Shipping Sector Analysis Report 

• According to the Ministry of Shipping, around 95% of India's trading by volume and 70% by value is done through maritime transport.
• India has 12 major and 200 notified minor and intermediate ports. Under the National Perspective Plan for Sagarmala, six new mega ports will be developed in the country. The Indian ports and shipping industry plays a vital role in sustaining growth in the country’s trade and commerce. India is the sixteenth largest maritime country in the world, with a coastline of about 7,517 km. The Indian Government plays an important role in supporting the ports sector.
• It has allowed Foreign Direct Investment (FDI) of up to 100 per cent under the automatic route for port and harbour construction and maintenance projects. It has also facilitated a 10-year tax holiday to enterprises that develop, maintain and operate ports, inland waterways and inland ports.
• The industry acts as a primary means of international transport of any essential commodity. The global 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). Further, there are various benchmarks that determine freight rates for these segments. The prominent amongst them are Baltic Freight Index, Baltic Dry Index (for dry bulk segment) and Baltic Clean and Dirty Tanker Index (for tankers).
• Freight rates and earnings of the shipping companies are primarily a function of demand and supply in the markets. Demand drivers are a function of trade growth and geographical balance of trade (which determines the length of haul required). On the other hand, the supply drivers are a function of new ship building orders as well as scrapping of existing tonnage.
• The industry is regulated by the rules and regulations of International Maritime Organization (IMO), classification society, and the requirements of the flag state. Apart from these, there are also the rules and regulations of various countries where the vessel operates.
• As regards India, the ports and shipping industry plays a major role in sustaining growth in the country’s trade and commerce. As per the Ministry of Shipping, around 95% of India’s trading by volume and 70% by value is moved through maritime transport.

• Supply
• Supply is determined by the addition to shipping capacity. Also, factors such as ordering and scrapping influence the supply in this industry. On the ordering side, for example, 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. On the scrapping part, decline/delay in scrapping activity would lead to oversupply of vessels.
• Demand
• Demand in the shipping industry is largely determined and is closely related to the growth in world trade.
• Barriers to entry
• High capital investments and the requirement of adequate cash flows act as major barriers to entry in this space. Moreover, critical factors such as expertise and technical know-how are some of the pre-requisites that limit the entry in this industry.
• Bargaining power of suppliers
• Is diminishing on the back of gradual increase in fleet supply and intense global competition.
• Bargaining power of customers
• High bargaining power as competition is high in the industry.
• Competition
• Competition is price based. However, companies with younger fleet command a premium. Companies operating in this space not only face competition from the domestic players but also from international shipping companies.

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Financial Year '18

• During FY18, cargo traffic at major ports in the country was reported at 679.36 million tonnes (MT). In April-August 2018, traffic at major ports increased 5.13% year-on-year to 288.38 million tonnes.
• The major ports had a capacity of 1,452 million tonnes by FY18 end. The Maritime Agenda 2010-20 has a 2020 target of 3,130 MT of port capacity.
• Net profit at major ports has increased from Rs 1,150 crore (US$ 178.4 million) in FY13 to Rs 3,413 crore (US$ 529.6 million) in FY18 while operating margin increased from 23% to 44%.
• In May 2018, Ministry of Shipping allowed foreign flagged ships to carry containers for transshipment.
• In March 2018, a revised Model Concession Agreement (MCA) was approved to make port projects more investor-friendly and make investment climate in the sector more attractive.
• Project UNNATI has been started by Government of India to identify the opportunity areas for improvement in the operations of major ports. Under the project, 116 initiatives were identified out of which 89 initiatives have been implemented as of August 2018.

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Prospects

• Government of India is targeting to make the country the first in the world to operate all 12 major domestic government ports on renewable energy. The government plans to install almost 200 MW wind and solar power generation capacity by 2019 at the ports. The energy capacity could be ramped up to 500 MW in future years.
• The Government of India is planning to build 14 Coastal Economic Zones (CEZs) in the country to boost manufacturing and jobs. In November 2017, the first mega CEZ at the Jawaharlal Nehru Port in Maharashtra was cleared.
• With rising demand for port infrastructure due to growing imports (crude, coal) and containerisation, public ports (major ports) will fall short of meeting demand.
• The government has initiated NMDP, an initiative to develop the maritime sector; the planned outlay is US$ 11.8 billion. Plans to create port capacity of around 3,200 MMT to handle the expected traffic of about 2,500 MMT by 2020.

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Related Links for Shipping Sector
Quarterly Results | Sector Quote | Over The Years

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