Index

1. Executive Summary 2. Shipping : Global Scenario 3. Shipping : Indian Scenario 4. Factors Hampering Indian Shipping Industry 5. Indian Shipping : Growth Drivers 6. Government Policies and maritime regulation 7. What Indian Shipping Needs 8. Future Outlook 9. References 2 3 11 19 21 24 27 28 30

1|P a g e

Executive Summary
The Transportation & Logistics industry forms the back bone of global supply chains. The shipping Industry plays a dominant role as 90% of world trade is seaborne. Without shipping, the import and export of goods on the scale necessary for the modern world would not be possible. There are around 50,000 merchant ships trading internationally, transporting every kind of cargo. The world fleet is registered in over 150 nations, and manned by over a million seafarers of virtually every nationality. Ships are technically sophisticated, high value assets (larger high-tech vessels can cost over USD 150 million to build), and the operation of merchant ships generates an estimated annual income of over USD 280 billion in freight rates, representing about 5% of the total global economy. This paper focuses on the scenarios in the global shipping industry, major players in the market. Besides, it also focuses on the present scenarios in the Indian shipping industry, its growth drivers, the challenges and issues faced, the government polices and the regulations. It also gives some suggestions in order to meet the growing demand of the trade through shipping.

2|P a g e

Shipping Industry : Global Scenario

Throughout the last century the shipping industry has seen a general trend of increases in total trade volume. Increasing industrialisation and the liberalisation of national economies have fuelled free trade and a growing demand for consumer products. Advances in technology have also made shipping an increasingly efficient and swift method of transportation. Over the last four decades total seaborne trade estimates have quadrupled, from just over 8 thousand billion tonne-miles in 1968 to over 32 thousand billion tonne-miles in 2008. As with all industrial sectors, however, shipping can be susceptible to economic downturns. Indeed, following several years of incredibly buoyant shipping markets, for many trades the best in living memory, much of the international shipping industry has fallen prey to the worldwide economic downturn. Shipping is inherently the servant of the economy, so the contraction in trade, following the beginning of the credit crunch in late 2008, has translated into a dramatic and abrupt reduction in demand for shipping. Notwithstanding the current gloom and doom, the longer term outlook for the industry remains very good. The worlds population continues to expand, and emerging economies will continue to increase their requirements for the goods and raw materials that shipping transports so safely and efficiently. In the longer term, the fact that shipping is the most fuel efficient and carbon friendly form of commercial transport should work in favour of an even greater proportion of world trade being carried by sea. The global commercial shipping industry can be classified into the following categories: Oil Tankers (liquid bulk carriers) : Designed for transporting crude oil Bulk Carriers : Designed to carry bulk solids such as grains, fertilizer and ores or bulk liquids such as refined petroleum products, chemicals and orange juice General Cargo Ships : Designed to carry break bulk cargo Containerships : Designed to transport standard-sized ocean freight containers Other Types of Ships : o Liquefied gas carriers o Chemical tankers o Miscellaneous tankers Ferries and passenger ships Other miscellaneous ships

Demand and Supply Drivers of the Shipping Industry The primary demand and supply driver in the shipping industry is freight rates, which determines the revenue of shipping companies. Other drivers of the shipping industry are: Trade growth Geographical concentration of trade Threat of wars, piracy, storms and hurricanes Government sanctions on shipment Access to and suitability of other modes of shipment

3|P a g e

The supply drivers of the industry include: Demand for oil and dry bulk Climatic conditions (rains, storms and tides) Government restrictions on shipment

The global shipping industry constitutes of transportation and both goods and passengers. The largest product segment within the industry is international freight transport, occupying 69.1% of industry revenue. This segment refers to the transportation of goods by sea between domestic and foreign ports. Over 70% of the worlds merchant fleet (in terms of dead weight tons) are tankers and bulk carriers. The world seaborne trade was nearly USD 8.3 billion. Higher economic growth contributed strongly to a tonnage demand growth for the world merchant fleet of between 11 to 12 %. The performance of this industry depends on the same broad factors that determine economic performance such as GDP, and the level of trade and growth within industries that use ships as a mode to transport cargo. Common trading terms used in shipping goods internationally Freight on board, or free on board (FOB) - the exporter delivers the goods at the specified location (and on board the vessel). Costs paid by the exporter include load and lash, including securing cargo not to move in the ships hold, protecting the cargo from contact with the double bottom to prevent slipping, and protection against damage from condensation. For example, "FOB Kunming Airport" means that the exporter delivers the goods to the airport, and pays for the cargo to be loaded and secured on the plane. The exporter is bound to deliver the goods at his cost and expense. In this case, the freight and other expenses for outbound traffic are borne by the importer.[citation needed] Cost and freight (C&F, CFR, CNF): Insurance is payable by the importer, and the exporter pays the ocean shipping/air freight costs to the specified location. For example, C&F Los Angeles (the exporter pays the ocean shipping/air freight costs to Los Angeles). Many of the shipping carriers (such as UPS, DHL, FedEx) offer guarantees on their delivery times. These are known as GSR guarantees or "guaranteed service refunds"; if the parcels are not delivered on time, the customer is entitled to a refund. Cost, insurance, and freight (CIF): Insurance and freight are all paid by the exporter to the specified location. For example, at CIF Los Angeles, the exporter pays the ocean shipping/air freight costs to Los Angeles including the insurance.[citation needed] The term "best way" generally implies that the shipper will choose the carrier who offers the lowest rate (to the shipper) for the shipment. In some cases, however, other factors, such as better insurance or faster transit time will cause the shipper to choose an option other than the lowest bidder.

