Among the worst performing sectors of the past two years has been shipping. Most shipping companies have seen shrinking profits and this is largely a global issue. Trade has been hit badly by the weak global conditions prevailing in the five years since the subprime bubble burst and then the second crisis erupted with Greece, Ireland, etc. There’s an oversupply of global shipping capacity, given the current trade conditions. As a result, freight rates have ranged close to historic lows. Indian ports, especially major ports (that is ports run by the central government) have also struggled to cope with stagnant volumes. Private non-major ports have gained a little market-share. Mundra port for example, is now managing the highest traffic out of India. Ship-building yards have also been under great pressure.
Could the industry be due for a revival? Shipping has long cycles and it is very dependent on global trade. But in addition to that, Indian shippers complain about a lack of government support. The tax structure is not considered helpful, for instance. Also government cargo doesn’t necessarily travel on India ships.
Ports also have multiple issues. The major ports are over-staffed and these also have tariff rigidities to contend with. Efficiencies in terms of turnaround time are very poor. Minor ports are better-managed. They have better efficiency parameters and more flexible tariff structures. But private ports also have issues with road-rail connectivity. There is a lack of financing in a tight market. Multiple capacity creation projects across both major and minor ports which have been held up for a variety of reasons, ranging from unattractive financial terms to tardy environmental clearances.
It’s anyone’s guess if the global shipping trade will pick up in this year. There is a degree of optimism because China is expected to stabilise; the US should manage a slow recovery and Japan-watchers are optimistic. At any rate, conditions in the global trade should not get worse. It is on the domestic front that the shipping industry might see significantly improved conditions. The government has been looking at simplifying rate structures at major ports and the Modi government is also expected to push on several initiatives.
It may offer some Budgetary sops to shippers and shipyards and it is also expected to expedite pending projects at ports. More port capacity should translate into better efficiencies and hence, into better margins for shipping. If there are also attempts to encourage offshore energy exploration and a focus on moving larger volumes of domestic traffic via coastal and inland waterways, those would provide further opportunities for the shipping industry.
Any recovery would be gradual. We are speaking of long-gestation, long-cycle projects, However, if this is the beginning of a turnaround, there could be massive returns for investors over the long-term. There are quite a few listed entities across the shipping space. These include shipping companies, private ports and shipyards. They have uniformly struggled through 2013-14.