Shipping Report

Shipping
UNNATI
REPORT ON SHIPPING SECTOR

This report broadly outlines the value chain, industry dynamics, growth drivers & sector outlook
Aditya Kandoi & Mayank Bukrediwala

Shipping REPORT ON SHIPPING SECTOR
Table of Content
S. No. Particulars Page No.
1 Indian Shipping Industry 3
2 Ports 7
3 Important Trade Routes 9
4 Market Segmentation 11
5 Value Chain 13
6 Freight Business- A Closer Look 14
7 Ship Financing 16
8 Chartering 18
9 Operating Parameters/Indices Assessing Freight Rates 19
10 Key Trends & Forces Affecting BDI 21
11 Demand & Supply Factors 23
12 Government & Maritime Regulations 25
13 Factors Hampering Indian Shipping Industry 27
14 Shipping Stocks 32
15 Companies Overview 33
UNNATI |Management Development Institute 2

SHIPPING
INDIAN SHIPPING INDUSTRY
Shipping plays an important role in the transport sector of India's economy. Approximately, 90 per cent
of the country's trade by volume (70 per cent in terms of value) is moved by sea. India has the largest
merchant shipping fleet among the developing countries and ranks 20th amongst the countries with the
largest cargo carrying fleet with 8.83 million GRT as on 01.06.2008 and the average of the fleet being 18
years. Indian maritime sector facilitates not only transportation of national and international cargo but
also provides a variety of other services such as cargo handling services, shipbuilding and ship repairing,
freight forwarding, lighthouse facilities and training of marine personnel, etc.
The salient features of India's shipping policy are the promotion of national shipping to increase self-
reliance in the carriage of the country's overseas trade and protection of stakeholders' interest in EXIM
trade. India's national flag-ships provide an essential means of transport for crude oil and petroleum
product imports. National shipping makes significant contribution to the foreign exchange earnings of
the country.
Some important features of the shipping industries are:
a) CYCLIC: Shipping markets have historically shown very long cycles which extend into decades.
The imbalances, created due to the substantial growth in trade and subsequent shipbuilding
bubble, inflates the fleet build-up. This leads to a drop in charter rates which when goes down
the breakeven cost per vessel (consisting of operational + capital cost). This leads to scrapping of
vessels which again balances the demand supply gap. In the 1970s, the last shipbuilding bust
period, had a very similar resemblance to the bust seen recently in 2009 though the magnitude
was different. The boom in the shipping tonnage addition was led by the demand for
commodities by Japan and Europe in the 1960s. The demand push for Tankers was further
amplified due to growth in oil imports by US. This led to an order of 129.5 mn dwt by 1973.
Remarkably, the historical data shows us that the deliveries lagged the ships on order so much
so that only 60 mn dwt of tonnage was delivered.
b) HIGHLY CAPITAL INTENSIVE: Apart from ship breaking business, other business segments in
shipping mainly freight & ship building are highly capital intensive. It requires huge investments
& in turn has high gestation periods thus pushing break even time to years. This capital intensive
nature of the shipping business acts as a barrier to entry & in a way protects those already in the
business.

INDIAN FLEET
Indian shipping tonnage, which was only 1.92 lakh GT on the eve of independence, now stands at 8.83
million GT and 14.85 million DWT consisting of 872 vessels (282 overseas vessels with 7.89 million Gt
and 13.55 million DWT and 590 coastal vessels with 0.5 million GT and 0.99 million DWT). There has
been an increase of 1.89 percent million GT in the tonnage during the last four years due to various
facilitative measures adopted by the Govt. especially introduction of toungsted for Shipping Industry
from the year 2004-05.
The total quantity of cargo handled at various Indian ports during the year 2006-07 was to the tune 464
M.T. as against 424 MT in 2005-06. It is reported that the share of overseas cargo carried by Indian Flag
vessels varied in respect of different categories of cargo. The diversion Cargo carried by Indian flag
during the year 2006-07 was around 12.2% comprising mainly of coal, crude oil and petroleum products.
The share of Indian Flag vessels in carrying grouped cargo was 3.6%, dry bulk 6.3% and petroleum
products, 24.7% respectively during 2006-07.
SHIPS AND WATERCRAFT
Most modern merchant ships can be placed in one of a few categories, such as:
Bulk carriers, such as the Sabrina I seen here, are cargo ships
used to transport bulk cargo items such as ore or food staples
(rice, grain, etc.) and similar cargo. It can be recognized by
the large box-like hatches on its deck, designed to slide
outboard for loading. A bulk carrier could be either dry or
wet.
Container ships are cargo ships that carry their entire load in
truck-size containers, in a technique called containerization.
They form a common means of commercial intermodal
freight transport. Informally known as "box boats," they carry
the majority of the world's dry cargo.

Tankers are cargo ships for the transport of fluids, such as

crude oil, petroleum products, liquefied petroleum gas,
liquefied natural gas and chemicals, also vegetable oils, wine
and other food - the tanker sector comprises one third of the
world tonnage.
Reefer ships are cargo ships typically used to transport

perishable commodities which require temperature-
controlled transportation, mostly fruits, meat, fish,
vegetables, dairy products and other foodstuffs.
Roll-on/roll-off ships, such as the Chi-Cheemaun, are cargo

ships designed to carry wheeled cargo such as automobiles,
trailers or railway carriages. RORO (or ro/ro) vessels have
built-in ramps which allow the cargo to be efficiently "rolled
on" and "rolled off" the vessel when in port.
Coastal trading vessels, also known as coasters, are shallow-

hulled ships used for trade between locations on the same
island or continent. Their shallow hulls mean that they can
get through reefs where sea-going ships usually cannot (sea-
going ships have a very deep hull for supplies and trade etc.).
Ferries are a form of transport, usually a boat or ship, but

also other forms, carrying (or ferrying) passengers and
sometimes their vehicles. Ferries are also used to transport
freight (in lorries and sometimes unpowered freight
containers) and even railroad cars. Most ferries operate on
regular, frequent, return services.

Cruise ships are passenger ships used for pleasure voyages,

where the voyage itself and the ship's amenities are
considered an essential part of the experience. Cruising has
become a major part of the tourism industry, with millions of
passengers each year as of 2006. The industry's rapid growth
has seen nine or more newly built ships catering to a North
American clientele added every year since 2001, as well as
others servicing European clientele.
Cable layer is a deep-sea vessel designed and used to lay

underwater cables for telecommunications, electricity, and
such. A large superstructure, and one or more spools that
feed off the transom distinguish it.
A tugboat is a boat used to manoeuvre, primarily by towing

or pushing other vessels (see shipping) in harbours, over the
open sea or through rivers and canals. They are also used to
tow barges, disabled ships, or other equipment like towboats.
A dredger (sometimes also called a dredge) is a ship used to

excavate in shallow seas or fresh water areas with the
purpose of gathering up bottom sediments and disposing of
them at a different location.
A barge is a flat-bottomed boat, built mainly for river and

canal transport of heavy goods. Most barges are not self-
propelled and need to be moved by tugboats towing or
towboats pushing them.
Ships that fall outside these categories include Semi-submersible heavy-lift ships or OHGC.

PORTS
India has a long coastline spanning 7600 kilometres forming one of the biggest peninsulas in the world.
It is serviced by 12 government ports and 1 corporate major port and 185 notified minor and
intermediate ports. The latest addition to major ports is Port Blair on June 2010. The 13 Major Ports
(including the Port of Ennore which is a corporate port set up under the Indian Companies Act, 1956) are
evenly spread out on the Eastern and Western coast. The ports of Kolkata, Paradip, Visakhapatnam.
Chennai, Ennore and Tuticorin are on the Eastern coast of India while the ports of Cochin, New
Managalore, Mormugao, Mumbai, Jawaharlal Nehru at Jhavasheva and Kandla are on the Western
Coast. The Gangavaram Port in Andhra Pradesh, inaugurated in July 2009, is India's deepest port, with a
depth of 21m
Major ports handled over 80% of all cargo traffic in 2007. However, the words "major", "intermediate"
and "minor” do not have a strict association with the traffic volumes served by these ports. As an
example, Mundra Port, a newly developed minor port in the state of Gujarat registered a cargo traffic of
around 28.8 million tonnes per annum during the financial year of 2008, which is higher than that of
many major ports.
The classification of Indian ports into major, minor and intermediate has an administrative significance.
Indian government has a federal structure, and according to its constitution, maritime transport falls
under the "concurrent list", to be administered by both the Central and the State governments. While
the Central Shipping Ministry administer the major ports, the minor and intermediate ports are
administered by the relevant departments or ministries in the nine coastal states of West Bengal, Orissa,
Andhra Pradesh, Tamil Nadu, Kerala, Karnataka, Goa, Maharashtra and Gujarat. Several of these 185
minor and intermediate ports are merely "notified", with little or no cargo handling actually taking
place. These ports have been identified by the respective governments to be developed, in a phased
manner, a good proportion of them involving Public-private partnership.
The capacity of major ports has increased from 20 Million Tonnes per annum (MTPA) 1951 to 504.75
MTPA as on 31st March, 2007. At the beginning of the 10th Plan, the capacity of the major ports was
343.95 MTPA which has increased to 504.75 MTPA at the end of the 10th Plan (i.e. as on 31st March,
2007) thereby achieving the capacity addition of 160.80 MTPA. In all the years of 10th five year plan the
capacity at the major ports exceeded the traffic handled. The non-major ports handled traffic of 185.54
MT in 2006-07 and had a capacity of 228 MTPA at the end of 2006-07. The container traffic in the major
ports has increased from 61.98 MT in 2005-06 to 78.87 MT in 2007-08.
In order to improve efficiency productivity and quality of services as well as to bring in competitiveness
in port services, the port sector has been thrown open to private sector participation. The Major Port
Trust Act, 1963 permits private sector participation in major ports invites Foreign Direct Investment
(FDI) upto 100% under the automatic route is permitted for construction and maintenance of ports and
harbours. Private sector participation has been allowed in a variety of ports services which includes