Important Countries: The shipping industry in Europe represents an estimated 43.8% of the total revenue. Based on the data from European commission, around 90% of the European Union external trade and more than 40% of its internal trade is transported by sea. The 3 European firms at the top of container shipping, Maersk, MSC and CMA CGM, have nearly 35% of world market share, while Germany accounts of well over half of the world fleet chartered container ships. Greece

4|P a g e

and Norway are world leaders in the tanker and bulk shipping markets and European firms occupy top slots in smaller niche sectors, from heavy lift and project shipping to marine salvage.

Major operators
The below table shows the major players in the area of shipping.

Source: AXS-Alphaliner Top 100 2010

5|P a g e

Top 20 largest shipping flags (October 2010)

6|P a g e

Top 20 beneficial ownership countries (January 2009)

Based on total deadweight tonnage controlled by parent companies located in these countries.

7|P a g e

Worlds busiest ports

1. Shanghai, China : Shanghai International Port (Group) Co., Ltd. is the exclusive operator of all the public terminals in the Port of Shanghai. In total, SIPG operates 125 berths on a total quay length of around 20 kilometres, among which, 82 of these berths can accommodate vessels of 10,000dwt class or above. QC. Except the container terminal, SIPG also owns public bulk, break-bulk, specialized Ro/Ro terminal and cruise terminal. SIPG operates warehouses with a total area of 293,000m2, storage yards with a total area of 4,721,000m2, and owns 5,143 units of cargo handling equipment. Shanghai's container throughput rose 16.3 per cent to 29.1 million TEUs in 2010 while its cargo tonnage grew 17.3 per cent to 428.35 million tonnes, according to the website of Shanghai. 2. Singapore: The Maritime and Port Authority of Singapore (MPA) is the port authority for the Port of Singapore. The MPA licenses and regulates port and maritime services and facilities in the Port of Singapore and manages vessel traffic. Lying at the crossroads of international ocean-going trade routes, the Port of Singapore receives an average of 140 thousand vessels per year carrying about 30 million containers, 500 million tons of cargo, and a million cruise passengers. Traffic in year 2010 was 28.4 million 20-foot equivalent units Total cargo handled climbed 6.4% to 502.5 million metric tons. 3. Hongkong: The Port of Hong Kong lies on the coast of southern China on the Kowloon Peninsula off the South China Sea about 36 kilometres southeast of the Port of Huadu and 34 kilometres southwest of the Port of Yantian. Hong Kong handled 23.53 million TEUs in the year 2010, recording an increase of 11.8 per cent. The Port of Hong Kong contains almost 7.7 thousand meters of quays at the Kwai Chung and Stonecutters terminals, about 7.0 thousand meters of quays at public cargo working areas, and 31 mooring buoys for ocean-going vessels. Three public passenger ferry terminals serve over 20
8|P a g e

million passengers per year travelling to and from mainland China and Macau. 4. Shenzhen, China It has 140 berths, among which 51 are of 10,000dwt or above, 90 operational berths, among which 43 are of 10,000dwt or above,18 container berths, 9 consignee berths, among which 3 are of 10,000dwt or above, 18 passenger ferry berths, and 23 nonproductional berths. The annual handling capacity is 83.764 million tons, including 6.2 million TEUs (including non-professional container capacity), 5.5 million passenger-times, and the 180,000 car-times. The total length of the ports coastline amounts to 22,149.7 meters. Shenzhen Port container traffic was 2.24 million TEUs, an increase of 29.5 percent in 2010. 5. Busan, South Korea Busan Port, the world's 5th busiest container port and the largest transshipment port in Northeast Asia, is located on the main trunk route, and handles more than 13million TEU annually, through active exchange with 500ports in 100 countries. Cargo volume at Busan Port was 14.18 million TEUs in 2010, which is 18.4% higher than last year. With increased coastal shipping services including the Busan-Pohang route, Busan Port handles 73.6% of total container volume, which is 0.3% increase compared to 2009. 6. Ningbo, China The port of Ningbo sees some of the most shipping traffic in Chinait is one of the few ports in China to exceed 100 million tons of throughput in a year. Geographically, the port is located in Zhejiang province. It trades manufactured goods and raw materials with nearly 600 ports around the world. It handled 13.144 million TEUs in 2010, registering at growth of 25%.

9|P a g e

7. Guangzhou, China The Port of GuangZhou is South Chinas biggest, most comprehensive port with increasing volumes of cargo each year. The Port of GuangZhou contains 50 berths and 23 anchorages, each of which can accommodate vessels up to 10 thousand tons. The largest berth can accommodate up to 300 thousand tons. It handled 12.550 million TEUs for the year 2010. 8. Qingdao, China The Port of Qingdao has 70 working berths, including 24 deep-water berths that can accommodate vessels over 10 thousand DWT. In 2010, Qingdao Port Group realized total throughput of 350.12 million tons, up 11% year on year. Container volume reached 12.01 million TEU.

9. Dubai, United Arab Emirates Owned and operated by DP World, one of the largest maritime terminal operators in the world, with over 49 terminals in 31 countries. Dubai has several ports, but the two major ones include the man-made Port Rashid, and Jebel Ali Port, the worlds largest manmade harbor and the biggest port in the Middle East. It handled 11.02 million TEUs in the year 2010, registering a growth of 4%.

10. Rotterdam, Netherlands Serving as the largest port in Europe, the Port of Rotterdam in the Netherlands covers an area of 105 square kilometers. It handled 11.1 million TEUs in the year 2010, registering a growth of 14%.

