‘2011 may be difficult for shipping’

Sabyasachi Hajara heads the country’s largest shipping company, Shipping Corporation of India, which operates almost all types of ships — from LNG tankers to passenger vessels.
Hajara, who has been with SCI for more than 38 years, is the only head of an Indian company to be in the list of 100 most influential people in the world of shipping, published last month by Lloyd’s List.
In an interview, he said 2011 will be a difficult year for shipping industry and explained why. Excerpts from the interview:

How do you see the coming year for the shipping industry?
2011 will be a pretty difficult year for shipping because the excess supply (of tonnage) will continue to put pressure on freight rates. 2010 was a record year for delivery (of new ships). 2011 will be closely following that, and thereafter it will drop. On the demand side, there will be growth despite the financial difficulties in the Euro region and in the US. The BRIC countries (Brazil, Russia, India and China) are growing pretty fast and that will drive the trade. Because of that the demand for tonnage is expected to grow at a decent rate in 2011.

In 2010 the growth in demand has been pretty good. Dry bulk has grown 10 per cent and crude 3.4-4 per cent. Of course, this growth has to been seen in view of the low base of 2009, when global trade had actually plummeted. But supply growth has been higher than demand growth and that put pressure on freight rates, which remained subdued. Despite the severe winter, the energy demand has not reached the expected level and the tanker rates have not gone up. The impact of excess supply (of ships) is expected to continue till early 2012.

Thereafter, there will be a reasonable chance for a decent revival in rates. This is because 2009 was a historic low for new ship orders and therefore delivery of new ships will be very limited in 2012. But the growth in demand will continue following the expected global economic recovery. So, there will be demand supply equilibrium by 2012.

What about the container trade?
Container trade, fortunately, is doing much better than it was in 2009. That has been possible because of the self -discipline imposed by the large carriers, which laid up part of their tonnage to remedy the demand-supply mismatch.
As the global economy recovers, trade volume will go up. This should fuel growth in container volumes. We should see nine per cent growth in volumes in 2011. Overall, the container scenario will remain good.

How do you view the Indian industry?
Growth in India is really commendable. For an Indian shipowner deployment of ships will not be a problem. But freight rates being international, there is nothing like an Indian rate.

Shipping is a global business and the freight rate is universal. Therefore, the margins for Indian shipping companies, like their counterparts in other countries, will come under tremendous pressure, at least till the beginning of 2012.

Do you see growth in any particular sector in India?
There will be demand growth in all segments. Coal is going to be a big story in India. The demand for thermal coal is expected to go up to 200 million tonnes by 2013 to 80 million tonnes now. Demand for coking coal also is expected to double in the two-three years. With steel plants expanding capacity, coal imports are going to go up. SAIL's own imports are expected to go up from 12 million tonnes to 24-30 million tonnes in the next two-three years.

But in the oil sector, we are going to depend more and more on imported crude. Imports are expected go up from the present level of 80 per cent to 90 per cent in the next 5-7 years. This offers a huge opportunity, but the shipping industry needs more support. Shipping gets support from governments in many countries. China openly declared that at least 50 per cent of its oil cargo should be brought by its own ships. In India, the government support to development of the maritime infrastructure, be it shipping, shipbuilding or ports, has always been lukewarm. There is a lack of political will.

What kind of growth you expect for SCI?
You know I cannot talk on the performance of SCI now (because of the silent period). We have something like 30 vessels on order. SCI is to be an 8-million-tonne company in a matter of few years. It will achieve 6 million dwt in 2011, the first time in the Corporation’s history.

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