“Shipping companies need to go ahead and buy aggressively”
March 2, 2010
Shipping and logistics company Shreyas Shipping and Logistics Ltd also provides land transportation, warehousing and other value-added services. Vinay Kshirsagar, chief financial officer of Shreyas Shipping speaks with Moneylife’s Amritha Pillay about the trends in shipping, logistics and warehousing
Amritha Pillay (ML): How do you expect the container segment to perform in the short term?
Vinay Kshirsagar (VK): There is a slight improvement in container traffic in India, but globally the container segment is in fact having excess capacity. Even today, more than 500 vessels, which constitute about 13% of the global available tonnage, are laid up. Globally, the supply is more because the US market has not yet picked up. Overall, the container market will take some time to stabilise. India has witnessed a growth in volumes but that does not confirm a reversal in the trend. However, I can conclude that the decline in volumes has bottomed out. The container segment will take the next six to twelve months to stabilise. What is important for the industry is to arrive at equilibrium between demand and supply.
ML:Recently, freight rates in the container segment have gone up. Is this hike related to volume growth?
VK: Mainline operators have increased their freight rates substantially, although the volumes have not increased significantly. This confirms a good trend. The idea is to improve earnings for the operators with the increase in freight rates.
ML: What about the performance of other segments like tankers and dry bulk?
VK: The bulk segment is doing better. The tanker segment continues to be under pressure. This segment is very difficult to predict. India would be importing lesser crude in the coming years, because of a number of refineries that are coming up in the country. Such factors are important in determining the volumes for the tanker segment. The container segment caters to the high-end goods segment. During times like recession, the container segment becomes the least priority item, so that is the reason why this sector is much affected. However, the bulk segment caters to essential goods and it is not affected majorly.
ML: On a whole, what is your view on the shipping industry at present?
VK: Unless international trade comes back to normal, the industry may not do well. On a short term outlook, it is a good opportunity because ship assets are available at good prices. Shipping companies need to go ahead and buy aggressively.
ML: What kind of domestic trade volumes do you expect?
VK: Domestic volumes have increased substantially. Around one or one-and-a-half years back, 50,000 tonnes of cargo were moved every month on the Indian coast, today around 1,20,000 tonnes of cargo are moved on the coast. Even though more players have entered this segment, the size of the market has also increased. The volume movement in this segment is insignificant when compared to road or rail transport. However, I am quite confident and optimistic that cargo movement has to be diverted to costal shipping, given the huge expansion planned in the power sector and the steel sector that requires huge amount of raw material to be moved. At present, road and railways as transportation options are choked up. They cannot take an additional burden.
ML: How much do costal trade volumes depend on mainline operations?
VK: As far as Shreyas Shipping is concerned, we operate feeder, domestic and regional services. We are dependent on mainline operators only for feeder services. Since we have moved into the logistics model, it has helped us to be in a better position compared to any other feeder operator.
ML: Do you expect the expansion in the power & steel segment to drive volumes for costal shipping?
VK: In fact, whichever sector is expanding and needs movement of its raw material will have to explore costal shipping as an option. Also, with the development of small ports and new ports, more volumes can be expected.
ML: Along with feeder and domestic services, you also operate regional services. You recently restarted your Indo-Pak service, what are the updates on your other two regional services, which were also suspended?
VK: We had suspended our regional services to Karachi, Jebel Ali and Singapore due to low trade volumes during the recession. However, we have started the India-Karachi route in November 2009 and plan to start the remaining two regional services as trade volumes increase.
ML: How do you expect asset prices to perform in the coming months? Have they bottomed out or will they fall further?
VK: They have bottomed out and will not fall any further. They should stabilise at the current prices for the next four to eight months. Then, there is a possibility of asset prices shooting up.
ML: Shreyas Shipping has already sold four vessels, do you see some new buying to increase your fleet?
VK: We sold these four ships just before the global meltdown, made a profit on sale and retired our debts. Now, we see it is the right opportunity to buy, as almost all classes of vessels are available. We are evaluating our options for acquisition of new vessels.
ML: Along with shipping, the company also has presence in the warehousing segment. Is there any expansion planned in this segment?
VK: We currently have warehousing facilities, but we do not own them. On expansion, we are working out a plan to enter other spaces, which will help value addition like packing and distribution.
ML: What are your expectations in the warehousing segment in the coming years?
VK: I expect the volumes for the warehousing segment to grow. There is enough warehousing capacity available and the current utilisation of these spaces is very low. Thus, no added capital expenditure should be required for this space. I expect the volumes to grow; as the space is already available, the utilisation rates for the same will go up.
ML: Which would be the main sub-segments that will contribute to the growth of the warehousing segment?
VK: Agriculture products are likely to drive the volumes for the warehousing segment. With more supermarket models coming up for agri-products, the demand for cold-storage facilities will also increase. The required cold-storage facilities for such products are not available, which presently leads to an imbalance in the prices.
ML: What about your presence in third-party logistics?
VK: We plan to enter the third-party logistics segment. The logistics industry is a sunrise industry. There is an immense growth potential in this segment for the simple reason that this is the only industry where people don’t require much capital expenditure, which leads to high returns on capital. Investors prefer such segments and thus logistics companies command a decent private equity. In the past year, private investment in this segment has been good and I expect the investment in this sector to improve substantially by another 100% to 200%.
ML: You are also present in the land-transportation business, wherein you extend road transportation services to your clients. You also plan to expand in this space in due course, what is your view about the road freight segment?
VK: With the increase in the movement of raw material for various industries, the volumes for road freight are bound to move upwards. There is also a possibility of a number of new organised players entering this space.
ML: Where would the group’s thrust be in the coming years, given your presence in so many sub-sectors?
VK: We plan to look at the bulk logistics segment. We plan to have more value-added services like warehousing and transportation. The concentration on the bulk segment is mainly because of it being more assuring than the container segment.
ML: What kind of financial performance can be expected from the company in this fiscal?
VK: As we have sold ships, we cannot expect any growth in turnover. Our logistics company, which is our 100% subsidiary, has made a total turnaround. As far as our shipping segment is concerned, I will achieve cash breakeven. In these tough times, I think even this is commendable.