10|P a g e

Shipping : Indian scenario

The shipping sector plays an important role in Indias economy. Almost 90% of the countrys trade by volume is conducted via sea and the country boasts of having the largest merchant shipping fleet among the developing nations. The Indian shipping industry not only transports national and international cargoes, but also provides various other facilities such as ship building, ship repairing, lighthouse facilities, freight forwarding etc. With globalisation and liberalisation, the Indian shipping industry is all set to acquire new dimensions in terms of demand and infrastructural development. In order to resist stiff competition posed by foreign companies, the Indian shipping companies are striving to bring about rapid transformation. The way cargo traffic was handled has changed over the years. Earlier it was under a protected environment where a tonnage committee decided as to what type and size of ships the companies should opt for. Cargo was assured for those vessels which were acquired through government subsidy Crude petroleum products constitute a major chunk of Indias sea-borne cargo. Deregulation in the oil sector has been welcome news for the shipping companies as crude oil carriers do not have to deal with fixed freight rates irrespective of the market condition. However, there is another problem which has to be dealt with. Imports have decreased over the years because of higher production by the domestic refineries, which has reduced transportation. The government plans to introduce pipeline networks will seriously affect coastal transportation. Meanwhile, there are opportunities that need to be grabbed by the shipping companies. Liquefied natural gas (LNG) is to be imported to harness Indias power and fertiliser projects. This plan involves huge volume of business for the shipping industry amounting to several billion dollars. However, this process is expensive because it costs US$200 million for one ship to carry LNG. Therefore, it is important for the Indian shipping companies to build strategic tieups with their foreign counterparts so that they do not miss out this business opportunity. The state-owned Shipping Corporation of India (SCI) has joined hands with Mitusi Osaka Shosen Kaisha (OSK), a consortium in Japan, to build LNG vessel to serve Indias needs. Even the private companies have shown interest in LNG transportation. Although the Indian shipping companies are interested in LNG transportation, lack of adequate experience and the huge amount of money required for LNG carriers act as major hindrances. Indian tonnage currently stands at 10.11 million GT and Indian flagged vessel carry 8.4% of Indian trade cargo. The rest is carried by overseas shipping companies. Coastal shipping accounts for just 10% or a million of GT of Indias total tonnage. In national Maritime Agenda, the ministry of shipping has estimated that Indian seaborne trade could increase 3.56 times by 2020 resulting into shortage of tonnage. The Agenda has set a target for Indian Shipping tonnage of 43 million GT by 2020. Indian exim cargo in terms of volumes was 611 million tonnes. In 2009-10, major and minor ports in India carried a total cargo throughput of 849.89 million tonnes indicating a year on year increase of 14.2%. The Maritime Agenda, traffic at major ports estimated to grow at a CAGR of 8.03% to 1214.82 million tonnes by 2020, whereas traffic of non major ports is expected to grow 15.06% CAGR to 1269.59 million tonnes in the same time.

11|P a g e

Current capacities in exim shipping

(Source : Indian National Ship Owners Association)

Current capacities in coastal shipping

(Source : Indian National Ship Owners Association)

12|P a g e

List of the major shipping companies in India

1. Shipping Corporation of India Ltd: SCI is Indias largest shipping line by tonnage deriving most of its revenues from oil/gas transport.SCI like other shipping companies has faced a very bad 2009 due to the sharp contraction in world trade and dropping in shipping rates.However results have started to improve with the improvement in the world economy and it is returning to its normalized sales and profits. As the countrys largest shipping line, the SCI owns and operates around one-third of the Indian tonnage, and has operating interests in practically all areas of the shipping business; servicing both national and international trades. In 2010, the Company owned 18 bulk carriers consisting of 15 Handymax and three Handysize vessels & the total quantity of crude oil transported by the Company was about 24.89 million metric tons. SCIs owned fleet includes Bulk carriers, Crude oil tankers, Product tankers, Container vessels, Passenger-cum-Cargo vessels, Phosphoric Acid / Chemical carriers, LPG / Ammonia carriers and Offshore Supply Vessels. SCI recently came out with a FPO to increase the public shareholding. 2. Great Eastern Shipping Company Limited: It is Indias largest private sector shipping company. The company has two main businesses: shipping and offshore. The shipping business is involved in transportation of crude oil, petroleum products, gas and dry bulk commodities. The offshore business services to the oil companies in carrying out offshore exploration and production activities, through its wholly owned subsidiary Greatship (India) Limited. The company has been trying to list Greatship through an IPO. The dry bulk fleet stood at six vessels aggregating 0.41 million deadweight tonnage, with an average age of 13.6 years as of March 2010. 3. Essar Shipping Ports & Logistics: It is an integrated logistics solution provider with investments in ports and terminals, logistics services, sea transportation and oilfield drilling services. It is a part of the Essar Group one of Indias largest business conglomerates with interests in Steel, Oil and Gas etc. It is one of Indias largest operators of ports and are building a cargo-handling capacity (dry, bulk and liquid cargo) of over 150 million tonnes. The Company, through its wholly owned subsidiary, Essar Logistics Limited (ELL) provides project cargo, transhipment, lighter age and trucking services to steel mills and oil refineries. Essar Shipping Ports & Logistics Limited, through its subsidiary, Essar Bulk Terminal Limited (EBTL), commissioned its all weather deep draft dry bulk port of 30 million tons per annum capacity in 2010. The Company operated the 46 million metric tons per annum liquid terminal on the west coast of India as on 2010. The company owns a diverse fleet of 27 vessels, and 12 new building vessels are on order at an investment of over USD 1.8 billion. 4. Varun Shipping Company Limited: Varun is a private sector shipping company in India with a fleet of 20 vessels, in the LPG and crude oil sectors. The Company owns/operates a fleet often liquefied petroleum gas (LPG) carriers, including eight mid-size Gas Carriers, one Large Gas Carrier and one Very Large Gas Carrier, which have been deployed on a mix of time charters and spot charters with charterers, such as Indian Oil Corporation Limited, Hindustan Petroleum Corporation Limited, Bharat Petroleum Corporation Limited, Reliance Industries Limited and Pertamina. In the crude oil sector, the Company owns three double hull Aframax crude oil tankers, which are placed in the Sigma Tanker Pool, trading globally. In the offshore support services sector, the Company owns/operates a fleet of seven Anchor
13|P a g e