construction and operation of terminals/berths, warehousing/storage facility, dry docking and ship
repair facilities.
Till date 17 private sector projects involving an investment of Rs. 4927 crores has been operationalised
which involves capacity addition of 99.30 MTPA. 8 projects are under various stages of evaluation and
implementation which involves an investment of Rs. 5181 crores and capacity addition of 75.40 MTPA.
Cargo handling is projected to grow at 7.7% until 2013-14 Some 60% of India’s container traffic is
handled by the Jawaharlal Nehru Port Trust in Navi Mumbai. It has just 9 berths compared to 40 in the
main port of Singapore. It takes an average of 21 days to clear import cargo in India compared to just 3
in Singapore.
Following is a snapshot of major activities that take place at major ports:

IMPORTANT TRADE ROUTES

a) Crude and product imports from Gulf, Malaysia and Nigeria
India imports around 40 million tonnes of crude and 20 million tonnes of products every year on a FOB
basis, chiefly from Gulf, Malaysia and Nigeria. While Indian shipowners have a considerable stake in this
trade, liberalization and relaxation of norms has allowed private-sector refineries to make their own
shipping arrangements. Indian shipowners chiefly deploy Suezmaxes from Gulf and Aframaxes from
Malaysia. Most of the vessels chartered from foreign shipowners are large-sized VLCCs. Product imports
are carried out chiefly in small vessels of around 30-40,000 dwt.
b) Iron ore exports from India to East Asia
India exports around 30 million tonnes of iron ore annually, 70 per cent of which is directed toward
Japan, China and South Korea. Iron ore exports are predominantly made on a f.o.b. basis, implying lack
of opportunity for Indian shipowners. It should be noted that globally iron ore shipments are made in
large Capesize and Panamax vessels. These vessels, however, constitute a small portion of the Indian
fleet. Exports from the ports of Mormugao, Chennai and Visakhapatnam are in such vessels while from
New Mangalore and Paradip they are carried out in ships of Panamax vessels of upto 65,000 DWT, due
to draft restrictions. Shipping Corporation of India is the only major Indian player in iron ore
transportation and carries around 0.5 million tonnes to Japan from Visakhapatnam and Paradip. These
Handymax vessels are deployed on a triangular route to carry coking coal from Australia and then iron
ore to Japan followed by ballast to Australia on return.
c) Coking coal imports from Australia to Visakhapatnam, Paradip and Haldia
India imports around 10 million tonnes of coking coal, chiefly from Australia, by Handymax vessels for
consumption by public sector steel majors like SAIL & RINL and Tata Steel. Indian shipowners, led by SCI,
have a share of 4 million tonnes. Coking coal imports by Tata Steel are however made in Panamax size
vessels of foreign flag.
d) Fertilizer and fertilizer material
India imports around 5 million tonnes of fertilizer and 3 million tonnes of rock phosphate and sulfur,
chiefly in small size Handymax and Handysize vessels. Imports are made nearly at all the major ports of
the country, of which, more than 60 per cent of the imports are routed through the East India ports.
While previously Transchart used to play a major role by making around 50 per cent of the shipping
arrangements for fertilizer imports, its role has come down substantially over the past few years,
primarily because major portion of imports are carried out by private companies nowadays. Better
infrastructure facilities at ports such as JNPT, have led to prospects of future fertilizer imports being
made in Panamax vessels to capitalize on economies of scale.

e) Containers
India exports and imports around 1 million TEU’s each, mainly through Bombay, JNPT and Chennai. USA,
Western Europe and East Asia are the chief destinations through transshipment ports of Dubai, Colombo
and Singapore. Only one Indian player, SCI, has a role in container shipping. However, most of the
leading global container lines like NOL-APL, Maersk-Sealand and P&O-Nedlloyd offer services to Indian
shippers.
f) Coastal shipping
Against the fairly respectable growth witnessed in India’s overseas trade, coastal trade has remained
quite stagnant and today accounts for around 40 million tonnes of cargo, chiefly comprising four bulk
commodities viz. crude, products, thermal coal and iron ore. This is primarily because of the typical
contours of our country which favors road-rail transport more than coastal shipping. This, added to lack
of proper regulatory support to coastal shipowners and lack of proper integration with road/ rail
network, has led to present scenario of low coastal trade volumes. Approximately 90% of the coastal
movement in India is between the major ports. Some of the important trade routes are as follows.
Thermal coal from Haldia, Paradip and Vizag to Chennai and Tuticorin
More than 14 million tonnes of thermal coal moves along the coast from Haldia, Paradip and
Visakhapatnam to Chennai and Tuticorin primarily to meet the fuel requirements of coal-fired power
plants of the Tamil Nadu Electricity Board. The responsibility of making necessary shipping arrangements
is borne by Poompuhar Shipping Corporation (PSC), a government of Tamil Nadu undertaking. The firm
along with its three Handymaxes, hires around 10 vessels of similar size from Indian shipping companies
like - Great Eastern, Tolani, Surrendra Overseas, Essar and Varun Shipping, on a one year time charter
basis by way of open tender and in case of need, more vessels are also hired on a spot charter basis. PSC
has recently planned to charter foreign flag vessels in this route to meet the increased requirement.
Overall, these vessels in this trade make more than 500 sailings, every year. Thermal coal from Haldia
and Visakhapatnam generally gets unloaded at Tuticorin, while the same from Paradip gets unloaded at
Chennai. With the commissioning of the Ennore port project, existing linkages are expected to change.
Shallow draft and geared vessels are presently preferred for the trade. However, with the setting up of
modern port equipment systems by South India Corporation (Agencies) Limited (SICAL), at Ennore and
Chennai ports, non-geared vessels might be opted for in the future. Because of lack of any major dry
bulk cargo movement from the South to the East, these vessels return back ballast to the loading ports.
Iron ore from Visakhapatnam and Paradip to JNPT and minor ports in Gujarat Around 3 million tonnes of
iron ore move in Handymax vessels from the eastern ports to JNPT and Magdalla for shore-based steel
plants of Ispat and Essar respectively.

Crude oil from Bombay to various major ports like Kandla, Cochin, and Chennai
Coastal movement of crude oil is to the extent of 10 million tonnes while the above routes account for
around 8 million tonnes. Crude originates from Bombay High oil fields of ONGC off Bombay and is chiefly
bought by oil majors like IOC, HPCL and BPCL for their shore-based refineries. Coastal movement of POL
is around 10 million tonnes.
Cement
Cement is another important commodity moving between various minor ports, in smaller 2,500 - 4,000
dwt vessels. Gujarat Ambuja Cement was the first company to set-up bulk-handling facilities to transport
cement by sea. The company has 3 port facilities in Western India and is also planning to build a jetty in
southern state of Kerala. The company owns five mini bulk carriers of 2,500 DWT, which carry around 1
million tonnes of cement between the jetties in Western India. Narmada Cement, which has been taken
over by L&T, is also using coastal shipping for transporting cement between ports in Western India.
Other companies who have used coastal shipping for movement of cement include L&T, Saurashtra
Cements, etc.
MARKET SEGMENTATION
The shipping industry can be classified into the following segments based on their business function.
Though there are many companies which operate in more than one segment.
Shipbuilding industry
The Indian shipbuilding industry currently accounts for a mere 1% of the global shipbuilding market. At
present India has 27 shipyards of which 19 belong to the private sector. The current cumulative
shipbuilding capacity of Indian shipyards is around 0.5 million deadweight tonnage.
The major players in this market are private players such as ABG shipyard and Bharti shipyard along
government controlled Hindustan shipyard and Cochin shipyard. Together these four account for more
than 70 per cent of the market share. Of late a lot of companies from the infrastructure segment are
showing an interest in this industry like L&T, TATA Steel and some other carrier companies like Mercator
Lines and Apeejay shipping.
These companies are investing heavily to ramp up their infrastructure so as to acquire the majority of
this market which is majorly served by foreign players. A major setback for this industry recently was
from the order cancellation from the Defense sector to build submarines.

