Exporters in India are advocating for a government-led initiative to establish an India-based shipping line of global standing. This move is expected to reduce shipping costs and enhance the competitiveness of Indian exports in the global market. According to the Federation of Indian Export Organisations (FIEO), India remitted $109 billion as transport service charges in 2020. With rising exports, this figure could reach $200 billion as exports are projected to hit $1 trillion by 2030.
Potential Benefits of an Indian Shipping Line
FIEO President Ashwani Kumar highlighted the potential benefits at a pre-budget meeting with Finance Minister Nirmala Sitharaman and Finance Ministry officials. He stated, “A 25% share by an Indian shipping line can save $50 billion a year and will also reduce arm-twisting by foreign shipping lines on medium and small businesses.” The meeting also included participants from export promotion councils for marine, leather, and gems and jewellery sectors, as well as industry associations like Nasscom and the Federation of Hotel and Restaurant Association of India (FHRAI).
Government Considerations
The government is considering the establishment of a shipping line, though the specifics are yet to be determined. An Indian-owned shipping line would address not only cost issues but also the problem of international vessels skipping India in favor of more lucrative cargoes in Southeast Asia.
Beyond Cost Savings: Broader Benefits
The advantages of an Indian shipping line go beyond cost savings. Here’s a deeper dive into the potential benefits:
- Reduced Reliance on Foreign Carriers: Currently, Indian exporters are beholden to the schedules and pricing structures of foreign shipping companies. An Indian line would offer greater flexibility and potentially more competitive rates.
- Strategic Advantage: An Indian shipping line could play a crucial role in negotiating trade agreements and securing favorable shipping terms with other countries.
- Boosting Indian Ports: Foreign vessels sometimes bypass Indian ports in favor of those in Southeast Asia to pick up cargo. An Indian shipping line would be more likely to utilize Indian ports, leading to increased business and revenue generation.
- Job Creation: Establishing and operating a shipping line would create significant employment opportunities across various sectors, from shipbuilding and logistics to maritime operations and management.
Challenges and Considerations on Setting Shipping Line
The path towards a successful Indian shipping line is not without hurdles. Here are some key considerations:
- Competition: The global shipping industry is fiercely competitive, dominated by established players. An Indian line would need a well-defined strategy and competitive pricing to carve out a niche.
- Investment: Building and operating a global shipping line requires substantial investment in vessels, infrastructure, and personnel. The government would need to determine the most effective funding model.
- Operational Efficiency: Streamlined operations and efficient management are crucial for success. The line would need to adopt best practices and leverage technology to optimize its operations.
Additional Demands from Exporters
In the meeting, FIEO also raised several other demands, including:
- Extension of the Interest Equalisation Scheme: Extending the scheme, which is set to expire at the end of this month, for another five years and increasing the interest subsidy from 3% to 5%.
- Increased Budget for Market Access Initiative (MAI): Increasing the budget for marketing support under MAI from Rs 200 crore to Rs 500 crore annually.
Specific Sectoral Requests
Representatives from various sectors made specific requests, including:
- Leather and Footwear Sector: Rajendra Jalan, Chairman of the Council for Leather Exports, called for including the sector under the Production Linked Incentive (PLI) scheme, removing the 10% duty on the import of certain varieties of leather, and eliminating export duties on some locally produced leathers.
- Gems and Jewellery Sector: Vipul Shah, Chairman of the Gems and Jewellery Export Promotion Council, sought a reduction in import duty on precious metals from 15% to 4%, which would release around Rs 982.16 crore for working capital. He also requested reducing import duties on silver bars from 10% to 4% and on platinum bars from 12.5% to 4%.
Performance and Challenges in the Shipping Sector
The global shipping industry is experiencing significant fluctuations, driven by a surge in capacity demand and a substantial increase in new vessel supply. Stanley Smulders, director of marketing and commercial for ocean carrier ONE, noted that the Red Sea crisis had disrupted the balance of supply and demand, leading to a reduction in tonnage capacity and increasing pressure on the supply side.
Container Shipping Sector Insights:
| Carrier | TEU (Twenty-foot Equivalent Units) | Number of Ships | Vessels on Order | Additional TEU Capacity |
|---|---|---|---|---|
| MSC | 5.9 million | 827 | 104 | 1.2 million |
| Maersk | 4.4 million | 713 | 32 | 406,014 |
| ONE | 1.89 million | 240 | 36 | 475,274 |
Charter Rates and Fleet Composition:
| Carrier | Percentage of Chartered Fleet |
|---|---|
| MSC | 50.3% |
| Maersk | 41.1% |
| ONE | 58.6% |
| Hapag-Lloyd | 40% |
| Zim | 94.6% |
Future Outlook
Transport Intelligence (Ti) has highlighted the unpredictable nature of the market, noting the need for additional equipment to support capacity growth. The flow of new ships from Chinese and South Korean shipyards continues to grow, impacting global shipping dynamics. The potential reopening of the Suez Canal route could further shift the balance of supply and demand, potentially leading to oversupply and downward pressure on shipping rates.
Yang Ming’s CFO recently described the current state of the shipping sector as “chaos,” reflecting the ongoing challenges and uncertainties faced by the industry.
In conclusion, the call for an Indian shipping line underscores the broader efforts to enhance the country’s export competitiveness and reduce dependency on foreign shipping lines. The ongoing discussions and demands from various sectors highlight the multifaceted approach needed to support and sustain India’s export growth.
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