Shipping Corporation goes on cost-cutting drive to beat slump

The Shipping Corporation of India will reduce its costs by 12-15% for the next fiscal as the government-owned company reels under low-day rates and high bunker costs, reflecting the slump in the turbulent sector, a company official said.

The largest shipping company in the public sector is expected to incur a total expenditure of close to R2,500 crore for the current fiscal. It is also saddled with a debt of about R6,086 crore as of December 31.

?We are definitely seeing the impact of the broader shipping market. We have to maintain costs going forward, but some costs are tough to reduce, like transport costs, port costs, etc,? said an executive of the company. The company is also looking to specifically reduce administrative costs by 15%, which reflects the total cost-cutting measures.

SCI, which went on a acquisition spree, has not placed any order for vessels in the current fiscal, and will not place any order soon. However, the company will take a delivery of 6 ships in the next fiscal, out of the 16 ships that were to be delivered.

SCI has a fleet of 80 ships, which is amongst the largest in the country. The company is also looking to expand its offshore services and transportation of liquefied natural gas (LNG), which would help give a cushion to its weak shipping business.

The shipping sector has been facing tough conditions over the past two years.

Weak demand for dry commodities from the world’s second-largest economy China and an oversupply of vessels in the market is leading to low freight rates. Low rates and high costs of operations have led to many shippers in the US and Greece to go bankrupt. The Baltic dry index, the benchmark rate index for hauling commodities, has also been slipping since 2008.

For the third quarter ended December 31, SCI posted a net loss of R75 crore, while smaller peer Ruia-owned Essar Shipping posted a massive 63% drop in net profit to R17.85 crore for the quarter. SCI shares closed 0.78% to R44.80 on Tuesday on the BSE. They have shed 30% of their value in the last one year on the BSE.