Bright future for Dry Bulk segment in Maritime Trade: Expert

Published in Sagar Sandesh edition dated May 23, 2012:

“With the demand for ocean transportation of coal/ ore in India/china that is bound to increase in the coming years, the future for dry bulk segment in Indian maritime trade is positive”, Mr K Shankar, President –Shipping in the India Cements and the Chairman of Institute of Marine Engineers (India) Chennai Branch, has said.

In an exclusive interview to Sagar Sandesh, Shankar, who has more than 40 years of experience in the shipping industry, shared his views on several issues in the maritime trade including the growing piracy menace and also about the future plans of India Cements’ Shipping division to reach numero uno position in the trade in the Southern Region.

Excerpts of the interview…

 

Q: Tell us about the India Cements Shipping division, its vision?

 

Mr K Shankar: Shipping and India Cements have come a long way together. Our Founder, Shri.T.S.Narayanaswami, a visionary was one of the pioneers in South India in identifying shipping to be a profitable business.  He was keen to implement the then declared National Policy of improving growth of Indian Shipping and thus placed India Cements very early on the Indian Shipping Industry map by entering shipping business through SISCO-South India Shipping Corporation in 1964.  He thus helped South India gain a rightful place in Indian Shipping. The formation of SISCO was a record in corporate promotion in the South due to his imagination and initiative.  Financial arrangements were enabled for the acquisition of five vessels by December 1966 and their operation in the global tramp trade.

India Cements continued to have a good presence in shipping as ICL Shipping Limited.  During the early 2000s, with consolidation and focus on expansion of the core business, the industry witnessed a decline in ICL’s presence in Shipping.

While shipping business per se depends on the availability of cargoes, cargo owners who have abundant cargo also enter shipping so as to insulate themselves from freight market fluctuations as also to ensure the security of their supply chain.  While there are points both in favour of and against a cargo owner in being a ship owner with the advantages of sticking to the core competency and the lack of understanding of key variables in shipping being against, the possibility of having a greater control over logistics and higher certainty in decision making has encouraged many a cargo owner to take charge of shipping. 

Today India Cements has got a cement production capacity of about 14 MnT and the annual cargo imports are close to 1.2 Mn T, all of which are transported by sea.  With captive power plants set-up to meet the power needs, the cargo requirement is only bound to increase.  India Cements have also invested in coal mines in Indonesia to meet their import needs.  With power requirements in India set to grow multifold in the coming years and with the growing aversion to atomic power stations worldwide following the disasters witnessed in Japan, the ocean transportation of coal is set to increase much more than the earlier estimates.  With a control of such large volumes of cargoes, ICL strategically re-entered Shipping in 2008 with the acquisition of 2 handy-size vessels, Chennai Jayam and Chennai Perrumai. These vessels have carried import cargoes for ICL in the past and have also been suitably employed outside to leverage on higher freights whenever available.  India Cements has been continuously seeking such opportunities so that the group benefits from better returns at all times.

 

Given the growing demand for power in India and the increasing demand for coal both in India and worldwide, the demand for ocean transportation of coal is expected to increase for a long time in the future.  India Cements with its own shipping division and a fleet of vessels is thus well-poised to take advantage of this demand.

 

Q. Has the shipping division recorded the anticipated growth since its inception?

KS: Shipping business since re-entry in 2008 has been a value addition to the group as a whole since they have carried import cargo for ICL and employed outside to leverage on higher freights whenever possible.  With growing demand for import cargos, our ships will be mainly deployed for our own captive trade and India Cements with its own fleet of vessels is thus well poised to take advantage of the demand.  We have recently signed a MOA for the acquisition of a TESS 52 – Tsuneishi 2001 built 52K Supramax vessel that will be taken delivery by us shortly.  This will be a value addition for our captive trade requirements.

 

Q. If we see the shipping companies profile in India, most of them are anchored in Mumbai only. Why South India lacks in it and what has to be done?

KS: If you are looking at the traditional maritime history, yes, you are right in saying that the shipping activities those days were centered around Mumbai.  Those days, shipping companies preferred to operate out of Mumbai as a matter of convenience and proximity.  But in these days of advanced technology and communication options, there is no need for any shipping company or its activity to be centered around Mumbai or Chennai.  In today’s world, an organization requires an efficient database, excellent communication system and global access with advanced technology that is readily available to handle ship related matters.  Hence, it is unnecessary to focus on where a shipping activity has to be based in order to efficiently run its operations.

Q. What is the present scenario of dry-bulk segment in the maritime trade? How do you see the future for dry bulk segment?