Handling Towing and Supply vessels, which are deployed on time charters and spot charters both in India and overseas. Varuns freight and charter hire income for the year 2010 was Rs. 6,662 million and its net profit was Rs. 125 million. Varun has a track record of being profitable and distributing dividends uninterruptedly to its shareholders for the past 26 years. Varun is the second largest owner of tonnage in the global mid- size fully refrigerated LPG carrier fleet category and owns 12.7% of the total tonnage in that category. Globally, in the fully refrigerated LPG carriers category, Varun is also the fourth largest owner in terms of number of vessels and sixth largest in terms of cargo carrying capacity. 5. Mercator Lines Ltd: Mercator is Indias second largest private sector shipping company with diversified interests ranging from Shipping, Coal, Dredging and Offshore Oil and Gas services. The shipping segment includes tankers, such as very large crude carrier (VLCC), Suezmaz, Aframaxes, product tankers and chemical tankers. Its bulk carrier fleet consists of geared and gearless Panamaxes, and Kamsarmaxes and very large ore carrier (VLOC). The offshore segment includes jack-up rigs, oil and gas exploration. As on 2010, the Company owned total 11 vessels of aggregate tonnage of 1,033,708 deadweight (DWT) and three chartered-in vessels of aggregate tonnage of 260,165 DWT.

14|P a g e

Major ports in India

1. Kandla Port, Gujarat Kandla is a seaport in Kutch district of Gujarat state in western India. It is located on the Gulf of Kutch and is one of major ports on the west coast. Kandla was constructed in the 1950s as the chief seaport serving western India, after the partition of India from Pakistan left the port of Karachi in Pakistan. It has handled 7,95,21,000 tonnes of cargo from April 2009 to March 2010. There are eleven dry cargo berths and six oil jetties in the port. The port has adequate storage capacities in both dry and liquid areas and also seventy licensed private barges. 2. Visakhapatnam Port

Visakhapatnam is one of the country's largest ports and is also home to the Eastern Naval Command of the Indian Navy. It is one of the busiest ports in India and has striking similarities with Durban Port of Africa in the sense that the later is also surrounded by a hill on the south side.It has handled 6,55,01,000 tonnes of cargo from April 2009 to March 2010. It is the only Indian port having three International accreditations -ISO9001, ISO14001, OHSAS18001.

3. Chennai Port

Chennai Port is an emerging hub port on the east coast of India. The Chennai port's share of Iron ore export from India is 12 per cent. It has handled 6,10,57,000 tonnes of cargo from April 2009 to March 2010. Having the capability of handling fourth generation vessels, the terminal is ranked in the top 100 container ports in the world.The Chennai port is one among the major ports having terminal shunting yard and running their own Railway operations inside the harbour on the east coast.

15|P a g e

4. JNPT, Mumbai The port is run by the Jawaharlal Nehru Port Trust and controlled by the Central Government of India. The port provides round the clock pilotage to all ocean going vessels calling the port .It handles 65 per cent of India's container traffic. It was created to augment the shipping capacity in Mumbai and provide an alternative to merchants wanting to save octroi charges imposed by the Brihanmumbai Municipal Corporation. It has handled 6,07,46,000 tonnes of cargo from April 2009 to March 2010. JNPT also has daily ferry service to the Gateway of India. It is well connected to major highways and rail networks in India.

5. Paradip port

Paradip Port is one of the major ports of India serving the eastern and central parts of the country. It is situated 210 nautical miles south of Kolkata and 260 nautical miles north of Visakhapatnam The port mainly deals with bulk cargo apart from other clean cargoes. It is managed by the Government of India. It has handled 5,70,11,000 tonnes of cargo from April 2009 to March 2010.

6. Mumbai Port

Mumbai Port was established as the Bombay Port Trust on June 26, 1873. Mumbai port handles 11 per cent of the total sea-borne traffic of India. The deep waters in the harbour provide secure and ample shelter for shipping throughout the year. Mumbai port has three enclosed wet docks. It also provides 63 anchorage points. It has handled 5,45,43,000 tonnes of cargo from April 2009 to March 2010.

16|P a g e

7. Mormugoa port Mormugao Port is one of the oldest ports on the west coast of India. It is the premier iron ore exporting port of India with an annual throughput of around 26.74 million tonnes of iron ore traffic. Today, the iron exported through Mormugao constitutes 39 per cent of the total iron ore exports from India. It has handled 4,88,47,000 tonnes of cargo from April 2009 to March 2010

8. Kolkata port

Kolkata is the oldest major port in the country. It is the only riverine port with two dock systems -Kolkata dock system at Kolkata with the oil wharves at Baj Baj and a deep water dock system at Haldia dock complex. It also has the largest dry dock facilities in India. The Kolkata Port has been adjudged as the best managed port in the country recently. It has handled 4,62,95,000 tonnes (Haldia dock complex - 3,32,50,000 tonnes + Kolkata dock system - 1,30,45,000 tonnes) of cargo from April 2009 to March 2010.

