Indian shipping industry growth and constraints
The Indian shipping industry accounts for 95% of the Indian trade by volume and approx. 70% of Indias trade by value. This industry mainly relies on Indian exports and imports and has been severely impacted by the recession of 2008-09 as felt by the Indian industries. The main components of industry include Dry cargo which is required for the import of iron ore , coal etc ( accounting for 66% of indias shipping trade). and the wet cargo which includes crude oil etc (34.7%).The Indian shipping industry with its fleet of 1029 ships as on 2012 is the 15th largest in the world and has grown at a CAGR of 3.3% since 1970’s, but however there are plenty of new opportunities for growth as well as severe constraints facing the industry.
With the liberalization of the Indian economy and during the period of economic boom, there has been an ever increasing demand for LNG to be imported in the country in order to sustain Indias fertilizer and power plants. This is followed by a need to integrate and develop multimodal logistics in order to ensure that the cargo once unloaded is delivered to the desired location in a speedy manner. This is being taken up by India by planning 16 multimodal logistic parks along Delhi to Mumbai highways and also with the Modi government’s vision of connecting all the rivers in India in order to boost up intra country trade. Another opportunity for growth for the Indian shipping industry which is primarily owned by the government with a few minor private players is through the development of bilateral trade agreements with different nations to enhance our usage of ships even during economic slumps.
Despite the growth opportunities the Indian shipping industry has seen its lows in 2010 when the Baltic dry index came down crashing in December 2010 after its peak in December 2007.The shipping industry is very easily impacted by the demand and supply principle and during economic crisis of 2008 when the world manufacturing output came at an all time low the deepest impact was felt by the shipping industry when prices for cargo, cape size vessels came down crashing. The development of Indias pipeline networks in the recent past is another factor posing a serious challenge to Indias wet cargo of shipping industry. Some of the constraints hindering the growth of the Indian shipping industry include the onerous tax regime imposed by the Indian government and this leads to companies in India owning a ship and registering it under a different flag. Similarly the wide regulatory framework in India provides a strict barrier for the entry of new players and also increasing the cost of compliance, this has led to a decrease in share of Indian shipping industry in the world. The growing proportion of old and outdated ships still being used by the industry highlight that there is a need of a better financing model and this is highlighted by the fact that till date India has no LNG carrier of its own despite the estimates that LNG trade will be worth 30 billion $ by 2020.Some steps have been initiated by the shipping corporation of India by tying up with OSAKA corporation but however there is still lack of financing models like KS or KG to account for a cost of 200 million $ to develop an LNG carrier. The Indian shipping industry no doubt has immense potential for growth but only if properly nourished and enriched with the support of government through better financing options , taxation regimes and by loosening up on the regulatory compliances.