 ||0 |
An amount of Rs.1514484/- w.r.t. 46 applicants lying unclaimed in the Refund Accounthas been transferred to IEPF.
XVII. Utilization of FPO Proceeds
Proceeds from public issues right issues preferential issues etc.
During the year 2010-11 your Company had floated a "Further Public Offer"(FPO) comprising of a fresh issue' of 42345365 equity shares in your company andan offer for sale' of 42345365 equity shares by the President of India. The FPOproceeds of Rs. 58245 lakhs were fully utilized in the financial year 2011-12 as perobject of the issue for part financing of capital expenditure on nine shipbuildingprojects. However due to delays in the projects resulting in default by the shipyardsduring the period January 2014 to May 2014 your Company rescinded contracts for fourshipbuilding projects and also re-negotiated the payments for two projects. Theinvestment in the rescinded contracts out of the FPO Proceeds was Rs. 330.65 crores.
Your Company has received back entire sum of Rs. 330.65 crores from the shipyards. Theshareholders vide the resolution passed through postal ballot on 11.02.2017 approved theproposal to re-deploy the said sum of Rs. 330.65 crores received as refund from Shipyardstowards various shipbuilding projects including offshore assets and liquid petroleum gas(LPG) vessels and also for acquisition of any other such vessels on such terms andconditions as the Board would deem fit from time to time as mentioned in the approval ofthe postal ballot. Further based on the approval granted by the shareholders the Companycan also utilize the sum towards the balance payments remaining due for the tonnageacquisition made by it.
Out of the said amount of Rs.330.65 crs an amount of Rs. 196.80 crs has been utilizedtill date as under;
|Month & Year ||Rs Crs ||Utilised for |
|November 2016 ||34.37 ||Equity portion of PSV - SCI Sabarmati |
|April 2017 ||63.82 ||Equity portion of Suezmax Tanker - Desh Abhiman |
|July 2017 ||27.63 ||Equity portion of PSV - SCI Saraswati |
|September 2017 ||70.98 ||Equity Portion of VLGC - Nanda Devi |
|Total Utilized till date ||196.80 || |
The un-utilized FPO proceeds amount of Rs 133.85 crores are kept in fixed deposit.
XVIII. Segment-wise Performance
Report on performance of the various operating segments of the Company (audited) isincluded at Note No. 32 of Notes on Financial Statements (Standalone) for the year ended31st March 2019 which is forming part of the Annual Accounts.
XIX. Internal Control System
The company has an internal control system commensurate with the size scale andcomplexity of its operations. Internal audit is carried out by an independent firm ofChartered Accountants by M/s T. R. Chadha and Co. LLP on concurrent basis. The scope andauthority of the Internal Audit function is defined in the Internal Audit Plan which isapproved by the Audit Committee. To maintain its objectivity and independence theInternal Audit function submits quarterly reports to the Audit Committee of the Board. Theinternal audit examine evaluate and report on the adequacy and effectiveness of theinternal control systems in the Company its compliance with the laid down policies andprocedures and ensure compliance with applicable laws and regulations. Based on the reportof internal audit function process owners undertake corrective action in their respectiveareas and thereby strengthen the controls. Significant audit observations and correctiveactions thereon are reviewed deliberated and presented to the Audit Committee of theBoard.
XX. Dividend Distribution Policy
The Dividend Distribution Policy of SCI seeks to reward its shareholders for theirtrust and investment in Company's business objectives. The declaration and payment ofdividend will be regulated by the Companies Act 2013 the SEBI (LoDR) Regulations 2015and the guidelines issued by the Govt. of India as amended from time to time. The quantumof dividend payments will depend on annual consolidated Profits fund requirement forcompany's expansion plans present and anticipated future business environment withspecial reference to Shipping Industry and various other factors impacting company'sperformance. The dividend distribution will also be subjected to restrictions /conditions if any imposed by lenders orders of Courts and / or statutory bodies. Thesaid Policy is available at SCI's website i.e www. shipindia.com under Policies'.
XXI. Role of Vigilance Division in SCI
During the year under review the Chief Vigilance Officer continued to ensure theintegration of preventive vigilance initiatives in the business process thus strivingtowards greater transparency and towards improved ethical and corporate governancestandards. Vigilance Division undertook activities of preventive and punitive vigilanceand also ensured adoption of good and ethical corporate governance practices towardsachieving the stated objective of making your Company processes fair transparent andcorruption-free. Technology has been leveraged for achieving greater transparency and foreliminating systemic weaknesses through various implemented and ongoing initiatives suchas e-payments promoting online registration of complaints via the Vigilance Webpagecontained in the SCI website; migration to Supplier Relationship Management platform forprocurements; bill tracking system and dissemination of important circulars/guidelines onthe webpage. Vigilance Division has been propagating the culture of lodging of complaintsunder the Public Interest Disclosure and Protection of Informers' Resolution (PIDPIResolution) whereby the identity of the complainant would be kept secret and he/she wouldbe protected from victimization. Vigilance Division continued to interact with variousemployees of SCI as well as various stake holders including Vendors Contractors etc.which has helped in understanding the issues from their perspective as well.