9. New Mangalore Port

The New Mangalore Port, the only major port of Karnataka. The major commodities exported through the port are iron ore concentrates & pellets, iron ore fines, granite stones, containerised cargo etc. It has handled 3,55,28,000 tonnes of cargo from April 2009 to March 2010. The major imports of the port are crude and petroleum, oil and lubricants (POL) products, LPG, wood pulp, timber logs, finished fertilisers, liquid ammonia, phosphoric acid, other liquid chemicals, containerised cargo, etc.

17|P a g e

10. Tuticorin port Tuticorin Port was declared as a minor anchorage port in 1868.After Independence, the minor port of Tuticorin witnessed a flourishing trade and handled a variety of cargo meant for the neighbouring countries of Sri Lanka, Maldives, etc and the coastal regions of India. It has handled 2,37,87,000 tonnes of cargo from April 2009 to March 2010. Tuticorin is the only port in Southern India to offer a direct weekly container service to US. The port has good road and rail connectivity and has vast open space within and outside security wall for storage of cargo. 11. Cochin port The Port of Cochin is located on the south west coast of India. It is situated on the Willingdon Island which is an artificial Island tucked inside the backwaters. It was established in 1926. It has handled 1,74,29,000 tonnes of cargo from April 2009 to March 2010. Amongst all major Indian ports, Cochin is the closest to the International East West Shipping routes. This geo-strategic location of Cochin gives it a distinct advantage. It is all-weather natural Port; it is located strategically close to the busiest international sea routes from the Gulf to Singapore and Europe to the Far East circuits. The logistically sensitive port is emerging as the most preferred investment destination for maritime commerce.

12. Ennore port Ennore Port is the first port in India which is a public company. By 2016, the port is expected to have the capacity to handle over 80 million tonnes of cargo and its coal-handling capacity is expected to be about 43 million tonnes. The port has adequate road and rail links. The port has obtained an in-principle approval from Southern Railway for providing rail connectivity to coal and iron ore stockyards.

18|P a g e

Factors hampering Indian shipping Industry

a. Taxes
Indian Shipping Industry is charged with the following 12 types of direct and indirect taxes: Corporate income tax on interest and other income Minimum alternate tax (MAT) on profit on sale of vessels Dividend distribution tax Withholding tax liability on interest paid to foreign lenders Withholding tax liability on charter hire charges paid to foreign ship owners Seafarers taxation cost to employer Wealth tax Fringe benefit tax Sales tax/value added tax on ship supplies/spares Lease tax on charter hire charges Customs duty on import of certain categories of ships, stores, spares and bunkers Service tax This increases the effective tax rate of around 2% under tonnage regime to around 9%. Such a tax regime has been one of the major reasons hampering the shipping industry which has not been able to keep pace with increasing trade. The present situation demand rationalization of tax and tariff system in order to make Indian services more competitive Replacement of the 44% of the current 9.3 million gross tonnage which is likely to be scrapped over the next five years, either on completion of commercial life or on account of international maritime organization regulations for phasing out single hull tankers, would likely cost about USD 4-5 billion. The Indian Shipping industry has benefitted from the introduction of a tonnage tax. Tonnage tax is calculated not on the profit or loss of a company in a given year, but by applying a notional annula income on its net registered tonnage. This means that the tax burden is known in advance and is neutral to the performance of the company. The effect is to ringfence the companys tax liabilities, making financial planning and long term strategic operations easier. But Indian owners are increasingly opting to own vessels in low tax jurisdication outside India,while accessing Indias booming cargo base. Little worthwhile foreign investment has taken place due to high taxes and rigid regulations like manning norms in India. b. The age of Indian Shipping fleet compares poorly with the global average. As on July 1, 2006, the average age of the Indian fleet is 17.9 years as against a world average of around 12 years. More than 50% of the Indian fleet are in the above 20 years category. c. The share of Indian shipping industry in Indias overseas seaborne trade is low. It dropped to about 12.2% in 2007-08 from 17% in 2000-01. The share of Indian shipping in the carriage general cargo stood at 3.6% while that of dry bulk cargo amounted to 6.3% in 2007-08. Liquid cargo, meanwhile accounted for a share of 24.7% d. The slow growth of coastal shipping despite having a low unit transportation growth is of major concern. The overall end to end cost by coastal shipping escalates due to inadequate port and land side infrastructure (capacity, connectivity etc), resulting in a preference for

19|P a g e

road/rail modes for trade. Burden of customs duties, cumbersome customs/other procedures, low productivity with high tariffs aggravates the problem. e. The Indian shipping companies are unable to retain quality manpower due to distortions in income tax structure. Indian offices and crew employed on Indian flagged vessels (for a period less than 183 days) are subject to income tax. No such tax is imposed on foreign shipping companies, making employment on these flags more attractive. As a result, the Indian shipping industry is not able to retain quality personnel. f. Another issue is statutory insurance of the fleet for hull and machinery with the Indian Insurance companies. The domestic premium rates fixed by the tariff advisory committee are much higher than the international premium.

