Sucheta Dalal :SCI to invest $4 billion for fleet expansion
Sucheta Dalal

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SCI to invest $4 billion for fleet expansion  

October 31, 2009


Amritha Pillay (ML): SCI is planning to expand its fleet. How much you will be investing in the expansion plan?
S HAJARA (SH): We are planning to place orders for additional 36 vessels till 2012. Taking into consideration our current orders for 32 vessels and the new ships that would be ordered in a phased manner, our total budget is about $4 billion. This amount can be raised through equity and debt. The delivery for the 32 ships would get over by 2012 and we expect the additional 36 vessels to be delivered by 2014.
ML: After the fleet expansion, what would be your total capacity?
SH: Currently SCI owns a fleet of 80 vessels of 5.4 million deadweight tonnes (mDWT) that includes 30 crude oil tankers, 10 product tankers, 18 bulk carriers, 10 offshore support vessels, 5 container carriers, 3 chemical carriers, 2 LPG/ammonia carriers and 2 passenger carriers. In addition, SCI also manages 58 vessels on behalf of ONGC, other government departments and our joint venture companies for LNG transportation. After the expansion programme, our total capacity would go to around 8 mDWT to 9 mDWT from the current 5.35 mDWT.
ML: Expecting a fall in asset prices of second hand ships, you put your fleet expansion plan on hold. Do you see any further correction in asset prices?
SH: I do expect further price correction in asset prices of ships. This will continue up to the second quarter of 2010 for new building ships. For second hand ships, although it has already fallen, I feel it may continue to fall at least till the beginning of 2010. For second hand ships the asset prices have fallen by nearly 25% to 30%, and it may dip further by another 5% to 10%. However, it may vary from one segment to another.
ML: Given the lower oil consumption across the globe, what future do you see for the crude tanker market?
SH: As far as immediate short-term period is concerned, with the setting-in of winter, I expect some improvement in the rates. As ship orders all over the world have come to a standstill, the supply pressure will continue till 2011. But thereafter, once the economy takes off and the world trade also takes off, the supply pressure may come down.
I am very optimistic, that 2011 onwards things would be much better. But till that time, in the intervening 2010 or early 2011, if the situation does improve and oil consumption goes up, then the market for shipping crude tankers might go up as well. In case, the oil consumption does not go up, then there would a lot of pressure on the tanker segment.
ML: How about the dry bulk segment?
SH: The supply pressure on dry bulk compared with tanker segment is higher. The capacity for bulk carrier is also much more than that of tankers. Since bulk carrier market is quite low at present, I hope it will not go down further but at the same time I cannot expect too much of improvement as well.
China has a huge impact on the dry bulk segment as it contributes nearly 40% to the world’s total steel production. When dry bulk markets went down, China concentrated mainly on their domestic market and maintained their production and import of iron ore. The Chinese economy is showing signs of recovery. If China remains on recovery path and the US consumption also goes up, then dry bulk may improve.
ML: What about the linear segment?
SH: Linear segment has been the worst-hit across shipping industry and more than 10% of the total linear capacity has already been laid up. The linear freights have crashed. The rates are now slowly moving up. I am quite convinced that it will continue to move upward, because linear operators have realised that they just cannot sustain the kind of losses they are suffering.
Maersk, the world’s largest container operator, has suffered a loss of more than $500 million in the recent quarter. It has also projected a loss of more than $2 billion during the full year 2009. Many companies have suffered severe financial crisis.
So in this situation, I feel, linear operators will refuse to carry containers unless there is any improvement in rates. This will automatically help recovery process, as movements of containers are a must for the world economy. So I think the container rates will continue to go upwards.
ML: What are your plans for and expectations from the offshore segment?
SH: Offshore is the only segment that was least affected during the slowdown. Since there is a huge potential for exploration and production activities in India, we are looking forward for any opportunity in this field. As of today, we had ordered eight offshore vessels and are planning to acquire a set of second hand offshore vessels very soon besides placing order for additional vessels. Our thrust is basically energy transportation and offshore is an almost allied service.
Today, the offshore contribution to the SCI bottom line is marginal and I think over the years it will start growing up. Although it is not a very important segment for us at present, I feel, gradually it would become one of the major contributors to our revenues. However, tankers would continue to be important segment for us.
ML: Any plans for the LNG transport segment?
SH: Yes, as and when any new LNG project takes off in India, we, hopefully, would be a part of that in terms of LNG transport.

-- Sucheta Dalal