Activities of the Vigilance Division carried out in 2018-19:
During the year under review the Vigilance Division continued the following normalactivities which encompassed the 3 Ps of Vigilance:- Preventive Vigilance Punitive Vigilance Participative Vigilance. The important activities that werecarried out in 2018-19 by the Vigilance Division were as follows:-
A) Investigations into complaints of corruption/malpractice were conducted
B) Random scrutiny of Annual Property Returns (APRs)
C) Active monitoring of the implementation of Integrity Pact in SCI
D) Acted as a catalyst in the implementation of preventive vigilance measures by yourManagement such as e-payments bill tracking systems phased transfers of employees postedin sensitive areas etc.
E) Conducting surprise and periodic inspections CTE type inspections conductingSystems Studies and recommending systemic improvements
F) Selective scrutiny of Voyage Repairs Bills dry-docking bills various accounts
G) Training of Officers on vigilance related subjects as well as CDA Rules. During theyear a workshop was held for a panel of Inquiry Officers and Presenting Officers
H) Imparting training to fresh recruits on vigilance
I) For the annual Vigilance Awareness Programme apart from in-house programmes majoremphasis was placed on reaching out to youth through various programmes in schools andcolleges as desired by the Central Vigilance Commission
J) The message of Vigilance Division of SCI was spread to the public via an interviewof Chief Vigilance Officer in AIR FM Gold during
Vigilance Awareness Week-2018.
K) Awareness campaign on board SCI ships: In order to spread the awareness aboutVigilance amongst seafarers the Integrity pledge was administered on board the ships andbanners were displayed.
An annual Newsletter titled "SCI Voyager" was also brought out on theoccasion of Vigilance Awareness Week. This is being done with a view to spreadingvigilance awareness amongst employees.
During the period under review the Vigilance Division had investigated 15 complaints(i.e. 10 complaints B/F from previous year + 5 new complaints registered during the periodand 13 complaints closed after investigation leaving 2 balance complaints for completedisposal. Vigilance Study Circle Mumbai Chapter:
The Vigilance Study Circle Mumbai Chapter was started on the initiative of SCIVigilance Division in 2010. It continues to spread Vigilance awareness and develop theknowledge and skills of Vigilance Professionals and provides an ideal platform for theChief Vigilance Officers of Mumbai based PSUs Banks etc. to meet and exchange theirviews/ experiences etc.. Following activities are carried out by VSC Mumbai chapterduring the year 2018-19:
1. Workshop on Overview of Procurement and case studies on procurement was conductedfor about 50 senior officials of PSU's / PSBs by VSC - Mumbai in August 2018. ChiefTechnical Examiner and a senior official from CBI were the expert speakers for the event.This workshop was attended by middle level and senior level management of the members ofVSC - Mumbai
2. The 7th Annual Function of VSC - Mumbai was held on December 21 2018. Hon'bleCentral Vigilance Commissioner Shri. K V Chowdary was the Chief Guest for the function. APanel Discussion' on the topic "Vigilance & India's Growth story" wasconducted where CMDs of 6 member organizations participated. A "Souvenir" of theVSC - Mumbai was officially released by the Chief Guest.
3. As a part of Vigilance Awareness Week - 2018 a Walkathon' was organized byVSC - Mumbai in the BKC area of Mumbai to create more awareness on vigilance relatedactivities. More than 750 personnel from the member organizations participated in thisWalkathon. Integrity Pact in the Shipping Corporation of India Ltd.:
SCI had signed a Memorandum of Understanding (MoU) with Transparency InternationalIndia for the adoption of Integrity Pact. By signing the MoU your Company is committed tohave most ethical and corruption free business dealings with the counterparties whetherthey are bidders contractors or suppliers. The threshold value' for implementationof Integrity Pact in domestic goods and service contracts is Rs.1 crore. Thus anygoods/services contract of Rs.1 crore and above will incorporate the Integrity Pactthereby assuring the concerned parties of the transparent and ethical practices in SCI.During the year under review the Integrity Pact was monitored by a panel of 2 eminentIndependent External Monitors (IEMs). Meetings were held periodically with the IEMs toreview the progress of implementation of Integrity Pact in SCI.
Activity Report of Vigilance Study Circle - Mumbai for the year 2018-19
VSC - Mumbai regularly conducts training / workshop on the topics of concern for thebenefit of its members.