 

KS: It is an accepted fact that the future maritime trade will be focused towards India / China inspite of the sluggish economy and the markets.  In the long term, India’s growth in infrastructure, power & energy sectors is a certainty that cannot be avoided or postponed.  There is a huge demand for dry bulk movement of coal.  Most of the large business houses like Reliance, TATA, Adani, Essar have been investing into ship owning for supporting their captive cargo needs.  Hence, the demand for ocean transportation of coal is bound to increase for a long time into the future.  There are over 847 billion tons of coal reserves worldwide while oil and gas reserves are equivalent to around 50 years with current production levels.  In India, there is a huge power deficit and all leading industrial houses have ventured into setting up major power plants both for their captive needs and for trading in power. These power plants are coal fuelled with steam coal imported mainly from Indonesia, Australia and South Africa.  Hence, the demand for dry bulk segment in India can only increase in the future.

 

Q. In your view, which is economical and safer-- moving cargo in dry bulk or container?

KS: There are different types of ships meant for different types of cargo. For example, liquid cargo, gas, chemical; these are carried by specialized tanker vessels, adaptable for the same.  Similarly there are specialized vessels meant for dry bulk or general cargo such as dry bulk carriers, container vessels, break bulk vessels, general cargo vessels, etc.

We cannot generalize and compare between the containerised cargo and the dry bulk cargo in terms of operational safety or economy.  For example, if I have to ship my cement in bags, I would prefer to do the shipment in containers whereas if I have to import my coal for captive requirement, it has necessarily to be on a bulk carrier vessel.  The thumb rule is the higher the capacity of cargo in one shipment, the cheaper will be the freight cost. In other words, my freight cost or the cost per ton of coal moved in a 52K Supramax vessel in one shipment will be more than the cost per ton of a 75K parcel of coal carried on a Panamax vessel.  This is the basis with which the trader purchases coal from the seller and customize same for the required needs and offer the buyer the best solution.

 

Q. With the world slowly moving towards sending cargoes in boxes for more safety, do you have any plans to procure vessels for moving containerized cargo?

KS: You may be aware the Tamil Nadu State Planning Commission’s XII Five year plan sub group on Inland Water Transport Services envisages National Waterways NW4 to be completed in seven years.  Such a project envisages a potential bulk cargo movement of 11 Mn tons per annum of coal, cement and rice movements on smaller vessels through the Inland Waterways having restricted draft.  This will be a long term boost to trade and industry.  Once this becomes the reality, the need for smaller vessels suitable for Inland Waterways navigation with specialization in containered cargos cannot be ruled out.  Possibly we will look at for our movement of cement as containerized cargo.

 

Q. What is the share of Shipping division in overall company’s business portfolio?

KS: The demand for shipping is a derived demand i.e., unless there is a demand for goods far away from the location where they are available, there will not be a demand for shipping.  Shipping is capital intensive business and requires a consistent availability of cargo for both profitability and sustainability.  As far as ICL is concerned, the cargo requirement is bound to increase and we won’t be found wanting for transportation of such large volumes of cargo in today’s highly volatile market.

 

Q. Is Indian ports are equipped enough to meet the growing demand?

KS: I am not satisfied with the growth of the port infrastructure to suit the growing demand of industry. The pace of development is extremely slow.  We have no other option, but to accept the administrative hurdles, the facilitator / end user mismatch.  Let us hope that the result is not too far ahead.  I am sure, the Industry will tide over the shortcomings and that all the ports will adapt to the growing demand of industry sooner than later.

 

Q. How do you see the threat of piracy in mid-seas? According to latest reports, Somali pirates slowly moving towards Indian Ocean as they are running out of more options near Horn of Africa.

KS: The menace of piracy continues unabated in spite of naval presence in the gulf of Aden regions and merchant ships are frequently given guidelines to comply with the best management practices that includes establishment of ‘citadel’.  35 percent of total numbers of ships transiting the waters deploy security guards.  Providing security guards on board the vessel is a matter of serious concern. The recent incident of Italian ship held back at Kochi (released few days ago) on this account is a glaring example.  The merchant ships carrying arms will lead to many hassles trading in international waters and the ship owners are left to evaluate their own risk assessment.  There are many private maritime security companies offering these services.  I doubt if this will be a permanent solution. Like terrorism, piracy is an evil.  United Nations and IMO must recognize this as an international peril and declare war against piracy and adopt a resolution to combat piracy in general and their operational base in particular.  Security forces should target and destroy the piracy base and cripple their activities in an orderly and effective manner.  The international community will wholeheartedly welcome this.  I am really concerned about the seafarer’s plight and dread the miseries that they need to undergo if and when under captivity.

Q. As a shipping industry expert, what is your advice to young seafarers?

 KS: My advice to the young seafarers of today is – “you are your own teacher. Choose your own mentor. Do what you can with total professional commitment and sincerity and learn the good values of professional conduct and attitude during the initial stages of your professional career”. That foundation shall be your worth that will keep you in good stead in your professional career.