Shipping Corporation of India (SCI), India’s largest shipping company, is charting rough waters. It is not only the weak shipping sector but also the strain on the company’s finances and the absence of a full-time chairman that are seen as challenges for the public sector company.
SCI is looking at other avenues for growth due to the continued weakness in shipping rates, much after other shipping companies like Great Eastern Shipping and Mercator that have already ventured into related sectors. The company, which recently signed a memorandum of understanding (MoU) with GAIL, is now looking for more opportunities for liquefied natural gas (LNG) transportation. SCI is already a part of a ship-owning consortium that has leased three LNG ships to Petronet LNG for transporting LNG from Qatar to Dahej in Gujarat. SCI holds a 29% stake each in two of the LNG ships, and a 26% stake in the third one.
“LNG is the future fuel in India. We are looking at expanding our base in LNG. We are the only shipping company with experience in transporting LNG. Now we are trying to expand and make these companies know that we are there,” Sunil Thapar, director of the bulk carriers and tankers division, had told FE in August. The company is currently bidding for a fourth project with Petronet for hauling the fuel from Gorgon in Australia to Kochi in Kerala where Petronet has built a 5 million tonnes per annum LNG regasification terminal.
This diversification move of SCI is being closely watched by the industry. “It needs to be seen how much inroads SCI will be able to make into LNG transportation. The company, in the past, has signed MoUs with other PSUs, but there has not been any major development on the ground,” said Anand Sharma, director at Mantrana Advisory in Mumbai.
SCI and SAIL had signed an MOU in 2008 to form a joint venture that would mainly provide shipping-related services to SAIL in importing the coking coal required for its steel mills. SCI is still in the process of acquiring vessels for this venture. The navaratna company, which had signed a similar deal with ONGC, is also seeking another round of talks as the shipping company looks to expand its fleet for offshore operations. The company has been seeing some strength in the offshore business with higher demand for vessels to provide logistical support for oil exploration. The company had also initiated talks with NTPC in 2011 to transport cargo.
SCI went on a vessel acquisition spree for five years when it ordered 62 vessels, in line with its acquisition target for the11th Five Year Plan (2007-12), with an investment of R13,135 crore. But that is not the case now.
“SCI has not placed any order for vessels in the current fiscal year and will not place any order soon,” SCI’s Thapar said recently. Former managing director S Hajara had said the same in December, citing the company’s poor cash flows and debt.
SCI had debt of about R8,164 crore as on June 30, 2013. It had incurred losses of R414 crore in FY13 on the back of higher operating costs and lower revenues. For the financial year ended March 31, 2012, the company reported a net loss of R428 crore, compared with a net profit of R567 crore in the previous year.
The shipping ministry’s parliamentary standing committee has also expressed concern, saying the SCI could go the Air India way if its financial management did not improve soon. “SCI may need to have a re-look at its fleet acquisition orders to save it from falling into deep trouble,” the panel said. The standing committee report also observed that the company’s loan liability has increased from R6,322.9 crore in 2011-12 to R7,289.44 crore in the last financial year. SCI’s total liability increased 20% to R8,725.9 crore in 2012-13.
The other big issue that has to be resolved is the is absence of a full-time chairman for 10 months now. After Hajara finished his term on December 31, the company has been operating without a full-time chairman. SCI’s director (finance) BK Mandal has been officiating as chairman and managing director. Although Thapar’s name was approved for the chairman’s position, his appointment has been held back by the ministry.
“Lack of a full-time chairman is leading to some difficulties in the decision-making process. Taking decisions in matters like diversification, forming of joint ventures, etc, becomes tough when a company does not have a full-time chairman, ” said Mantrana Advisory’s Sharma.
These internal troubles at SCI come against the backdrop of an already beleaguered shipping industry, which has been in the doldrums for the last four years due to high operating costs and low daily shipping rates. Globally, the shipping industry saw the sharpest rise in freight rates when the Baltic Dry Index touched 11,793 in May 2008, soaring from 2,468 in January 2006. Freight rates rose as China imported record shipments of iron ore and coal.
Excited about the high rates, shipping companies across the world placed orders for new vessels, anticipating continued strong demand ahead. However, with the US economy slowing down, shipping rates plummeted. By early 2009, the rates were close to 1,200 points. Starting 2010, most shipping companies started receiving the ships that they had placed orders for. The worldwide fleet of bulk carriers rose to 680 by the end of 2012, from 395 in 2007. Many are now selling their vessels to ship-breakers to recover losses and contain overcapacity. Since January 2013, shipping rates have begun to rise on the back of higher imports to China, but industry watchers say it will still take more than a year for companies to rebound.