1. Workshop on Overview of Procurement and case studies on procurement was conducted byVSC - Mumbai on August 03 2018 at the office of NABARD BKC Mumbai. Chief TechnicalExaminer and a senior official from CBI were the expert speakers for the event. Thisworkshop was attended by middle level and senior level management of the members of VSC -Mumbai
2. The 7th Annual Function of VSC - Mumbai was held on December 21 2018 atthe Auditorium of NABARD BKC Mumbai. Hon'ble Central Vigilance Commissioner Shri. K VChowdary was the Chief Guest for the function. A Panel Discussion' on the topic"Vigilance & India's Growth story" was conducted where CMDs of 6 memberorganizations participated. A "Souvenir" of the VSC - Mumbai was officiallyreleased by the Chief Guest.
3. As a part of Vigilance Awareness Week - 2018 a Walkathon' was organized byVSC - Mumbai in the BKC area of Mumbai to create more awareness on vigilance relatedactivities. More than 750 personnel from the member organizations participated in thisWalkathon.
XXII. UNGC compliance
Your company is signatory to UN Global Compact initiative which signifies ourcommitment to uphold the ten principles of Global Compact on protection of human rightsprevention of child labour protection of environment and anti-corruption initiatives.Your company is an equal opportunity employer and does not discriminate on grounds of sexreligion caste creed colour etc. The freedom of association is recognized and allowed.Fair labour practices are followed and it is ensured that no child labour isdirectly/indirectly employed. Your company is committed to do business consciously andresponsibly setting sustainable systems to protect the environment. Your company ensurestransparency equity and competitiveness in public procurement through various inbuiltmechanism and anti-corruption initiatives.
XXIII. Cautionary Statement
The statements made in the Management Discussion and Analysis describing Company'sobjectives projections estimates and expectations may be "forward-lookingstatements" within the meaning of applicable laws and regulations. Actual resultsmight differ materially from those expressed or implied.
XXIV. Board of Directors
Mr. Sukamal Chandra Basu ceased to be the Directors on the Board of SCI w.e.f 20.3.2019upon completion of his tenure. Mrs. Archana Ramsundaram ceased to be the Director on theBoard of SCI w.e.f 20.3.2019 on to her appointment as Non-Judicial member of Lokpal.
The Board record its appreciation for the services rendered by the concerned Directors.
Mr. Arun Balakrishnan completed his tenure on 20.3.2019 and ceased to be the Directoron the Board of SCI. Subsequently vide Ministry's letter dated 12.7.2019 Mr. ArunBalakrishnan was reappointed on the Board of SCI on 19.7.2019.
XXV. Declaration of Independence
The Company has received Declaration from Independent Directors conforming that theymeet the criteria of Independence and have complied with the Code for IndependentDirectors as prescribed under Companies Act 2013 the SEBI (Listing Obligations andDisclosure Requirements) Regulations 2015 and DPE guidelines
XXVI. Auditors Report
The Statutory Auditors have given an unqualified report on the Financial Statements ofthe Company for the Financial Year 2018-19. Further there are no comments made byComptroller and Auditor General of India on the Standalone and Consolidated FinancialStatements for the year ended 31st March 2019. The Management's reply to theStatutory Auditors observation on Internal Financial Control under section 143(3)(i) ofthe Companies Act 2013 is given below;
Statutory Auditors Observations
a) The timely updation and monitoring of the master data with respect to FleetPersonnel needs to be strengthened.
b) The Control on the timely updation of telegram for booking of bunker consumption incorrect voyage & recovery from charterer needs to be strengthened.
c) System for Monitoring and Clearing of Vendor Accounts (Including Agent Prefunding)GR/IR Accounts should be done on timely basis and Legacy Balances should be reconciled.
d) The system has to ensure that the TDS is deducted either at the time of booking ofexpenses or while making the provisions at cut-off date
a) The Company has taken necessary steps for timely updation of master data as soon asseafarers sign on and sign off. Further the Company has authorised an officer for makingrelevant changes in fleet personnel master data after approval from head of fleetpersonnel department to strengthen the controls in the master data.
b) Masters of the vessels forward the reading of bunker utilized on daily basis viatelegram. The Company has put procedure in place to check all the telegrams sent by thevessels to ensure that the consumption is booked on the correct vessel voyage. Anydiscrepancy is immediately notified to the Master for rectification. At times vessels alsoface IT system issues thereby not allowing vessel to make any telegram on time. Thisissue is addressed through manual posting.
