India: Shipping Sector Eyes Major Policy Change in 2015


If Nitin Gadkari keeps his word, 2015 will see solid policy support to the shipping and port sector. Income Tax exemption to seafarers, cargo support to Indian flag-carriers, duty free-bunker to coastal shipping, incentives to shipyards and de-regulation of port tariff are among a host of promises he made from the time he took over as Shipping Minister.

Expectations are that some of these measures may be announced during the upcoming Budget session.

As 2014 draws to a close, captains of the industry are pinning hopes on policy support at home that could ease their life in the current challenging global market environment.

The prospects of a significant pick up in ocean freight seem to be dim. Countries like Russia, Japan and China are facing economic slowdown. Rates for hauling dry bulk cargo such as iron ore, coal and grains have been under tremendous pressure for the past couple of months. The Baltic Index, the barometer of commodity freight, plunged to 782 points on December 24, from over 1,100 points in September. An immediate recovery seems unlikely in the coming days. Tanker rates have improved, but analysts are not sure whether the uptrend will sustain for long, though they expect supply pressure to ease with lesser number of new deliveries in the next year.

Crude price
Fall in crude price may be another positive factor. The bunker cost, which accounts for about 40 per cent of shipping lines’ operating expenses, fell sharply in recent months. However, a major worry for ship-owners is compliance with the new sulphur emission norms, coming into force from January 1. As per this regulation, all ocean-going vessels passing within the Emission Control Areas (including the English Channel, Baltic Sea, North Sea, North American and US Caribbean Sea areas) must use fuel oil with less than 0.1 per cent sulphur. Ship owners will have to incur additional cost. Either they have to mix fuel oil with gas oil or refit their vessels with new equipments to comply with the regulation.

Ships operating in the Far East and Middle East routes will not be affected by the new regulation. However, they will have to gradually prepare for adhering to ‘green shipping’ norms which will become applicable in the future globally.

Some of the reforms the Minister promised to introduce are crucial for domestic shipping lines to become globally competitive. It is a pity that Indian ships currently carry less than 10 per cent of the country’s own international cargo.

Mounting difficulties
Last year the country imported about 185 million tonnes of crude, but only 13 per of which was carried by Indian ships. The shipping ministry should take up the proposed hydrocarbon transportation policy with the Petroleum Ministry. Indian shipping tonnage has been stagnating around one million grt. Though ship prices have become attractive, Indian owners find it difficult to raise funds to buy them.

One of the first things the Minister wanted to do was to encourage coastal shipping and inland water transport. Though he took the initiative, nothing much was done to divert more cargo to this economical and eco-friendly mode of transport.

The Shipping Ministry spent a lot of time and energy to remove the discrepancy in the tariff regulations that has been stifling efficiency and growth in government ports, but it is yet to succeed. And TAMP, the tariff regulator, continues to follow the same old guidelines to fix the rates.
Source: Hindu Business Line