LOGISTICALLY SPEAKING. Should the Government be in shipping business?

One of the items in the Shipping Ministry’s comprehensive action plan posted on its Website last month (and removed later) was to do a ‘relevance test” on the Shipping Corporation of India (SCI).

Apparently, the PMO wants the Ministry to examine the relevance of SCI in the context of growing private investments in shipping. The posting on the Website has sparked speculation that the Government might gradually exit the company, which has been reporting losses over the last three years. Company insiders believe the Centre is concerned over the long-term viability of SCI in view of the growing competition from global players. Though the item was deleted from the Website, the speculation continues.

The point raised by the PMO appears relevant. Why should the Government be in the shipping business when there are many private players in the field? When SCI was set up in the early sixties, the scenario was different. Government ownership in key sectors was seen strategically important then. Today, private investors are invited to participate even in defence ventures.

One thing is sure. SCI will find it tough to survive in the highly competitive environment if it continues to be remote-controlled from New Delhi. The shipping business calls for quick decisions on charter deals, asset trading, and fund raising based on market intelligence. Such market-savvy decision-making will come about only when the top management enjoys complete independence.

Today SCI is sailing on choppy waters. The prolonged slowdown in shipping has taken the wind out of its sails. Despite selling assets, cutting costs and even cancelling several orders for vessels, the company’s bottom line continues to suffer from poor freight earnings. But it would be unfair to judge the company’s relevance just by its current performance.

SCI is relevant even today for more than one reason. What may not be relevant is its Government ownership and control. It is strategically important for a maritime country like India to have control over a large shipping fleet, especially when 90 per cent of its international trade by volume is moved by sea.

The largest shipping company in the country, SCI owns and operates about one third of the national tonnage, including container ships, tankers, bulk carriers, LNG, offshore and passenger vessels. It is the only domestic line that runs international container services. SCI is also the lone Indian presence in the strategically important LNG service.

Even shippers who criticise SCI for its poor performance admit to the role it played in the growth of Indian shipping, and also the balancing impact it made in the container freight rates in early years.

The PMO’s intent in seeking the relevance update on SCI is not known. If the Government’s idea is to divest its 63 per cent stake, it should grant the first right of refusal to the employees and the Indian public. A strategic sale to a private investor could be an easy option but it would run the risk of SCI losing its brand as a national carrier that it built over the years.

For SCI to operate successfully, it should become a professionally managed entity, say, on the lines of companies such as L&T and HUL. For this, the Government should divest its stake in such a way that the equity is held widely. The Government should not hold more than 10 per cent equity. In the interim, the Government should allow the company to go for business restructuring to enable it to get back in the black. It could trim its global container business and focus on feeder services to nearby coasts, where it will have a competitive advantage. It should explore the scope of long-term alliances with PSU cargo owners on the basis of cost-plus freight formula with flexibility to adjust changes at market rates.

In LNG, the company has the first-mover advantage and it should leverage its strength to become a major player. As a policy, New Delhi should follow the practices in countries like China and Japan where national shipping lines carry a major chunk of the country’s cargo.

The PMO should realise that it would not be in national interest to let SCI sink just because there are private parties with deep pockets willing to invest in shipping.