Sagar Sandesh: What is the state of the global shipping industry? Has the industry come out of the woods after the decade long recession? The industry is now in a consolidation phase. Has the consolidation helped to improve the balance sheets of shipping companies? Reports indicate container shipping has started looking up in the international market while it remains flat in Indian ports barring some ports in the West coast. Where does the Consolidation phase lead the industry to? Your take on the industry and the freight rates in near and long term.
Mr Jayaraman Krishnan: The Shipping industry which has been reeling under the impact of global economic down turn for the past several years is not out of the doldrums. Basically the industry faces two challenges. One is the economic challenge on account of the emerging trade war between United States and China.
The other is the technological challenge. With the advent of technology, the industry may see a drastic drop in shifting of physical goods from one location to another.
So we see lot of mergers and consolidation taking place in the industry. In my opinion, I see the emergence of further large players than the existing alliances. We are going to see further reduction in the number of players operating the shipping industry. We will see five or six large players operating the industry soon. This is where I see the culmination of the entire consolidation process will come to an end.
As to when the shrinking of number of players will take place, it all depends on economic factors. In my opinion it will take place within 2 to five years time.
With technology based changes coming about and where the demand drops, I donít see freight rates spiking up to any new level as is happening in the prices of petroleum products.
Trade War between US and China
SS: Trade wars have intensified between United States and China. Even the Western nations are divided on trade and tariff issues. Protectionism is
gaining ground in free market areas in the name of Nation First. How do you see these global trends impacting the international trade and therefore the shipping industry?
Mr JK: Even though the trade war may be between United States and China, the countries that are going to be worst affected will be the European Union, because China sources lot of goods from the Europe. If the demand falls, the exports from Europe to China will see a significant downturn. This will be the situation if there is a long drawn out trade war.
Germanyís largest export client is China. China does not buy goods from outside for internal consumption. China buys these goods for further processing and manufacturing for its exports to United States. If that demand falls, there is going to be snowballing effect on procurement of goods by China from Europe. The countries which will indirectly face the heat of the trade war primarily will be European Union.
That is why there is lot of resistance and resentment against the Trade war and against United States for initiating it in Europe.
SS: How will the trade war affect the trade prospects of India?
Mr JK: India has huge opportunities opening up following the break out of the Trade war. Just now you see China coming to Maharashtra to buy soya. China never bought soya from India before the trade war.
There are products that India can replace, the traditional US exports to China in agricultural products and processed food but not in the engineering sector. This can prove to be boon for Indiaís agriculture sector and allied industries.
As far as technology is concerned, India is not technologically advanced to export tech top ends to other countries.
SS: Logistics continues to be a nightmare for the industry in India as goods from China and the Far Eastern countries bound for Hyderabad or Nagpur find their way into the country through JNPT in Maharashtra and Mundra Port in Gujarat while it makes economic sense to handle them in East Coast ports like Chennai or Visakhapatnam. There are both time and cost overruns when the goods move all way through West coast ports. How do you reverse the trend and reduce Logistics cost?
Mr JK: There are two reasons why the goods from China and far eastern countries bound for Hyderabad or Nagpur skip East Coast ports and prefer to move all the way to the West coast ports though the distance is longer.
Singapore and Colombo ports play the role of Hub Ports for
the Ports in Indiaís East Coast and not any Indian Port
You donít have a Gateway Port or Hub Port in the East Coast. We are dependent on either Singapore or Colombo Ports to move cargo to the East Coast Ports for the last mile connectivity. Singapore and Colombo ports play the role of Hub Ports for the Ports in Indiaís East Coast and not any Indian Port.
Whereas when you come to JNPT, the port is a Hub port by itself. Price wise there is no difference or not much difference in hauling goods all the way from the far- east since direct sailing to the port from the loading port, you save a lot of cost. Whereas transshipment through Singapore or Colombo ports to reach East Coast ports involves increased cost. This one reasons why there is no huge difference in cost between transporting goods through JNPT and the East coast ports in so far as cargo from the Far East.
Moreover the movement of goods from the JNPT or Mundra ports to the hinterland is much more efficient that from any port in the East Coast. Rail corridors are well developed, more predictable and time bound. The central government is also commissioning the JNPT-Delhi Dedicated Freight Corridor which will give further push to movement of goods to the West coast ports.