20|P a g e

Growth Drivers
The Indian logistics sector, which was pegged at US$75.19 billion in 2009, has greatly evolved with enhancement and improvisation of logistics services. In the past, logistics was limited to movement of goods through rail, road and waterways from restricted number of cities and ports. Presently, logistics services are not only restricted to the movement of goods but have expanded to include warehousing, storage, packaging, disposal, tracking, supply chain management and much more. The industry has grown rapidly since the past 10 years and various drivers have contributed to the rapid growth of the sector. Major drivers of this robust growth are Trade growth and patterns initiatives undertaken by the government, increased usage of IT, improved service offerings and organised nature of retail and manufacturing sectors, among others. a. Trade growth World GDP growth: Shipping is a global industry and its prospects are closely tied to the level of economic activity in the world. A higher level of economic growth would generally lead to higher demand for industrial raw materials (like oil, iron ore and coal). Oil demand/Supply: The tanker market cannot exist without the demand for oil and in particular how much of the demand is met through domestic production and stocks. Besides demand, oil supply (which mainly comes from OPEC) is also of significance. The quantum of oil produced by OPEC has a direct impact on the tanker market. For instance, when OPEC cut down its production in February 2007 (to keep oil prices at desired levels), shipping industry was left with surplus capacity considering that the tanker fleet is already growing at a rate faster than growth in demand for tonnage. Oil inventory levels: The amount of oil held in storage which can be drawn upon to meet future requirements also impacts the demand for oil tankers. Generally, consumers hold stocks and levels are drawn down in winter and replenished in spring. Steel production: Iron ore and coal together represent about 42% of the total global dry bulk trade. Since iron ore and coking coal are key inputs in the production of steel, steel production plays a significant role in determining the demand for dry bulk carriers.

b. Trade Patterns Refinery locations: Before it can be used for final consumption, crude oil needs to be refined into products like petrol, diesel and kerosene. Since refineries are generally located away from the places of production, crude tankers are used to transport crude oil from producing countries to refineries. Tanker transportation is generally more viable for inter-regional trades while pipelines are preferred for intra-regional trades. To distribute the refined petroleum products to places of consumption, product tankers and pipelines are used. Varying levels of capacity and the sophistication of refineries' processing capabilities also play a role in oil markets. Many refineries are located in consuming regions, facilitating response to weather-induced demand spikes and seasonal shifts. Sourcing areas: The distance between the place of origin and the place of destination is an important demand driver since a shift from a shorter haul movement to a longer haul

21|P a g e

one (for the same amount of cargo) is likely to result in increased tonne-mile demand for vessels. Regional grain production: Grain, along with iron ore and coal represents a significant portion of the total dry bulk trade. In case of a drought in a particular region, arrangements are made to import food-grains from countries with surplus production. This, in turn, influences the demand for dry bulk vessels.

c. Role of government The Government of India (GoI) has played a significant role in providing the right impetus to this sector by implementing various laws and taxes. Some of the measures undertaken by the government include: Increase in private participation of rail freight Setting up of special economic zones (SEZs) resulting in increased trade Privatisation of inland container depot (ICD) for sea freight Airport expansion with dedicated cargo terminals Improved road infrastructure with better connectivity Foreign direct investments (FDI) in the commercial vehicle segment leading to usage of better quality vehicles Revision of import duty for fast moving consumer goods (FMCG) Bilateral agreements to promote export-import (EXIM) trade d. IT penetration IT is the other major growth driver of this sector. Currently, IT solutions are being used for all supply chain management functions. Most of the ports use electronic data interchange (EDI) facility for electronic transmission of data. This has lead to reduced emphasis on manpower, thereby further optimising operational costs. Innovative logistics solutions have enabled conventional forwarders to use newer and improved methods of transportation for their services resulting in customer retention as well as customer acquisition. The growth of IT hardware, FMCG and automotive sectors has a direct relationship with the success of the logistics business. These sectors constitute the major market for logistics service providers generating business opportunities worldwide. e. Impact of 3PLs Third party logistics (3PL) providers constitute a major chunk of the countrys logistics sector and play an important role in spurring the growth of the sector. They offer tailor-made and innovative services for specific product categories as per customer requirements. Since timely delivery of goods is very vital in the logistics business, service providers make use of highly modernised technologies. Consolidation of the fragmented services is another area in which 3PL providers have excelled, thereby adding value to customer solutions. 3PL providers have been able to tackle challenges and overcome the same by catering to customer demands, by delivering right products at the right time to the right place at the right cost.

22|P a g e

All the aforementioned factors have in one way or the other contributed to the rising growth of the countrys logistics sector, which is set to scale greater highs in the near future as the industry still has immense potential that is lying untapped.

23|P a g e

Government and maritime regulations

The scope and sweep of the prevailing regulatory laws in the Indian maritime sector are indeed vast and cover a wide gamut of activities, though there is no single enactment as yet. There are different laws in different maritime domains and are administered and enforced by different agencies. The Merchant Shipping Act 1958 is indeed, one of the key legislations in the country pertaining to shipping is administered by the Director General of Shipping, which is further empowered under the act to make rules and regulations of its own with respect to technical standards and manning requirements. The Ministry of Shipping through various Port Trusts respective to their locations administers the Major Ports Act and the Indian Ports Act, which cover the working of all major ports. Tariff Advisory for Major Ports (TAMP) is another offshoot of the Major Ports Act that is seeking to regulate and determine permissible tariff levels for major ports. However, the numerous minor ports that dot the coastline fall under the respective state governments jurisdiction. A similar bifurcation of jurisdiction can be seen with respect to inland waterways, where designated National Waterways are administered by the ministry of shipping while, other waterways come under the state government jurisdiction. All these regulatory laws were aimed at creating and managing what can be considered basic administrative and physical infrastructure in respective domains. They were indeed part of the efforts to assign a developmental to the government, which consequently resulted in government emerging as a direct stakeholder in shipping and maritime sectors. A number of government owned companies and other agencies have over the years thus, played a key role in bringing up the basic port infrastructure, a sizeable national shipping fleet and shipbuilding capacity, which taken together is quite a significant achievement, given the strategic goals of development. However, with steady decline of performance and efficiency standards and inability of the government to sustain steady flow of investments into the maritime sector, the erstwhile developmental role of the State has come under question for more than one reason. While questions still remain as to what extent the government should retain responsibility for further development of the maritime sectors, the focus has since moved to putting in place a comprehensive regulatory system, which will substantially limit governments direct role and responsibility and instead allow the private sector to take on a developmental role, under the overall regulatory supervision of the government. Such new regulatory frameworks have been established in a number of other industries, where the government had initiated major privatization exercises such as TRAI for the telecommunications industry, SEBI for regulating the capital markets etc. Collaborative reforms Though the government has great deal of responsibility and powers to make and amend laws, it cannot unilaterally undertake regulatory reforms in the maritime sector. Regulatory reforms also has the broader agenda of infusing new institutional dynamics by increasing competitiveness by reducing transport costs, in particular port costs through encouraging more number of players, improving port efficiency and logistics infrastructure through bringing in new institutional and market related practices, diversifying the sources of mobilization of capital investment and enabling attractive returns to investors and to create lasting mechanisms for arbitration of disputes between service providers and end users of service. These broader objectives of regulatory reform can only be achieved depending on how far the new private sector players are
24|P a g e

