Dry Bulk trade comes out of the gloom
The current experience of the dry bulk industry resembles the boom periods of the past
Dry bulk trade is on the way up with 2013 having seen the second highest contracting trend after 2010. The outlook for the near future looks promising considering various factors including that the Chinese have put in place a stimulus plans, the increase in the US grain production, coal based electricity generation in Japan and the reports of the European Economic recovery. Deliberations on these encouraging features and other issues took center stage at the “1st Annual Conference on the Outlook for India's Seaborne Dry Bulk Trade” organized by Hinode Events and Services Pvt Ltd., in association with The Shipping Tribune on 23 January 2014 at Hotel Vivanta by Taj-President, Mumbai.
China which is responsible for the production of nearly one-half of the worlds finished steel played a pivotal role in India’s seaborne iron ore shipments until the Indian Supreme Court’s (SC) decision banning unbridled mining that was underway informed Jai Galada, Sr Chartering Manager, SIVA Bulk in his evaluation of “The Worldwide Dry Bulk Trade and India’s place in it”. He explained that when it comes to the trade in coal, China, USA and Japan feature prominently in the push - pull dynamics. According to him coal mining will increase from the 120 mi tons to over 200 mi tons soon. “The SC has given permission to some mines to operate,” he said. “Besides about & 500 million to $ 600 million has come into private equity indicating another channel of funding has come in which is likely to boost up India’s trade. But the bigger question is whether Indian ports will be able to meet the demand. The good news is that private ports are coming up and many are on the road to expansion.
Focusing on the “Outlook for India's Grains Trade and 3 Critical Issues for Vessels loading Grains out of India" by Mr Neeraj Mishra, Director, Canopus Shipping & Trading Pvt Ltd., stated that much of the excess grain produced are put into the tender by the Food Corporation of India (FCI) or traded. Export of wheat was placed at 5.5 mi tons and rice at 10 mi tons. Maize was 4.8 mi tons and SBM 1.75 mi. On the other hand 2.1 mi tons of pulses and 1.55 mi peas got imported last year. Prices offered in the international markets are better. But many of the Indian ports lack facilities to handle dry bulk cargo and the documentation and other procedures are time consuming.
It is well-known fact that India’s expenditure on logistics activities is one of the highest in the world equivalent to 13 per cent of GDP, higher than that of developed countries like US (9.9%), Europe (10%) and Japan (11.4%). This is due to combination of many factors like Government’s policies, industry fragmentation and infrastructure facilities. Citing this factor Abhijit Chaudhury, GM-Shipping of JSW Steel Ltd., dwelt on "The Outlook for India's Iron Ore Trade and Coastal Shipping Movements" saying, “The competitiveness of an export oriented sector is adversely effected by inefficiencies in the logistics cost due to inadequate infrastructure facilities. One such case is that of iron ore, the primary raw material for iron and steel industry that depends on an efficient railway system and port facilities for exports. The issue was also of critical importance as the logistics cost is more than that of mining/processing cost. Attractiveness of India as an investment destination emerges largely from the fact that India has large reserves of Iron ore with high iron content, the basic raw material required for steel production.”
India is currently the fourth largest producer of crude steel after China, Japan & US. All major players like SAIL, Tata Steel, JSW Steel are ramping up their production capacities which will automatically boost the demand of Iron Ore. By 2020 India hopes to achieve steel production of 200 Million tones thereby surpassing Japan & US and only trail behind China.
Various drivers play an important role in boosting the dry bulk trade. The abundance of raw materials, iron ore and cheap workforce makes Indian steel industry competitive. However dependence on imported coking coal, low production efficiency, inadequate infrastructure & technology and delays in regulatory clearances & approvals are major hindrance to growth of Indian Steel Industry.
Steel industry is heavily dependent on raw material and bulk movement. For every ton of steel produced about three tons of raw materials requires to be transported. Indian steel industry is facing difficulties and delays caused due to inadequate infrastructure for transportation and handling bulk materials. Most of the steel plant does not have proper connectivity through rail network to mines and ports. Bulk handling facility at majority of the ports, mines and steel plants are of low capacity causing delays in loading & unloading. In most cases road networks connecting steel plants to mines and ports are congested leading to delays in supply and delivery of raw material and other items.
Getting into the intricacies of “The Documentation hurdles faced by Importers and Exporters” by Hanoz Mistri, Director, Five Stars Chartering Pvt Ltd advised the delegates about some pragmatic approaches which the trade could avail of. He explained in details the various procedures and documents that are necessary.
Two legal experts were at hand to give advice on how to avert malpractices that are rampant and what the trade should do to avoid becoming victims. They were Dharmendra Nair, Partner, Squire Sanders (UK) LLP who spoke about “The Carriage of Iron Ore Fines and the Legal Dangers and Ashwin Shanker, Advocate & Arbitrator, LLM (Maritime Law) London, The Chambers of George A. Rebello, who gave details about the Implications of Liquefaction, Who and What Owners can do when their freight is still unpaid?” and…“How Charterers can get away without paying freight? ”
In this scenario, the world is in a strong growth period and shipping industry experience resembles the boom periods of the past. All in all, there will be a sharp growth in the bulker fleet. The dry bulk fleet is expected to grow by less than 5% per year up to 2020. Vessel values and earnings will continue to be under pressure for years to come as a result of the current oversupply.