Shipping transport industry/Freight or Cargo Industry
At present there are 235 shipping companies in India in which the shipping corporation of India is the
largest accounting for about 33% of the total tonnage. India has one of the largest merchant shipping
fleets with about 997 vessels and is ranked 17th in the world. Most Indian shipping companies ply on
Indian shipping routes only to meet Indian export and import demands; however a few companies like
GE shipping also do business on global routes. This business is explained in detail in the later half of the
report.
Shipbreaking industry
The Indian shipbreaking industry has a global market share of 25 per cent. Alang in Gujarat is one of the
world’s largest shipbreaking yards. The Andhra Pradesh authorities gave conditional approval to a mega
shipbreaking project on Vodarevu beach. The area is as big as 160 football fields. Three or four medium-
sized ships can be broken up at each of the 60 plots at this yard.
The other ship-breaking yards are in Pipavav and Bombay. The ship breaking industry is located in India
because of the availability of cheap labor and also a lax government attitude towards stringent
regulation of environmental laws.
Ports
India has 13 major ports and about 200 non-major ports covering an extensive coastline of 7517 Km. the
port sector has witnessing a substantial growth in cargo traffic leading to utilization levels of almost
94%. Taking this into account government has called for capacity expansion projects on a PPP basis with
the private players. Also, the recent corporatization of JNPT Port along with a proposal to replicate it for
other ports on successful results, has given a major thrust to this segment.
The ports authorities earn majorly through regulation of these ships & collecting what is known as port
charges. These charges are levied on both loading & unloading, as well as occupancy of idle ships.
Recently, ports have started collecting congestion charges due to overcongestion at the ports. Revenues
also come from sources like demurrage collection, port handling activities, storage of containers,
providing Depot services, etc.
Offshore industry
The offshore industry comprises of support services to the exploration and production (E&P) activity of
oil and gas in offshore areas. The industry includes a wide array of activities ranging from drilling rigs,
marine construction, port support / terminal services to development of oil field and production of
support facilities.
Presently, a handful number of Indian offshore service providers like the Shipping Corporation of India,
Great Eastern Shipping, Essar Shipping, Varun Shipping and others are involved in the offshore business,
serving to the domestic industry demand. The sector is dominated by ONGC, which is the largest owner
of offshore fleet in India as well as the biggest client to other service providers.
Others
Ship sale & purchase, ship engineering & manning personal are also a part of shipping industry.
These businesses/markets are linked by cash flow and form an inevitable part of the value chain of
the shipping industry as a whole.
VALUE CHAIN

FREIGHT BUSINESS- A CLOSER LOOK
The freight or cargo shipping industry can be broadly classified into wet bulk (like crude and petroleum
products), dry bulk (like iron ore and coal) and liners (like containers and others). There are various
benchmarks that determine freight rates for these segments. The prominent amongst them are Baltic
Freight Index, Baltic Handymax Index (for dry bulk segment) and World Scale (for tankers).
Following is a layout explaining the freight/cargo business in detail by breaking it into finer components:
TRAMP SHIPPING
Tramp shipping comprises of Freight carrying both dry & bulk cargo. They are designed to carry
bulk solids such as grains, fertilizer and ores or bulk liquids such as refined petroleum products,
chemicals and orange juice. These ships are categorized partly by their capacity, partly by their
weight, and partly by their dimensions (often with reference to the various canals and canal
locks through which they can travel). Some common categories include:
Dry Cargo
Handysize
Size: 10,000 - 30,000 dwt
These are small bulk carriers that make up the majority of the world's short haul fleet. Handysize can
refer either to a bulk carrier or tanker.
Handymax
Size: 30,001 - 50,000 dwt

These are a larger version of the Handysize vessels and popular for both bulk and crude carriers. These
vessels have a large variation in size and characteristics.
Panamax
Size: 50,001 dwt - 80,000 dwt
This is the maximum size ship that can pass through the locks of the Panama Canal. Locks are 1000ft
long by 110ft wide and 85ft deep. Panamax dimensions are: overall length (LOA) of 965ft (290m); beam
of 106ft (32.3m); draft of 39.5ft (12.04m).
Capesize
Size: 80,001 dwt - 199,000 dwt
These are vessels that are too large to pass through the locks of either the Panama or Suez Canals. As a
result, these vessels must travel around the Cape of Good Hope in South Africa or Cape Horn in South
America to their destinations. These vessels also require deep-water ports.
Very Large Ore Carriers (VL Ore Carriers)
Size: 200,000+ dwt
These vessels are the largest bulk carriers and also cannot pass through either the Panama or Suez
canals.
Wet Bulk & Crude Oil Carriers/Tankers
Tankers of less than 100,000 dwt are referred to as either "clean" or "dirty". Clean tankers carry refined
petroleum products such as gasoline, kerosene or jet fuels, or chemicals. The so-called dirty vessels
transport products such as heavy fuel oils or crude oil. Larger tankers usually only carry crude oil.
Panamax
Size: 50,001 - 80,000 dwt
Approximate 32.2m beam limitation
This is the maximum size ship that can pass through the locks of the Panama Canal. Locks are 1000ft
long by 110ft wide and 85ft deep. Panamax dimensions are: overall length (LOA) of 965ft (290m); beam
of 106ft (32.3m); draft of 39.5ft (12.04m).
Aframax

Size: 80,000 - 119,000 dwt
This is the largest crude oil tanker size in the AFRA (Average Freight Rate Assessment) tanker rate
system.
Suezmax
Size: 120,000 dwt - 150,000 dwt
This is the maximum size crude oil ship that can pass through the Suez Canal in Egypt.
Very Large Crude Carrier (VLCC)
Size: 150,000 - 320,000 dwt
These are very large crude oil carriers that transport crude oil from the Gulf, West Africa, the North Sea
and Prudhoe Bay to destinations in the United States, Mediterranean Europe and Asia. Although VLCCs
are otherwise too large, it is possible to ballast these vessels through the Suez Canal.
Ultra Large Crude Carrier (ULCC)
Size: 321,000+ dwt
These are the largest man-made vessels that move. Currently, the largest ULCC is 564,939 dwt. These
ships sail the longest routes, typically from the Gulf to Europe, the United States and Asia. They are so
large that they require custom-built terminals for loading and unloading.
Others Carriers
a) Gas Carriers: LNG Carriers, LPG Carriers

b) AHTV (Anchor Handling Tug Vessels), Offshore Supply Vessel (OSV) and Rigs, PSV (Platform
Supply Vessel)
SHIP FINANCING
Ship financing has become a generic term referring to the financing of maritime projects, encompasses
not just shipping, but also other sub-sectors like ports, shipyards, and containers. However, we have
confined our discussion to ship financing projects.
Shipping is a capital-intensive industry; hence Ship financing is popular practice area in the industry.
Vessels constitute almost 90 percent of the fixed assets (net block and capital work in progress) of a
typical shipping company. A LNG carrier costs around USD 250 million, a double-hulled VLCC costs
around USD 90 million and a Handysized chemical ship is around USD 70 million. In such a scenario, a

shipowner or a potential ship owner wishing to acquire a vessel finds a considerable gap in his personal
funds availability and additional funds requirement.
Ship financing has to a large extent remained a specialty sector on account of a number of unique
characteristics associated with the shipping industry such as volatile markets, international service,
mobile assets and others. Despite the intricacies involved in ship financing, sophisticated financial
instruments are conspicuous by their absence. In contrast, asset-based financing in industries with a
similar profile like Airways has had highly sophisticated instruments to match the prevalent risk-return
structure. Internationally, term lending backed by security in the form of collateral and mortgage has
been the most prevalent form of financial assistance given to shipping companies.
Globally, governments have provided substantial financial support to respective shipping industries
either directly or indirectly. The growth of the maritime industry, especially shipping, in countries like
Japan and Korea can be attributed to this.
Equity Markets
Equity markets comprise of equity capital markets, venture capital and private equity funds. Ship
financing through equity mode is more popular in the case of high-risk projects where vessel acquisition
is not backed by a firm contract for deployment or where vessels are acquired for asset play. Shipping
companies adopted an equity route mainly after the 1980s for Shipping Finance in India, owing to
factors like phasing out of subsidized debt funding by Shipping Development Fund Committee (SDFC),
easing of norms for tapping the equity market and ship-owners becoming increasingly aware of the
pitfalls of a highly leveraged capital structure.
Indian shipping companies have a miniscule market capitalization vis-à-vis the market capitalization of
the Indian stock market. Market capitalization of the largest public sector company namely Shipping
Corporation of India (SCI) is around USD 120, whereas that of Great Eastern Shipping, the largest private
sector is USD 150. Currently, we have around 8 shipping companies listed on the stock exchange, scrips
of whose are trading at a substantial discount to book value or net asset value.
Debt Markets
Banks and financial institutions have been the main source of ship financing via debt mode for shipping
companies. The industry can avail of broadly two types of finance viz. fund-based finance and non-fund
based finance. Term loan and working capital credits come under fund-based finance. Under non-fund
based finance, funds are not actually employed, but a liability is created on the lenders to make
payment in case of a default. Letter of Credit, bills discounting and guarantees constitute such facility.
Globally, a few banks like Christiana Bank, ABN Amro, Citibank have specialized in Ship Financing
practices. As per various estimates, around 200 banks are presently active in Shipping Finance in India
and abroad.