able to work within a common framework of market and business governance. In fact, one of the basic stumbling blocks to creating a common regulatory framework in the maritime sector is the highly differentiated structure of the maritime industry in terms of ownership of assets, unit sizes of operations and uneven levels of integration between different sub-segments of the Indian maritime industry. Any law that may be framed is therefore, less likely to be uniformly beneficial to all players in an industry segment and is perhaps one of the major reasons for tardy progress, when it comes to bringing about changes in basic maritime laws of the country. Considering these anomalies in the situation, the regulatory laws cannot be allowed to further perpetuate the advantages of some against the disadvantages of the many. This becomes particularly important in the context of current discussion of regulatory reform that is expected to lead to creation of a single nodal regulatory agency. Empowering new regulators The Union Ministry of Shipping has been the single most powerful integrated regulatory agency that has really existed so far. The bodies of various regulatory laws and guidelines pertaining to different segments of the maritime industry have evolved at different points of time and through initiatives of various independent and external agencies, appointed for the purpose from time to time. The powers of the shipping ministry are however, discretionary in nature and in fact exercised through a number of agencies and institutions. Bringing all these regulatory institutions and agencies into a common framework of enforcement is bound imply that such a regulatory body would considerably draw on the powers of the Ministry of Shipping itself, while it would completely take over other regulatory institutions under its purview. However, any regulatory body cannot function under terms of discretionary powers and instead needs to have a well carved out mandate and legal framework of operation. Putting together such a mandate and necessary legal framework for maritime regulation is certainly a task that calls for a thorough review of various laws that affect the maritime domain and how their likely implications can be synchronized under a common framework of regulatory enforcement. While any residual scope for interpretation and discretionary judgment would still be considerable with a regulatory authority in the maritime domain, the basic regulatory law need to be well defined.

25|P a g e

Laws and Acts governing the Shipping Industry

Shipping in India is a Central subject and is dealt by the Ministry of Shipping. The Indian shipping industry is mainly governed by the following Acts; The Merchant Shipping Act, 1958 The Inland Vessels Act, 1917 The Coasting Vessels Act, 1838 The Multi-modal Transportation of Goods Act, 1993

The Shipping Ministry is also responsible for administering the following main Acts; The Indian Ports Act, 1908 The Dock Workers (Regulation of Employment) Act, 1948 The Major Ports Trust Act, 1963 The Seamens Provident Fund Act, 1966 The Inland Waterways Authority of India Act, 1985

The Ministry regulates the functioning of the Industry through its various subordinate offices, autonomous bodies, societies and associations and public sector undertakings. The National Shipping Board, a statutory body, advises the central government on shipping matters. The Directorate General of Shipping is the main administrative authority which issues orders and notifications on the various aspects of shipping. The Mercantile Marine Department, which comes under the administrative control of DG Shipping, deals with the registration and survey of ships. The Transchart is a wing under the Ministry responsible for making shipping arrangements for imports cargo under the control Govt./PSUs. The Indian Register of Shipping is a classification society. As per Sec.406 of the M.S. Act, no ship can be taken into the sea from a port or a place within or outside India except under the licence granted by the Director General of Shipping. Coastal trade is reserved for the Indian flag vessels and is governed by Sec.407. To operate foreign flag vessel on the Indian coast, DGS's permission is required. As a policy, the Indian government has accepted that all exports should be on C.I.F (Cost, Insurance & Freight) basis and all imports on F.O.B. (Free On Board) basis. Indian shipping companies are also required to comply with the rules and regulations issued by the Ministry of Finance and Company Affairs as well as the Ministry of Commerce. Apart from the Indian regulations, the Indian shipping industry is also governed by the various IMO/ILO instruments (Conventions & Protocols) ratified by the Government of India.

26|P a g e

What Indian Shipping Industry Needs?

Cargo support: The need for a strong cargo support policy backed by an equally strong coastal cabotage policy and cargo assurance policy for exim trade. This would attract investment and ensure that there is not only capacity building in this sector but also efficiencies due to competition and larger supply. This would also lead to accelerated development of transport infrastructure. Taxation : Policies should be framed keeping in mind that Indian Shipping companies directly compete with international players and therefore taxation and technical issues should give Indian companies a level playing field, if not an edge, vis-a-vis international players. Up gradation fund: Need for cheaper funds made available through an upgradation fund with interest subvention for building tonnage Infrastructure status: This would empower the sector to raise long term and low cost funds and avail tax holidays on direct taxes and concession on indirect taxes. Maritime strategy for India: India needs a long term maritime strategy with financial commitments and targets from the government. Controlled FDI

