With an investment of nearly $1 billion to acquire ships and jack-up rigs, the Essar Group feels it has made the right decision despite the bleak sentiments in international shipping.

“We are not looking at this investment in the context of the next 12 or 24 months but from the next 20-25 years. These are ships that can run for so long,” said Mr A.R. Ramakrishnan, Managing Director, Essar Shipping. “We do not buy ships just for the sake of buying them. It was bought with certain things in mind,” he said.

The Baltic Freight Index, which factors in the average daily earnings of Capesize, Panamax, Supramax and Handysize dry bulk transport vessels, is down 59 per cent this year, says Reuters.

The company has invested $550 million to procure 12 ships; the delivery of Supramax ships is to start in the second half of this year. Two jack-up rigs are being built in the ABG Shipyard at a cost of $450 million.

Around 75 per cent of the funding is through debt and the rest is via equity. The funding is all tied up, Mr Ramakrishnan told Business Line recently in the company's headquarters.

The assets were ordered in 2008 and the mini-Capesize ships are designed as shallow draft vessel to lift 105,000 tonnes.

The idea is bring ships directly into Hazira where the company has dredged a completely new channel. These ships can go directly into the wharf, discharge the cargo in one day and get out.

“While we are tightening our operational costs, we will also look at how to be efficient in financing,” he said.

Essar Shipping today has 25 ships with a total dead weight tonnage (dwt) of 1.8 million.

It has six Capesize ships; two very large crude carriers; two Mini Capes; and two Supramax and two Handysize vessels.

Freight rates

“Yes, freight rates will be dictated by the markets. There is no running away from that fact. But nobody can wish away the fact that India will have to import coal if you want to run the thermal plants. Nobody can wish away the fact that India needs to import nearly 80 per cent of crude oil. These are things that need to keep going, and Essar is rightly positioned to meet the demand,” he said.

Group's focus

Essar's focus has been on power, steel and refinery — the core industries for any nation's growth.

The demand from group-related cargo, which is the form of long-term contracts, comes from Essar Steel and Essar Power.

Essar Steel is moving around 5 million tonnes (mt) and this is likely to go up to 10 mt.

This means there will be movement of both input and output materials to that extent.

Essar Shipping is also focussing on third-party business.

For every cargo of coal that it brings into India, it will look at taking iron ore to China.

“Triangulation and backhaul cargo are some of the issues that we are working up on,” he said.

“We want to leverage our capability in end-to-end logistics. As value-addition, we can also do onshore logistics.”

For example, movement from a port to a plant in a hinterland through a combination of sea, rail and road, Essar can do that through the logistics company.

Salaya plant

For instance, for the group's Salaya plant near Vadinar in Gujarat where the power generation plant is about to be commissioned, the company brings coal in its ships from Indonesia, unloads it in Bedi, and then takes the cargo by truck to the plant.

> raja@thehindu.co.in

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