For shipping finance in India, very few of the Indian banks and financial institutions have the necessary
expertise or infrastructure to appraise shipping projects. Some of the exceptions are ICICI Limited
(erstwhile Industrial Credit and Investment Corporation of India) and State Bank of India who have
dedicated divisions for ship financing. Most other commercial banks show considerable skepticism in
taking up exposure in shipping, as the industry through the ages has been considered highly risky and
prone to innumerable dangers. A ship sails in the high seas outside the protective policies and regulation
of the domestic government, where physical viewing and monitoring of the vessel is difficult.
Additionally, the sector is cyclical in nature.
Broadly banks that are willing to take up ship financing proposals can be divided into six groups,
Financial institutions
Public sector commercial banks
Private sector banks
Co-operative banks
Non-banking financial institutions
Foreign banks and financial institutions
With a view to attract more investments into the maritime sector, the shipping ministry plans to
introduce a new maritime policy expected to be finalized in the next one month which will replace the
existing National Maritime Development Programme (NMDP).
CHARTERING
The freight market consists of shipowners, charterers and brokers. They use four types of contractual
arrangements: the voyage charter, the contract of affreightment, the time charter and the bareboat
charter. Shipowners contract to carry cargo for an agreed price per tonne while the charter market hires
out ships for a certain period. A charter is legally agreed upon in a charter-party in which the terms of
the deal are clearly set out. In some cases a charterer may own cargo and employ a shipbroker to find a
ship to deliver the cargo for a certain price, called freight rate. Freight rates may be on a per-ton basis
over a certain route (e.g. for iron ore between Brazil and China) or alternatively may be expressed in
terms of a total sum - normally in U.S. dollars - per day for the agreed duration of the charter.
A charterer may also be a party without a cargo who takes a vessel on charter for a specified period
from the owner and then trades the ship to carry cargoes at a profit above the hire rate, or even makes
a profit in a rising market by re-letting the ship out to other charterers.
Depending on the type of ship and the type of charter, normally a standard contract form called a
charter party is used to record the exact rate, duration and terms agreed between the ship-owner and
the charterer. Time Charter Equivalent is a standard shipping industry performance measure used
primarily to compare period-to-period changes in a shipping company's performance despite changes in
the mix of charter types.

CHARTER TYPES
A voyage charter is the hiring of a vessel and crew for a voyage between a load port and a discharge
port. The charterer pays the vessel owner on a per-ton or lump-sum basis. The owner pays the port
costs (excluding stevedoring – which means loading & unloading of cargo), fuel costs and crew costs.
A time charter is the hiring of a vessel for a specific period of time; the owner still manages the vessel
but the charterer selects the ports and directs the vessel where to go. The charterer pays for all fuel the
vessel consumes, port charges, and a daily 'hire' to the owner of the vessel.
A bareboat charter is an arrangement for the hiring of a vessel whereby no administration or technical
maintenance is included as part of the agreement. The charterer pays for all operating expenses,
including fuel, crew, port expenses and hull insurance (Typically, marine insurance is split between the
vessels and the cargo. Insurance of the vessels is generally known as 'Hull and Machinery' (H&M). A
more restricted form of cover is 'Total Loss Only' (TLO), generally used as a reinsurance, which only
covers the total loss of the vessel and not any partial loss. Cover may be on either a 'voyage' or 'time'
basis. The 'voyage' basis covers transit between the ports set out in the policy; the 'time' basis covers a
period of time, typically one year, and is more common.) Usually, the charter period (normally years)
ends with the charterer obtaining title (ownership) in the hull. Effectively, the owners finance the
purchase of the vessel.
A demise charter shifts the control and possession of the vessel; the charterer takes full control of the
vessel along with the legal and financial responsibility for it.
Time Charter Equivalent
The Time Charter Equivalent (TCE) rate is a standard shipping industry performance measure used
primarily to compare period-to-period changes in a shipping company's performance despite changes in
the mix of charter types (i.e., spot charters, time charters and bareboat charters) under which the
vessels may be employed between the periods. TCE revenue is a non-GAAP measure.
A standard method to compute TCE is to divide voyage revenues (net of expenses) by available days for
the relevant time period. Expenses primarily consist of port, canal and fuel costs.
OPERATING PARAMETERS/INDICES ASSESSING FREIGHT RATES
a) Baltic Dry Index
The Baltic Dry Index (BDI) is a number issued daily by the London-based Baltic Exchange. Not
restricted to Baltic Sea countries, the index tracks worldwide international shipping prices of
various dry bulk cargoes. The index provides "an assessment of the price of moving the major raw
materials by sea. Taking in 26 shipping routes measured on a timecharter and voyage basis, the
index covers Handysize, Handymax, Panamax, and Capesize dry bulk carriers carrying a range of
commodities including coal, iron ore and grain. The index is made up of an average of the Baltic

Supramax, Panamax, and Capesize indices. These indices are based on professional assessments
made by a panel of international shipbroking companies. The BDI factors in the four different sizes
of oceangoing dry bulk transport vessels.
Most directly, the index measures the demand for shipping capacity versus the supply of dry bulk
carriers. The demand for shipping varies with the amount of cargo that is being traded or moved in
various markets (supply and demand). The supply of cargo ships is generally both tight and inelastic
— it takes two years to build a new ship, and ships are too expensive to take out of circulation the
way airlines park unneeded jets in the Arizona desert. So marginal increases in demand can push the
index higher quickly, and marginal demand decreases can cause the index to fall rapidly. e.g. "if you
have 100 ships competing for 99 cargoes, rates go down, whereas if you've 99 ships competing for
100 cargoes, rates go up. In other words, small fleet changes and logistical matters can crash
rates..." The index indirectly measures global supply and demand for the commodities shipped
aboard dry bulk carriers, such as building materials, coal, metallic ores, and grains.
Because dry bulk primarily consists of materials that function as raw material inputs to the
production of intermediate or finished goods, such as concrete, electricity, steel, and food, the index
is also seen as an efficient economic indicator of future economic growth and production. The BDI is
termed a leading economic indicator because it predicts future economic activity.
b) HARPEX
It is an index of global containerized freight. HARPEX typically measures finished goods - the
containers of LCD screens from Taiwan, Scotch Whisky from the UK, motorcycles from Italy and so
on. In our opinion, it's a good indicator of global consumer activity and value-added conversion
activity - which for a consumer-driven and high value-added conversion economy is surely the
critical indicator.
c) WORLD SCALE
Worldscale is a unified system of establishing payment of freight rate for a given oil tanker's cargo.
Worldscale was established in November 1952 by London Tanker Brokers’ Panel on the request of
British Petroleum and Shell as an average total cost of shipping oil from one port to another by ship.
A large table was created. The same scale is used today, although it was merged with the American
Tanker Rate Schedule (ATRS) in 1969. By 2002, the table included the average cost of 320,000
voyages in permutations of from one load and one discharge port to five loads and ten discharge
ports. Worldscale is produced by Worldscale Association (NYC) Inc. for the Americas and by
Worldscale Association (London) Ltd. for the rest of the world. The freight for a given ship and
voyage is normally expressed in a percentage of the published rate and is supposed to reflect the
freight market demand at the time of fixing. In negotiating a price to pay, the above table is referred
to as WS100 or 100% of Worldscale. The actual price negotiated between shipowner and charterer
can range from 40% to 200% and is referred to respectively as WS40 to WS200, depending on how
much loss the first is willing to take on that voyage and how much the latter is willing to pay.
KEY TRENDS AND FORCES AFFECTING BDI
Commodity Demand - This is determined mainly by industrial production and energy demand. If
commodity demand is strong, BDI rates will increase regardless of spot rates for those
commodities. Companies that have contracted out spot rates will show increased demand
through paying more for shipping of the materials. As more coal and steel are being demanded
by China, so will the rates for dry bulk shipping increase.
Fleet Supply - This is determined by the number of available ships, their capacity, and the
utilization rates. Additionally, the average age of the fleets will determine where they are in the
life cycle. The average ship lasts 25 years. If the average is closer to that number, supply will be
decreasing in the short term. Also, supply is greatly determined by delivery of new vessels.
Currently, there is significant back logged demand for new vessels. With rates for the largest dry
bulkers fetching nearly 10x that of a comparable VLCC Oil Tanker, many companies converted
tankers into dry bulk carriers.
Seasonal Pressures - Weather has a major impact on both demand and logistics. For demand,
cold weather may increase the demand for coal and other energy creating raw materials. For
logistics, cold weather may cause ice to block ports and low rivers to prevent travel. Both of
these cause increases in the BDI. Conversely, a mild winter or early ice breakup in cold water
parts will cause decreases in the BDI.
Bunker Prices - Bunker fuel is a type of fuel oil a ship uses for propulsion. Bunker fuel accounts
for between a quarter and a third of vessel operating costs. Higher crude oil prices also mean
higher bunker fuel prices which will be reflected in higher BDI prices. So, just as higher oil prices
will put a damper on Airline company margins, they will squeeze margins for dry bulk operators.
Choke Points - Nearly half of the world's oil passes through a few narrow shipping lanes. This
includes the straits of Hormuz and Malacca, the Bosporus and the Suez and Panama canals.
These geographic choke points cause natural caps in the number of ships that can pass through
each day, month or year and therefore also limits the bulk tonnage capacity of certain shipping
routes. If anything disrupts the flow of ships through the choke points, the BDI will increase. The
narrow (52 mile wide) Bering Strait (also called the "Bering Gate" in the shipping industry) may
soon become the world's newest strategic "choke point" for shipping.
Market Sentiment - Because of the time lag in forecasting demand for raw materials, market
opinion can greatly affect the freight exchange. The recent halving of the index's value can be
attributed to many companies forecasting lower global growth and cutting their
production/demand targets.
Port Congestion -This acts as another great buffer against supply increases lowering index
prices. The actual infrastructure of these ports prevents more ships entering the market. The