27|P a g e

Future Outlook
Global Scenario
Due to the shipping downturn as well as the global economic scenario, the future of the shipbuilding industry beyond 2011 seems uncertain. Even though shipyards are running profitably as of now, they are taking measures to cut costs in anticipation of a lull in business from 2012 onwards. Historical data suggests that such lulls in shipbuilding industry have lasted for as long as 10 years - 15 years. Hence, it is no wonder that established shipyards like Mitsubishi in Japan and JJ Sietas in Germany are resorting to pay cuts and layoff. However, its expected that history does not map the current times, since the speed of change has increased in an unprecedented manner. Looking at the present situation, there have been very slight improvements in freight rates as countries around the world pulled out of the recession. However growth is expected to be slow. The question of when the shipping industry will be back on its feet again still remains unanswered. Some of the shipping companies are suspending their services on routes connecting China, South Korea, USA east coast and Panama. These regions will be served by the other existing ships in the area. However, companies on cost cutting sprees must not compromise on the safety aspect of seafarers, marine environment, ships and cargoes which will yield returns only in the long term. The recession had given the shipping industry a chance to look internally and refine its processes to be better prepared for weathering future crisis. In line with the revised higher estimates of global economic growth and upturn in global consumption, the shipping freight rates have posted some improvement in the current year. Anyways, the outcome of the ongoing European crisis as well as impact of the new-building deliveries would be critical for the future direction of shipping rates. While the European crisis is challenging the sustainability of the global economic recovery, thereby regenerating demand side concerns, these are overshadowed by a bigger threat of oversupply for the shipping industry. This looms large in the near future. Out of the existing order books in all the three segments of dry bulk, crude, and product tankers, most of the vessels are due for delivery in 2010 and 2011. This will add to the pressure on freight rates, and would thus impact the profitability of shipping companies. Apart from the Euro zone crisis, another concern for the shipping industry the cooling down of the Chinese economy, which can regenerate demand-side concerns. This combined with the supply-side pressures, may just worsen the outlook for the sector. The increase in Indias refining capacity and a pick-up in oil exploration activity globally will benefit the offshore shipping lines as demand for their services picks up. As a result of the commissioning of large domestic refining capacities, the import of crude is expected to jump in the future. This would benefit shipping majors. Under investment in earlier years, surge in Chinese growth and scrapping of vessels built in 1970s have all created conditions for a strong market for tankers, barring the periods of crises. Further, the gap in charter rates between single hull and double hull vessels is widening as more charterers prefer double hull tonnage and many states impose restrictions on single hull tonnage. In the coming years as single hull will be mandatorily required to be phased out, the demand for double bull tonnage will be strong.

28|P a g e

Indian Scenario
Some excerpts from the interview of K Mohandas, Secretary, Ministry of Shipping: What is the government doing to revamp the shipping sector? We are looking to attract greater investment and build capacity. The government rationalised the fiscal regime by introducing the tonnage tax system from FY05. This was done to give the Indian shipping industry a level playing field vis--vis international shipping companies. Although we rank 17th in world tonnage, the share of Indian ships in overseas trade has been declining. It was at 9.5% in 2007-08 as against 12.2% in 2006-07. The Planning Commission had envisaged a target of 12 million gross tonnage (GT) at the end of the 11th Five Year Plan. Tonnage has grown steadily in the last five years and stood at 9.72 million GT as of May 2010. We are hopeful of meeting the Planning Commission target. What is the ministry doing to improve the competitiveness of Indian ports, given how many large international vessels avoid docking here? Dredging projects have been planned to increase the draught (depth of the channel) from 14 meters to 17 meters at many major ports. We are improving hinterland connectivity by ensuring ports have four-lane road and double-line rail connectivity. We are also increasing capacity by constructing berths and terminals. What has the National Maritime Development Programme (NMDP) achieved so far? The NMDP was formulated keeping in mind future traffic projections. The total investment envisaged under the NMDP is Rs 1,00,339 crore, of which Rs 55,804 crore is for major ports and Rs 44,535 crore for the shipping and inland water transport (IWT) sectors. We have identified 276 projects for the port sector. Of these, 50 have been completed, at a cost of Rs 5,717 crore. Another 74 (costing Rs 16,502 crore) are in progress. What is being done to promote inland waterways? Five waterways have been declared national waterways. Basic IWT infrastructure, namely, navigable channels with adequate depth and width, terminals for berthing of vessels, loading/unloading of cargo/passengers and day/night navigational aids are being provided by the Inland Waterways Authority of India. Initially, this is being done on three of the national waterways, in a phased manner. We are working to make these waterways fully functional in terms of requisite infrastructure. Sustained efforts are also being made to encourage private sector investment in the IWT sector. These efforts have resulted in a positive reaction from the private sector and joint ventures for ownership, operation and management of barges have been finalised on some of the identified routes (like Kolkata-Mongla, Pandu-Kolkata).

29|P a g e

References
http://www.marisec.org/shippingfacts/worldtrade/volumeworldtradesea.php http://en.wikipedia.org/wiki/Shipping http://www.supplychaindigital.com/top_ten/top10business/top10ports http://www.worldportsource.com/ports http://www.shippingbiz360.com/article/8/20091021200910211858496404b7ea431/Challenges andopportunitiesforIndia%E2%80%99sshippingindustry.html http://www.greenworldinvestor.com/2011/05/07/shippingcompaniesinindiaroughweather forindiasunderperformingshipindustry/ http://www.frost.com/prod/servlet/marketinsighttop.pag?docid=188028767 http://business.outlookindia.com/article.aspx?266379 http://www.equitymaster.com/researchit/sectorinfo/ship/ http://www.mantrana.in/IndianShipbuilding.html

30|P a g e