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Shipping Corp seeks to cut costs as another year of losses looms

Staring at a third consecutive year of loss, state-controlled Shipping Corp. of India Ltd (SCI) is cutting costs to stay profitable, the chairman and managing director of India’s biggest ocean carrier said.

“We are currently looking to conserve cash,” Arun Kumar Gupta, who assumed the post of the Mumbai-based firm’s chief executive on 28 January, said in an interview. “In the recent past, we have rescinded few contracts (for building new ships). Some money has come and for others we are fighting. Shipyards and banks adopt delaying tactics in refunding. The realization of this money is of great help in the prevailing challenging circumstances.”

In the year ended 31 March, SCI cancelled orders for building seven ships—two container ships, four offshore vessels and one bulk carrier. The company now has seven new ships on order. The firm has never cancelled orders for new ships on such a large scale ever in its history. SCI may cancel more orders if an opportunity arose. “As and when the shipyard is in default and an opportunity permits, we will rescind our ship building contracts,” Gupta said. “There is no strategy as such. We are merely exercising our options to rescind.”

“Slow steaming is being resorted on tankers to conserve fuel. Inventories on board are being minimized and austerity measures are followed on all fronts,” he added. “We have vacated our Worli Office and are trying to give up another rented premises at Sewri.”

In the past three financial years beginning April 2011, SCI scrapped 31 ships as it phased out old, uneconomic vessels from its fleet.

“We have two-three more ships lined up to be sold as scrap for the current financial year. With new additions, the average age of our fleet is now eight-plus years, which is very good compared to industry standards,” Gupta said. SCI runs a fleet of 73 ships.

Besides, the firm has started the process of restructuring some of its services in container shipping where it is the only Indian shipping company to run a mainline service. This division has been incurring continuous losses. “It makes no sense in operating a loss making service,” its chief executive said.

SCI is also trying to reduce its trade receivables from government agencies. “In shipping there are always demurrage claims or disputes, which take time to amicably resolve. Hence, outstanding receivables will always be there,” said Gupta. “We are focused on bringing it down.”

At the core of all these efforts is a desire to hold on to its so-called navratna status, a tag that gives greater financial autonomy to state-run companies.

According to the guidelines laid down by the department of public enterprises for government-owned companies, a company will lose its navaratna status if it posts losses for three consecutive years. SCI had reported a loss in the fiscal years 2012 and 2013—Rs.428.2 crore and Rs.114.3 crore, respectively.

In the nine months ended 31 December, it posted a combined loss of Rs.287.90 crore. The company will announce its full-year financial results by the end of May.

Losing the navaratna status would mean SCI will not have financial autonomy such as deciding on projects worth up to Rs.1,000 crore and will have to seek approval from the shipping ministry for its capital expenditure plans.

While officials want the company to seek a special relaxation from the government to retain its navratna tag even if it makes losses for the third year, Gupta is keeping his fingers crossed.
“We will cross our hurdles as they come. Shipping is a cyclic industry and under severe recession since 2008. It is a global phenomenon and all shipping companies are under stress,” says Gupta, who has spent 36 years at SCI in various managerial roles.

Despite the stress, SCI has a healthy debt-to-equity ratio. “We do have high debt requirements as we have acquired new vessels. Most of our loans are dollar denominated and at very attractive interest rates,” he said.

A recovery in the shipping industry, Gupta says, was still quite a long way off.

“All pundits predicted that recovery will surely be there in the second half of 2014. But considering the new ship ordering spree there will be a tsunami of vessel deliveries in 2016 and 2017,” he said. “How will the industry absorb them? The global economy is turning around the corner of the great recession, but overall growth remains slow and weak. Hence the struggle to stay afloat will continue.”
Source: Livemint