ports simply cannot handle more traffic. Until major changes occur at these vital terminals,
there will be upward pressure on dry bulk prices. Shipping industry analysts are actually
developing an index to standardize and make available this incredibly vital data.
Labor Relations - Nothing is loaded or unloaded from ships without labor. Labor relations at
various ports around the world directly affect the BDI. For example, in the U.S. both the ILA
(International Longshoreman's Association) and the ILWU (International Longshoreman's and
Warehouse Union) exert enormous control over the labor at ports. Labor relations issues
include: intentional work slowdowns, company lockouts, strikes and political boycotts. Labor
unions have expressed their political power and influence in the past by boycotting products
from apartheid South Africa, protesting the war in Iraq and even the Soviet Invasion of
Afghanistan. Labor relations impacts on the Baltic Dry Index should not be underestimated by
the sophisticated investor.
Piracy - Although piracy has been a constant factor affecting shipping for thousands of years,
2008 saw some significant piracy events including the capture and ransom of the MV Sirius Star,
a Saudi owned oil supertanker seized by pirates off the coast of Somalia. Pirates are also holding
crews hostage for significant ransoms as in the case of the MV Faina, a Ukrainian arms shipping
vessel. Interpol and other global law enforcement agencies are investigating the connections of
various organized crime groups that may be bankrolling and organizing pirate groups including
those based in Somalia. Various nations including the U.S., Canada, France, U.K., Russia, Ukraine
and China are now deploying warships to patrol the coast of Somalia. These factors put
additional upward pressure on the BDI.
New Arctic Shipping Routes - Shipping from Europe to China by means of the arctic offers a
route distance savings of approximately 4000 miles, which is a large percentage of the non-
arctic total route distance. Of course, the historical search for the Europe-China route was the
reason for the discovery of the "New World" (America). With oil prices (Bunker Fuel) at 1st Q
2009 lows, arctic shipping may or may not be economical. But during mid-2008 oil prices, a 4000
mile route saving offered significant fuel and time savings. Discussion among scientists attending
the March 2009 "Copenhagen Conference" suggests that the predictions by the 2007 UN- IPCC
Report on Climate Change regarding the likely clearing of arctic sea ice has underestimated the
rate of clearing and by 2013 arctic shipping may become feasible. Although the shipping
industry remains highly secretive, the potentially significant economic advantages have caused
many international shipping companies to begin analyzing and planning for potential new arctic
routes. Shipping industry intelligence indicates that China is interested in potential deep-water
ports in Iceland. Arctic routes do not currently affect the BDI but may in the near future.

DEMAND & SUPPLY FACTORS

The demand and supply drivers for the shipping sector are:
Demand drivers
I. 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.
II. 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 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.
Supply drivers
I. Ordering
Shipbuilding capacity: The number of vessels that a shipyard can build and the time taken to build a
vessel plays an important role in determining the growth in tonnage supply. Since new capacities take
time to set up, shipyards are unable to cope up with any sudden increase in demand. This impacts the
delivery of ships and thereby acts as a supply constraint. Considering the huge order backlog of global
shipyards, especially those in the Asian regions of Korea and Japan, ship owners are currently being
quoted deliveries that will be beyond 2011.
New building prices: In case of high new building prices, shipping companies are likely to slow (or defer)
their new purchases as the break even becomes higher. Similarly, lower new building prices can lead to
increased orders (assuming that companies are expecting demand to pick up in the future), thereby
increasing the total tonnage available in the market.

II. Scrapping
Economic Life: Higher the age of the fleet, higher is the expected scrapping and lower the net fleet
growth. Economic life differs across vessel category (crude tankers have a relatively lesser economic life
than dry bulk vessels). At present, the average age of the global shipping fleet is 19 years.
Regulations: Statutory regulations on age and safety norms set by International Maritime Organization
and the European Union may place restrictions on particular kinds of vessels, thus affecting fleet
augmentation. For instance, the International Maritime Organization (IMO) has stipulated that all single
hull ships be scrapped by 2010.
Over and above these fundamental demand and supply parameters, freight rates can witness spikes due
to short-term events. These could be natural catastrophes, accidents or political upheaval in the form of
strike/war, or even as basic as port/canal congestion.
GOVERNMENT & 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 government’s 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 government’s 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 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.
FACTORS HAMPERING INDIAN SHIPPING INDUSTRY
a) TAXES
Indian shipping industry is charged with the following 12 types of direct & 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
Seafarer’s taxation cost to employer
Wealth tax

Fringe benefit tax

Sales tax/value added tax (VAT) 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 the 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 the increasing trade. The present situation demands rationalization of tax & 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 4-5bn,
according to the paper.
The Indian shipping industry has benefited 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 annual
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 ring-fence the company’s tax liabilities, making
financial planning and long-term strategic operations easier. But Indian owners are increasingly opting
to own vessels in low-tax jurisdictions outside India while accessing India’s booming cargo base. Little
worthwhile foreign investment has taken place due to the high taxes and rigid regulations like manning
norms in India.
Following are certain recommendations, if made, will be a certain boost to the Indian Shipping Industry:
The definition of ‘core’ activities for tonnage tax purposes should be modified to treat the
incomes arising from book-profit on sale of vessels as core activities under the Tonnage Tax (TT)
regime and not subjecting it to MAT
Interest income from compulsory reserves should be treated as arising from ‘core activities’ of a
tonnage tax company
Zero rating of input services availed by the Indian shipping industry (either imported or
domestically procured) - these services include brokerage, commission and finance charges,
general insurance services including P&I insurance, ship management services, manpower,
recruitment and supply agency services
Addressing the seafarers’ taxation issue as Indian shipping companies face an acute shortage of
seafarers, particularly in the officers’ category because of drift of personnel from Indian flag
ships to foreign flags under the lure of higher ‘take home’ pay packets
Exemptions from Customs Duty on direct import of repair materials by ship repair units and

ship-owners for repairs in India on import of certain vessels and on capital goods imported for
shipbuilding including renewals and replacements of yard facilities from customs duty (as in any
yard having both ship building and ship repair facilities, most of the assets are common and the
concessions extended to one activity alone may not serve the required purpose)
Exemptions from Excise duty of 16% on capital goods required for construction of ships as in the
case of ship repair
Reinstating the exemption from withholding tax of 10% on interest paid to acquire ships abroad,
which were withdrawn in 2001
Similarly withholding tax on chartering of foreign vessels could be removed
b) FOC : Flag of Convenience
The term flag of convenience describes the business practice of registering a merchant ship in a
sovereign state different from that of the ship's owners, and flying that state's civil ensign on the ship.
Ships are registered under flags of convenience to reduce operating costs or avoid the regulations of the
owner's country. The closely-related term open registry is used to describe an organization that will
register ships owned by foreign entities. A ship operates under the laws of its flag state, and these laws
are used if the ship is involved in an admiralty case.
Flag-of-convenience (FOC’s) registries are often criticized. As of 2009, thirteen flag states have been
found by international shipping organizations to have substandard regulations. A basis for many
criticisms is that the flag-of-convenience system allows ship-owners to be legally anonymous and
difficult to prosecute in civil and criminal actions. Ships with flags of convenience have been found
engaging in crime and terrorism, frequently offer substandard working conditions, and negatively
impact the environment, primarily through illegal, unreported and unregulated fishing. As of 2009, ships
of thirteen flags of convenience are targeted for special enforcement by countries that they visit.
Supporters of the practice, however, point to economic and regulatory advantages, and increased
freedom in choosing employees from an international labor pool.

