Shipping: Lack of reforms subdues growth - Views on News from Equitymaster

Helping You Build Wealth With Honest Research
Since 1996. Try Now

  • MyStocks


Login Failure
(Please do not use this option on a public machine)
  Sign Up | Forgot Password?  

Shipping: Lack of reforms subdues growth

Dec 15, 2000

Indian shipping companies have benefited immensely as a result of the buoyancy in the freight rates and improvement in world trade. Their stocks have appreciated by more than 50% in the last three months and financial results of these companies are also expected to show considerable improvement. However, slow reform processes have suppressed growth for the Indian shipping companies. Indian shipping sector is still minuscule compared to global tonnage and capacities. To put things in perspective, India ranks 17th globally, in terms of gross registered tonnage (grt) and 15th in terms of dead weight tonnage (dwt).

Marginal growth
(m) FY99 FY00 % change
No. of ships 490 515 5.1%
grt 6.9 7.1 2.9%
dwt 11.2 11.5 2.9%

The growth of the Indian fleet has slowed down considerably over the last three years. As a result, Indian shipping companies have never achieved tonnage targeted by the planning commission. In fact, the share of Indian overseas sea-borne trade has seen a declining trend for the last three years. For instance, percentage share has dropped from 30.8% in FY99 to 29.5% in FY00.

What needs to be done? The government should recognise the need to improve basic infrastructure facilities like ports and their handling capabilities. By port handling capacities, we mean, ability to offload cargo in lesser time and the number of ships that a single port could handle at any given point of time.

Besides, the lack of tax incentives has also been another depressing factor for shipping companies. This is because in countries like Europe and Turkey, there is a concept called ‘tonnage tax’. On every dwt that a shipping company owns, the incidence of tax is calculated upon dwt. So, it needs to pay just a fixed amount as tax, irrespective of whether the companies make a profit or loss. Though it is double-edged sword (the companies may have to pay that fixed amount during lean season also), it has the benefit of limiting tax upfront. This system also enables companies to schedule their fleet acquisition programs based on future cash flows.

This when to compared to the Indian tax policies for the shipping companies has vast differences. The Indian shipping companies usually pay tax on either profits or loss. So, they rely heavily on depreciation and internal accruals for fleet expansion plans. Another reason that is often cited as a disadvantage to the Indian shipping companies is that they have to necessarily register their ships in India, whereas this is not the case abroad. Internationally, shipping companies are allowed to register their ships in some tax haven (Panama, Liberia or Bahamas), as a result of which there is a lower incidence of tax. In fact, more than 20% of world fleet is registered in Panama.

Though the industry and the representative organizations have been insisting to introduce such a tax system, there seems to be no reform initiatives from the government, till now.

Equitymaster requests your view! Post a comment on "Shipping: Lack of reforms subdues growth". Click here!


More Views on News

SHIPPING CORP Announces Quarterly Results (3QFY21); Net Profit Down 63.7% (Quarterly Result Update)

Feb 10, 2021 | Updated on Feb 10, 2021

For the quarter ended December 2020, SHIPPING CORP has posted a net profit of Rs 1 bn (down 63.7% YoY). Sales on the other hand came in at Rs 8 bn (down 33.1% YoY). Read on for a complete analysis of SHIPPING CORP's quarterly results.

G.E.SHIPPING Announces Quarterly Results (3QFY21); Net Profit Down 46.7% (Quarterly Result Update)

Feb 1, 2021 | Updated on Feb 1, 2021

For the quarter ended December 2020, G.E.SHIPPING has posted a net profit of Rs 2 bn (down 46.7% YoY). Sales on the other hand came in at Rs 8 bn (down 30.1% YoY). Read on for a complete analysis of G.E.SHIPPING's quarterly results.

G.E.SHIPPING 2019-20 Annual Report Analysis (Annual Result Update)

Nov 20, 2020 | Updated on Nov 20, 2020

Here's an analysis of the annual report of G.E.SHIPPING for 2019-20. It includes a full income statement, balance sheet and cash flow analysis of G.E.SHIPPING. Also includes updates on the valuation of G.E.SHIPPING.

More Views on News

Most Popular

Hotel Stocks Will Reward Investors (Fast Profits Daily)

Jun 8, 2021

This is why I'm bullish on the hotel and hospitality sector.

My 'Unlock' Investments (Fast Profits Daily)

Jun 11, 2021

The best unlock investments you can make in the market.

The Most Visible Sign of India's Revival is on Two Wheels (Profit Hunter)

Jun 9, 2021

Investing in the best stocks could result in wealth compounding on a massive scale.

How I Discovered a 400-Year-Old Open Secret to Extreme Wealth (Profit Hunter)

Jun 11, 2021

Charlie Munger's open secret about investing success.


India's #1 Trader
Reveals His Secrets

Secret To Increasing Your Trading Profits Today
Get this Special Report,
The Secret to Increasing Your Trading Profits Today, Now!
We will never sell or rent your email id.
Please read our Terms