Page 48 - DMGT522_SERVICES MANAGEMENT

Unit 2: Emergence of the Services Economy

cash inflows in 2011-12 due to very low charter hire and freight rates in all segments of shipping. Notes
These difficult economic conditions have been prevailing since 2008 with small windows of
relief in 2011-12. Most Indian shipping companies that have been able to better manage their
businesses have been those with a diversified presence across shipping segments or businesses.
While the bulkers and tankers segments have seen a downturn, the offshore segment with jack
ups and sub-sea vessels has ensured cash visibility for companies. Further, the incidence of
piracy has been of great concern to the government. The government has deployed naval vessels
for assistance to merchant vessels in the piracy-affected areas. As on 17th February 2012, 27
Indian seafarers are in the custody of Somalian pirates. The government has been raising the
issue of piracy and the need for more concerted international action at the meetings of the
United Nations and the International Maritime Organization (IMO).

Did u know? India is also one of the major countries supplying seafarers. At third rank and
with a 7.5 per cent share in 2010, it supplied 46,497 officers to the global shipping industry.
In order to provide the shipping industry a partial level playing field and make it competitive
at international level, the government implemented certain policies in 2011 like giving a
minimum depreciation of 3.34 per cent (assuming life of 30 years) to drilling rigs; granting
exemption on 29 July 2011 to ships falling under Chapter 8901 from additional customs duty and
excise duty provided a general license under section 406 of the Merchant Shipping Act 1958 is
granted by the Director General shipping; and exemption from import duty for spares and
capital goods required by ship owners in Budget 2011-12.
While India’s overseas seaborne trade has been growing substantially over the years, from
224.62 million tonnes in 1999-2000 to 570 million tonnes in 2010-11, there has been sharp decline
in the share of Indian ships in the carriage of India’s overseas trade. From about 40 per cent in the
late 1980s, this share has declined to 9 per cent in 2010-11 with an 18 per cent share in India’s oil
imports in 2009-10. Given the relatively low participation of Indian ships in India’s trade and
given the fact that Indian ships are ageing, with the average age of the Indian fleet increasing
from 15 years in 1999 to 18.37 years in 2012, there is urgent need to increase the shipping fleet so
that it is at least enough to meet India’s trade volumes. Higher asset size of Indian shipping will
not only lead to higher growth of the economy but also higher employment and high foreign
exchange earnings/savings. The estimated freight bill of India in 2011-12, based on 7.5 per cent
of the value of seaborne trade, total US$ 57 billion and estimates show that a 5 per cent increase
in tonnage could lead to a US$ 6.3 billion saving/earning of foreign exchange. Strengthening
the Indian fleets with adequate and cheap finance is important given the fact that ship prices
which had peaked in the middle of 2007-08 are nearer to the lows seen in December 2009.
Rationalising the multiple levies in the shipping sector could also help.

Port Services

Ports are the vital link in the trade between nations. Continuous modernisations of ports and up
gradation of port infrastructure are important to increase the productivity and efficiency of
ports. The total capacity of Indian ports has reached approximately 1,160 million tonnes as on
1 January, 2012. During 2009-10 and 2010-11, traffic at major ports attained a growth of 5.67 per
cent and 1.59 per cent respectively over the previous year. The American Association of Port
Authorities ranks Shanghai at the top with regard to total cargo volume handled in 2009 relegating
Singapore from its first position of 2008 to second position. Madras Port and the Jawaharlal
Nehru Port Trust (JNPT) are ranked 55th and 56th in 2009 in terms of total cargo volume, up from
70th and 71st positions in 2008. As per the Shipping Statistics December 2011 of the Institute of
Shipping Economics and Logistics, (Germany), Shanghai is at the top in terms of container traffic
in 2010 followed by Singapore while the JNPT is ranked 25th. The average turnaround time at

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