Other Concerns & Challenges
1) The age of the 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.
2) The share of Indian shipping industry in India’s overseas sea-borne 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 of 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%.
3) The slow growth of coastal shipping despite having a low unit transportation growth is of a major
concern. The overall end-to-end cost by coastal shipping escalates due to inadequate port & land
side infrastructure (capacity, connectivity etc), resulting in a preference for road / rail modes for
trade. Burden of customs duties, cumbersome customs / other procedures, low port productivity
with high tariffs aggravates the problem.

4) The existing tonnage tax needs to be streamlined to be in line with other schemes in other maritime
countries, and should be amended to include profit on sale of ships as well as interest income as
tonnage tax income.
5) The Indian shipping companies are unable to retain quality manpower due to distortions in income
tax structure. Indian officers and crew employed on Indian flagged vessels (for a period of 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.
6) Another issue is the 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 premiums.
7) The low depreciation rate of 25% applicable to the shipping industry is another of industry concerns.
On the other hand, vehicles such as trucks and cars are permitted a 40% rate of depreciation. There
is a strong case for removing this inequity by raising the depreciation of ships also to 40% as it would
help companies to build up reserves to finance fleet replacement and growth.
SHIPPING STOCKS
Factors to consider while valuation
Management: The ability of the management to foresee trends and alter the fleet mix accordingly to
improve realizations is of high significance considering the volatile nature of the shipping industry. Since
freight rates are highly volatile, it would be prudent for shipping companies to maintain sufficient
revenue coverage through time charters. The company thus insulates its earnings from the highly
cyclical nature of freight rates, thereby increasing its revenue visibility. Even though this comes at a cost
of losing out on substantial upsides in case of attractive spot freight rates, the company can alter its mix
of time charters and spot rates depending upon their outlook on freight rates.
Fleet mix: As mentioned earlier, shipping companies operates in different segments viz., tankers (crude
and product), dry bulk, gas, containers and offshore. The segment in which a particular company
operates, and the freight outlook in that segment, will ultimately determine the future prospects of the
company. As compared to the dry bulk and crude segment, the offshore business provides higher
visibility and lower volatility. Oil rigs provide long term visibility to the company’s revenues and with the
rise in exploration and production (E&P) activities, the demand for offshore support vessels is likely to
remain strong.

Valuations: Shipping is a highly volatile business and freight rates are determined depending on global
supply and demand. Therefore, valuing a shipping company on the basis of price to earnings may not be
meaningful. However, considering the asset intensive nature of the shipping business, price to book
value (P/BV) would be an appropriate method of valuation. Though the book value does not indicate the
market value of the fleet, book value capture the essence of the balance-sheet strength of the company.
It has to be remembered that when freight rates are higher, the asset value of the fleet increases and
vice versa. If the company declares the net asset value (NAV), investors could use that as a very good
indicator. Otherwise, we suggest investors to value a shipping business on the basis of P/BV. For
offshore companies, price to earnings would be an appropriate tool as the revenue visibility is higher
and also less volatile.
COMPANIES OVERVIEW
GE Shipping (GESCO)
Investment Highlights
a) Listing of the offshore subsidiary to provide value unlocking
GESCO plans to list its offshore subsidiary Greatship India. The subsidiary currently has 14 owned assets
and 2 in-chartered assets under management. Post the leftover capex of US$ 362 mn the company will
have total owned assets strength of 23 vessels. The listing of the offshore subsidiary is expected to
further unlock value.
b) Stable offshore earnings to contribute significantly
With the growth of fleet in the offshore segment where the charter rates are likely to remain stable we
expect the offshore contribution in the combined consolidated entity will increase to ~37% by FY12.
Company's presence in the mid-sized offshore assets is likely to be less risky as compared to a player like
Varun which has a higher exposure in the higher end offshore segment.
c) Greater exposure to the tanker segment to provides better long term visibility
On a standalone basis GESCO currently books ~85% of its revenues from the tanker segment. We believe
that despite a bleak near term scenario the tanker segment is likely to achieve better rates in the longer
terms (beyond two years). We believe that the tanker cycle is currently at its trough and is less likely to
go further down from here.
d) Valuation
The valuation is carried out on the SOTP basis due to disparateness in the shipping and offshore
business. The shipping business has been valued on the basis of P/NAV basis whereas offshore has been
accorded 9x FY11E, PE based on the global peerset valuations.

Background
G E Shipping is India's largest private sector shipping service provider. G E Shipping initially promoted by
two families - the Sheths and the Bhiwandiwallas, who started GESCO to help expand the reach of their
trading businesses. The company started its shipping operations in 1948, after obtaining the mothballed
Liberty ship, SS Fort Elice. GESCO has a diverse asset base with presence in the crude, product, dry bulk
and offshore segments. GESCO has a presence in the offshore business through the wholly owned
subsidiary Greatship India Ltd. The company's management is constituted by Mr. K M Sheth, Chairman,
Mr. Bharat Sheth, Managing Director and Mr. Ravi Sheth, Managing Director of Greatship India.
Operational Highlights
a) Very dynamic in S&P (Sale & Purchase) activity
GESCO has been one of the most aggressive companies historically in the field of sale and purchase of
ships and is likely to continue the policy.
b) Greatship: a good support
Greatship has a young (average age of ~2 years) mainly mid-sized offshore vessels. The following is the
expected fleet profile of the offshore segment at the end of planned capex.
The charter rate scenario in the offshore markets is expected to be more robust as compared to the
shipping sector. Order book situation is much less alarming in case of offshore vessels. The order book in
case of AHTSV and PSV category of vessels stands at 15.4% and 10.7% of existing fleet. Also about 48%
and 40% of the existing fleet is above 25 years in the case of AHTSV and PSVs respectively. Hence
relatively lower additions in the shipping tonnage are expected to sustain the current levels in charter
rates.
Financials
a) Revenue contribution likely to be skewed towards offshore
The dependence upon offshore revenues is expected to escalate over the next couple years with the
stagnation in the shipping charter rates. Fleet accretion in the offshore segment is expected to increase
its contribution with the charter rates likely to remain stable. The GESCO standalone revenues are
expected to remain depressed in the next two years. Greatship revenues are expected to grow
exponentially on the back of fleet addition though the EBIDTA margins are expected to stabilize in the
range of 36%.
b) EBIT contribution to be further skewed towards offshore
We believe that the earnings will be further skewed towards offshore in FY11 as it is expected to
contribute to 35% of consolidated revenues whereas constitute about 45% of PBIT.