In respect of inchartered vessels information is received from the vessel and enteredinto the system by officers. So the mechanism of double check has been put in place toensure minimal human errors. Further in case of inchartered vessel if i) there isshortage or excess at the time of redelivery ii) there are claims pertaining to excessconsumption of bunkers as against what has been declared at the time of charter partyagreement same is adjusted in the Statement of Accounts (SOA).
c) Efforts are made by the respective divisions to expedite the approvals of FDAs. Inorder to strengthen clearing and monitoring of GR/IR account and Vendor account procedureof follow up for pending bills with respective departments has been put in place. TheCompany is in active process of completing the reconciliation of the legacy balances.
d) The Company is in process of installing a system to ensure that TDS is deductedeither at the time of booking of expenses or while making the provisions at cut-off date.
XXVII. Secretarial Audit
Pursuant to Section 204 of the Companies Act 2013 and the Companies (Appointment andRemuneration of Managerial personnel) Rules 2014 the Board has appointed Mr. UpendraShukla Practicing Company Secretary to conduct the Secretarial Audit for the Company forFinancial Years 2017-18 and 2018-19. The Secretarial Audit report for the FY 2018-19 isappended to the Directors' Report. The Secretarial Auditor in his report for the yearended 31st March 2019 has brought out that:
The Corporation has complied with the requirements of Corporate Governance as providedunder Regulation 17 of the SEBI (Listing Obligations and Disclosure Requirements)Regulations 2015 and DPE Guidelines on Corporate Governance with the exception ofappointment of Independent Directors to the extent of 50% of the total strength of theBoard during the period 1st April 2018 to 17th December 2018 and20th March 2019 onwards. It is clarified by the Corporation that the matter isbeing pursued with the Administrative Ministry for appointing required number ofIndependent Directors on the Board within the period prescribed under Section 149 of theCompanies Act 2013 and
Regulation 25(6) of the SEBI (LODR) Regulations 2015.
The Management views on the above observation are as follows:
As on date the Board of SCI includes the following six Independent Directors: DrGautam Sinha Shri Raj Kishore Tewari Dr PKanagasabapathi Shri Vijay Tulsiramji JadhaoShri Arun Balakrishnan and Shri Mavjibhai Sorathia. SCI is following up with The Ministryof Shipping for appointment of required number of Independent Directors.
XXVIII. Corporate Governance
Pursuant to the SEBI (Listing Obligations and Disclosure Requirements) Regulations2015 report on Corporate Governance is attached to this Report.
XXIX. Directors' Responsibility Statement
Pursuant to the requirement under Section 134(5) of the Companies Act 2013 withrespect to Directors' Responsibility Statement it is hereby confirmed:
(a) That in the preparation of the annual accounts the applicable accounting standardshad been followed along with proper explanation relating to material departures;
(b) the directors had selected such accounting policies and applied them consistentlyand made judgments and estimates that are reasonable and prudent so as to give a true andfair view of the state of affairs of the company at the end of the financial year and ofthe profit and loss of the company for that period;
(c) the directors had taken proper and sufficient care for the maintenance of adequateaccounting records in accordance with the provisions of this Act for safeguarding theassets of the company and for preventing and detecting fraud and other irregularities;
(d) the directors had prepared the annual accounts on a going concern basis; and
(e) the directors in the case of a listed company had laid down internal financialcontrols to be followed by the company and that such internal financial controls areadequate and were operating effectively.
Explanation For the purposes of this clause the term "internal financialcontrols" means the policies and procedures adopted by the company for ensuring theorderly and efficient conduct of its business including adherence to company's policiesthe safeguarding of its assets the prevention and detection of frauds and errors theaccuracy and completeness of the accounting records and the timely preparation ofreliable financial information;
(f) the directors had devised proper systems to ensure compliance with the provisionsof all applicable laws and that such systems were adequate and operating effectively.
Your Directors extend their gratitude to erstwhile Union Minister of Shipping ShriNitin Gadkari and Minister of State for Shipping Shri Mansukhlal Mandaviya existing UnionMinister of Shipping Shri Mansukhlal Mandaviya and look forward to their support andguidance in managing the affairs of the Company. Your Directors also extend theirgratitude to Shri Ravikant former Secretary to the Government of India Ministry ofShipping and the Secretary Shri Gopal Krishna Ministry of Shipping for their guidance.
Your Directors also wish to express their thanks to the officials in the Ministry ofShipping Road Transport and Highways for the unstinted support given by them in variousmatters concerning the Company. Your Directors would also like to convey their thanks toother Ministries Trade Organizations and Shippers' Councils who have played a vitalrole in the continued success of your Company. The Directors thank the shareholders andvalued customers for the continued patronage extended by them to your Company.
Last but not the least your Directors wish to record their deep appreciation for thededicated and loyal service of your Company's employees both afloat and ashore withoutwhose co-operation and efforts the achievements made by your Company would not have beenpossible.
| ||For and on behalf of the Board of Directors |
|Place : Mumbai ||Capt. Anoop Kumar Sharma |
|Dated: 9th August 2019 ||Chairman & Managing Director |