c) Leverage
The DSCR and the interest coverage ratios of the company are at ~1.2x and 3.7x for FY11E. We believe
that GESCO (consolidated) is in a comfortable position to provide for the long term obligations.
SUMMARY
GE Shipping (GESCO), India's largest private sector shipping company has had a successful track record
of maintaining profitability despite severe fall in rates. We expect the company to be able to successfully
hedge its earnings by growing its fleet in offshore space, which currently has owned fleet strength of 14
assets through its subsidiary Greatship India. We believe that offshore will contribute to almost 45% of
FY11E PBIT. With likely listing of the offshore subsidiary we expect a value unlock in the near term. We
recommend a BUY on the stock with target of Rs 376, a 23% upside.
SHIPPING CORPORATION OF INDIA LTD.
Background
The Shipping Corporation of India was established in 1961 by the amalgamation of Eastern Shipping
Corporation and Western Shipping Corporation. Starting out as a marginal Liner shipping company with
just 19 vessels, the SCI today has 77 ships of 5.1 mn dwt with interests in almost all segments of the
shipping trade. In addition, SCI mans/manages 60 vessels of 0.2 million tonnes DWT. The SCI owns and
operates about 33% of the Indian tonnage servicing both national and international trades. Over the
years it has diversified into a large number of areas, and is today the only Indian shipping company
providing overseas break-bulk and container services to Indian trade. The SCI operates shipping services
in various segments viz. container, break-bulk, crude oil & products, dry bulk, LPG / Ammonia,
Phosphoric Acid / Chemicals, LNG, coastal passenger transportation, offshore logistic support services
and other coastal services.
a) Lowest leverage in the shipping space
SCI's conservative policy has helped it maintain a low leverage with a Net debt to equity position at
~0.1x. Though with a substantial capex planned in the next three years the company's leverage is
expected to increase. Still the DSCR is reasonably positioned at about 1.5x in FY11E and equity infusion
at this juncture may help it revamp and expand its fleet further when the asset prices are low.
b) Container segment losses to reduce but breakeven elusive
SCI, the only Indian shipping company running international liner operations has been booking EBIT
losses since FY08 due to extreme competition in the segment. In FY10 there has a been a steady
improvement in the rates in the liner segment on the back of container shipping companies taking a
conscious decision against moving containers at less than breakeven costs. This decision will be under
strain due to slew of ship additions, ~ 10% additions in capacity every year in FY10-11.

c) Predominantly tanker based player
The company's revenues in the bulk segment are largely dependent upon the tanker segment. Tankers
contributed to 87% of the bulk segment EBIT in FY10. The tanker segment though in the medium term is
expected to remain depressed. It is expected to show a recovery in next two years due to scrapping of
vessels and crude oil demand recovery by non-OECD nations.
d) Divestment candidate
SCI is a divestment candidate which currently has ~80% government holding. Also with the current
guidelines of more than 25% public shareholding we expect SCI to explore ways its float soon.
Management
The SCI Board is headed by the Chairman and Managing Director, Mr S.Hajara, 5 full time directors
heading the divisions and 10 part time directors (2 official and 8 non-official) nominated by Government
of India.
Operational details
a) Bulk
SCI currently has had a higher share of tankers in its fleet which is expected to undergo significant
revamp post the acquisition plan. The average age of the bulk fleet is expected to reduce post
acquisition to 14 years from current 18 years. In bulk operations the company is mainly catering to the
cargo originating from the Indian subcontinent.
b) Liner
The company's liner operations are largely concentrated in the Asia-Europe route. Besides five owned
vessels with 14,407 TEUs of owned capacity the company also has also an in-chartered fleet of about 5
vessels. SCI has actively renegotiated the older charters and working on a loss mitigation plan in the
Liner business.
c) Others
SCI has a fleet of 10 offshore vessels with an average fleet of 25 years; these are currently employed in
the Indian waters with ONGC. It also services about 21 vessels of ONGC. The Liner segment also includes
the passenger transport services both owned by SCI and on account of the Andaman & Island
administration.
d) Capex details

The company plans to incur a capex of US$ 1.6 bn over the next three years. About 15 vessels are
estimated to be added in FY11 and another ~10 in FY12.
Financials
a) Revenues
SCI is expected to book revenue CAGR of 15% over FY10-12E. Further growth in revenues is likely to be
contributed by the fleet increment in the next couple of years which is likely to see addition of about 25
vessels. Of this the bulk (mainly tanker) segment is expected to provide major portion of growth with
increment in the fleet. The recovery in the liner segment is currently dependent upon the ability of the
liner companies to hold on to the rate.
b) EBIT to improve
We expect a modest recovery in liner segment and the accretion of the new-buildings is likely to lead to
growth of overall EBIT.
c) Interest cover and DSCR
SCI is currently has an interest cover of 7x EBIT. The DSCR for the company is likely to be 1.5x in FY11E
and 1.3x in FY12E. Net Debt to equity which is negligible currently is expected to increase but with vessel
acquisitions.
Summary
Shipping Corporation of India (SCI) a Navratna PSU is one of the least leveraged plays in shipping space
in India. The company has India's largest shipping fleet has a major presence in the tanker segment.
Currently having an aged fleet (average age ~19 years) the company has on order 38 vessels which will
bring down its fleet age to <15 years by end of FY12. Its container shipping segment continues to be in
losses due to a highly competitive sector which is reeling from overcapacities. SCI management though
expects to turn around the container/liner segment by FY12 which we believe will be difficult task to
achieve though the rates/TEU have improved. We initiate coverage with a HOLD rating on the stock.
MERCATOR LINES LTD.
Background
Mercator Lines Ltd (MLL) was incorporated on 24 November 1983 as a private limited company and is
currently the second largest private sector shipping company in India. It was converted into a public
limited company on 3 April 1984 and was taken over by the promoter of the company, Mr H. K. Mittal in
1988. After its maiden issue in 1993 the company procured an oil tanker of 1,000 dwt capacity and a
cargo carrier of 4,300 dwt capacity and since then has grown manifold.
The tonnage has expanded exponentially to about 1.8 mn dwt in 2007. The company has forayed into
the oil & gas offshore business through its subsidiaries and placed an order for the construction of a new

generation Jack-up rig. Currently, Mercator has presence in the segments of crude oil, product tanker
and dry bulk operations. Mercator also has presence in coal mining through its subsidiary Oorja Holdings
Pte, which holds coal mining blocks in Indonesia.
a) Most diversified player in the shipping space
Besides shipping, MLL has presence in offshore, coal mining, dredging and oil prospecting. The revenue
contribution from all these segments on a consolidated basis is expected to be in excess of 35% for
FY11- 12. We believe that the diversification strategy may help the company to withstand the downturn
in the shipping space.
b) MOPU deal to provide earnings support
The Mobile Offshore and Production Unit (MOPU) to be stationed at the west coast of Africa have been
chartered out to Afren Plc. The deal to provide a rig and one of its Suezmax tankers involving a capex of
US$ 125 mn would provide MLL, revenues of US$ 225 mn over the next seven years. The company will
be booking revenues of US$ 88,000/day from the MOPU venture which would provide it an EBIDTA
contribution of ~US$ 65,000/day from Sept 2010 onwards.
c) Time charters and COAs to cover the dry-bulk operations
Mercator currently owns and operates 17 ships in dry-bulk space of which 13 vessels are owned. The
company currently has firm TCs for eight of its vessels and COAs for another four. The company's
strategy of fixing long term charters has helped it bode over worse of the times.
d) Dredging business has seen a slow-down
MLL is has reduced focus on the dredging segment which was bogged down by lower utilization post the
ending of contracts with DCI for the Sethusamudram project and other manpower issues. It plans to
develop the skillset of the people in place which would take 4-6 months, before undergoing further
expansion.
Time charters and COAs to provide good visibility for dry-bulk operations
Mercator Lines (Singapore) currently owns and operates 17 ships in dry-bulk space of which 13 vessels
are owned. Currently, MLL has firm TCs for 8 of its vessels and COAs for another ~4 vessels which
provides it a better TC:Spot mix of ~70:30. The company's strategy of fixing long term charters has
helped it bode over worse of the times. Only one of these vessels is coming for re-negotiation in the
next six months.
Coal mining / trading may provide upsides
The company had achieved a total throughput of 1.5 mn tonnes of coal in its coal mining / trading
activity in FY10. In FY11, it expects further growth in the mining output to about 1 mn tonnes of coal and

trading activity to achieve 4-5 mn tonnes of coal. The coal mine in Indonesia has 15 mn tonnes of
reserves and Mozambique has 3 bn tonnes of reserves. Currently it is mining only the Indonesia reserve.
Capex details
In FY11E, MLL plans to incur a capex of US$ 125 mn on MOPU. Also capex in the tanker and the dry-bulk
space is planned in FY11 though the exact amount and vessel acquisition target is not finalized. It also
plans to incur further capex for prospecting of oil in the Gulf of Cambay blocks.
Financials
a) Revenues and EBIDTA
The revenue booking is expected to increase to Rs 24 bn by FY11E, 34.6% YoY growth on back of coal
trading/mining segment which is expect to contribute almost 40% of total revenues. The share of the
shipping revenues in the total revenues has been in the range of 70-80% in the last two years is
expected to reduce further to ~50% by FY12E. Revenue contribution from the coal segment is expected
to increase manifold mainly due to the trading activity undertaken by the company. Its impact on
accretion of the profitability though is expected to be minimal (5-6% EBIDTA margin).
b) Interest cover and DSCR
MLL has a modest interest cover ratio of 1.9x and with a current consolidated gross debt of Rs 39.7 bn
and cash of Rs 9.4 bn the net debt to equity stands at 0.8x for FY11E. The DSCR of company is expected
to be modest at 1.2x for FY11E.
Summary
Mercator Lines (MLL), is India's second largest private sector shipping player has historically ridden the
shipping cycles well to show rapid growth of 56% CAGR in revenues and earnings from FY04-09. The
sudden sharp decline in charter rates in FY09 impacted the earnings adversely which in FY10 which led
to 81% YoY fall in earnings. We expect the earnings scenario for the company to moderately improve
from here. This is expected to be mainly due to aggressive expansion in other avenues like offshore
(rigs), and coal to hedge its risks due to shipping. We believe that the stock is fairly valued at these levels
and initiate coverage with a HOLD rating on the stock.
VARUN SHIPPING LTD.
Background
Varun shipping is a key player in the LPG shipping business with one of the largest medium sized LPG
carrier fleet (10 nos) in the world. Having a fleet strength of 20 vessels the company 72% of the
revenues is contributed by the LPG carriers.
Varun's has one of the best dividends paying track record in the industry and provided a dividend yield
in excess of 6% over FY02-07.

a) Turnaround in higher end offshore category still elusive?
We believe that the turnaround in the higher end offshore category vessels has remained elusive for the
company which the company had bought for about US$ 60 mn a piece. The higher end AHTSV category
currently has an orderbook of 56% of existing fleet.
b) LPG segment to recover but remain rangebound
We expect the LPG segment to remain recover from its lows seen in the last couple of years but remain
range bound in the coming months. The company has sold 5 of its owned vessels in the LPG segment to
its group company.
Summary
Varun Shipping (VRNS) is a niche player in the LPG shipping space in India. It has a sizeable presence in
the LPG shipping and offshore shipping with about 20 owned and operated vessels.
The company is highly leveraged at the current stage and has reported difficulty in achieving contracts
for its large size offshore vessels (160 tonnes). Also, the MGC-LPG vessel segment which traditionally
offered more stable charter rates also suffered a drop in rates. The turnaround for the company which
has been booking losses on an operational basis for the last six quarters will be largely dependent upon
the turnaround in the offshore segment.
OUTLOOK – INDIAN SHIPPING INDUSTRY

OVERALL FREIGHT MARKET
Freight rate on year on year basis being higher across all segments is expected to result in higher TCY
(Time Charter Yield) earning for the industry players in the first quarter of current fiscal. Given the
quantum of scheduled deliveries for remaining part of 2010 the shipping rates will be under pressure
but an upward thrust would be provided by the continued slippage in delivery. The performance of the
shipping companies going forward is all likely on their exposure to spot rates and operational efficiency.
GE Shipping given its right balance in exposure to spot market and TC and its incremental revenue from
offshore subsidiary is expected to have smooth sail. Similarly given the less volatility in the rates of Gas
Carriers the voyage of Varun Shipping is also expected to be smooth. Overall outlook is neutral.
TANKER MARKET
Prospects for the tanker market in FY 2010-11 remain uncertain. As per IEA, world oil demand in 2010 is
expected to improve to 86.6 million barrels per day, which is about 2% or 1.7 million barrels higher than
that seen in 2009. While China’s oil demand growth is expected to stay in the region of 6.5%-7%, a lot
depends on a sustainable oil demand recovery in the OECD nations, specifically the US and the Europe.
While last quarter of the previous financial year did see slight improvement in the US oil demand,

economic problems in Greece and surrounding Euro zone can dramatically alter demand dynamics.
Significant refining capacity will come on stream in the Middle East and Asia in 2010, which will take
away market share from refiners in the US and the Europe. This will boost tonne mile demand for the
product tanker tonnage going forward. On the supply side, the global tanker orderbook currently stands
at about 128.6 million dwt or 29.1% of the fleet at the end of March 2010, with about 50.40 million dwt
scheduled for delivery between April and December 2010. However, last calendar year registered 25%
slippage in tanker new building deliveries against that scheduled at the beginning of the year. Assuming
similar slippage and complete single hull tonnage phase out in 2010, net tanker fleet is expected to grow
at approx. 2-3% in the calendar year. Overall, barring seasonal volatility, average tanker earnings in FY
11 are expected to remain similar to those seen in FY 10.
DRY BULK MARKET
Chinese imports policy and actual new building deliveries will set the undertone for the dry bulk
shipping market in short to medium term. On the back of increased domestic demand backed by
greener pastures outside China, there is a potential for Chinese steel mills to increase steel production
at home at a quicker rate than domestic consumption. However, a cause of concern exists as
international prices for iron ore and coal have shot up nearly 50-60% and have turned fairly
uncompetitive to Chinese domestic ore. If this propels higher consumption of the domestic ore in China,
sea borne iron ore and coal trade can suffer severe impact at a time when the dry bulk shipping industry
is already under pressure from potential new building deliveries. Currently the dry bulk orderbook
stands at 288.2 million dwt or 60.6% of the existing fleet with 109.5 million dwt scheduled for delivery in
the balance of calendar year 2010. However, it must be pointed out that the above delivery schedule is
fairly theoretical in nature as we have already seen 40% slippage in new building deliveries during the
last calendar year. Further extraneous factors such as trade patterns, congestion, natural calamities and
weather changes can have their multiplier effect on dry bulk freight earnings. Overall, it is expected that
going forward new building deliveries are likely to cap any improvement in dry bulk earnings in the short
to medium term and hence FY 11 earnings are likely to average lower than FY 10.
PORT TRAFFIC
The world seaborne trade declined 3.4% in 2009, after a growth of 4.0% in 2007 and 2.3% in 2008. But
there are some favorable trends. On the one hand, there is recovery in global trade, though it is
threatened by downside from Sovereign Debt crisis of a few countries in European Union. Amidst this,
India is witnessing a healthy growth in its economy, which is improving its global competitiveness and
hence exports on the one hand, and increased imports to satisfy domestic demand on the other. These
factors should facilitate better growth in Indian port traffic growth in the current fiscal.

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Shipping

REPORT ON SHIPPING SECTOR

Aditya Kandoi & Mayank Bukrediwala

S. No. Particulars Page No.

1 Indian Shipping Industry 3

3 Important Trade Routes 9

6 Freight Business- A Closer Look 14

9 Operating Parameters/Indices Assessing Freight Rates 19

10 Key Trends & Forces Affecting BDI 21

11 Demand & Supply Factors 23

12 Government & Maritime Regulations 25

13 Factors Hampering Indian Shipping Industry 27

UNNATI |Management Development Institute 2

Some important features of the shipping industries are:

UNNATI |Management Development Institute 3

SHIPS AND WATERCRAFT

UNNATI |Management Development Institute 4

Tankers are cargo ships for the transport of fluids, such as

Reefer ships are cargo ships typically used to transport

Roll-on/roll-off ships, such as the Chi-Cheemaun, are cargo

Coastal trading vessels, also known as coasters, are shallow-

Ferries are a form of transport, usually a boat or ship, but

UNNATI |Management Development Institute 5

Cruise ships are passenger ships used for pleasure voyages,

Cable layer is a deep-sea vessel designed and used to lay

A tugboat is a boat used to manoeuvre, primarily by towing

A dredger (sometimes also called a dredge) is a ship used to

A barge is a flat-bottomed boat, built mainly for river and

UNNATI |Management Development Institute 6

UNNATI |Management Development Institute 7

Following is a snapshot of major activities that take place at major ports:

UNNATI |Management Development Institute 8

IMPORTANT TRADE ROUTES

b) Iron ore exports from India to East Asia

c) Coking coal imports from Australia to Visakhapatnam, Paradip and Haldia

d) Fertilizer and fertilizer material

UNNATI |Management Development Institute 9

UNNATI |Management Development Institute 10

UNNATI |Management Development Institute 11

Shipping transport industry/Freight or Cargo Industry

UNNATI |Management Development Institute 13

FREIGHT BUSINESS- A CLOSER LOOK

Size: 10,000 - 30,000 dwt

Size: 30,001 - 50,000 dwt

UNNATI |Management Development Institute 14

Size: 50,001 dwt - 80,000 dwt

Size: 80,001 dwt - 199,000 dwt

Very Large Ore Carriers (VL Ore Carriers)

Size: 200,000+ dwt

Wet Bulk & Crude Oil Carriers/Tankers

Size: 50,001 - 80,000 dwt

Approximate 32.2m beam limitation

UNNATI |Management Development Institute 15

Size: 80,000 - 119,000 dwt

Size: 120,000 dwt - 150,000 dwt

Very Large Crude Carrier (VLCC)

Size: 150,000 - 320,000 dwt

Ultra Large Crude Carrier (ULCC)

Size: 321,000+ dwt

a) Gas Carriers: LNG Carriers, LPG Carriers

UNNATI |Management Development Institute 16

UNNATI |Management Development Institute 17

UNNATI |Management Development Institute 18