Shipping Overview by Mr. Sabyasachi Hajara

Mr. S. Hajara, Chief Advisor of Doehle Danautic India Pvt. Ltd. & Ex CMD of SCI puts forward his intellectual overview on shipping.

The present day shipping industry is truly global and touches our lives in ways beyond imagination. An age old fact “Without shipping there would be no globalization”. Shipping is possibly the only industry where there is no commercial trade barrier. To highlight this point, one can draw a comparison to the only other industry that comes close to shipping i.e aviation. However the two are vastly different in terms of entry barrier in any country, for eg; for any foreign airline to land their aircraft in any Indian airport either with cargo or passengers, they require what is known as landing rights from DGCA- (Directorate General of Civil Aviation). If an Indian air line is given landing rights in Heathrow or Gatwick, then only India gives landing rights to BA (British Airways or Virgin Airlines). This is done on the basis of reciprocity and hence there is a tremendous trade barrier and therefore aviation is by no means a commercially trade barrier free industry. However, for anybody to bring a ship into India, there is no need for any permission from any government quarters and hence for shipping there is no international boundary. Since there is no licensing, this industry is completely commercially free.

MR. SABYASACHI HAJARA

Of course shipping is highly regulated in terms of safety, security and technology. The International Maritime Organization (IMO) sets down the rules and their basic underlying principle is that of uniformity across the globe. IMO works very hard to have a uniform set of standards. It is an Inter-Governmental UN body, that basically sets down the rules and regulations for the global shipping industry. We in shipping always believe that there should be one uniform standard. The ship owner whose vessel goes all around the world, doesn’t like to see a different regimes when the ship goes to Middle East or China or US ports. Thus, we can see that with a uniform regime across the world, shipping sector gives a boost to globalization by enabling easy movement of goods.

Another important point to highlight about shipping is that it is by far the most eco friendly mode of transport. But for shipping we can’t envisage the present level of world trade. If this volume of international trade is ever transported through other modes, the pollution will immediately make the planet completely inhabitable for humanity. Another point to support this is that shipping only consumes 45 percent of energy and in terms of air emission it emits barely 40 percent that of rail transport, 15 percent that of road transport and well below 1 percent of that of aviation.

Most importantly, shipping makes significant contribution to the world economy. 95 percent of trade is carried out through shipping. For a 20’ container sent from India to Europe, sea freight used to be around 2000 dollars in the 1970’s. In 2008/2009, the shipping freight rate for a 20’ container between India & Europe decreased to about 250 dollars. Hence we are talking of nearly a 8 fold decrease in shipping rate over a period of 40 years, in absolute terms. This was possible only because of improved technology, economy of scale, mechanization, standardization, and quick turnovers. On one hand, the prices of commodities have shot up and the shipping price has fallen. Shipping is possibly the only industry, where the price of its service, expressed in terms of freight, has come down in absolute term over a period of four to five decades. If we talk of finished goods the proportion of shipping freight to that of landed cost is not even one percent. For instance, the freight for a pair of shoe getting manufactured in China and getting sold in USA for 250 dollars, may be barely a few cents. For comparatively low valued commodities like ore, coal, crude oil, the percentage of shipping cost is higher, but as the value goes up, the shipping cost goes down. For such low valued commodities, the proportion of sea freight to landed cost has come down from around 40% or so in 1970’s to barely 2-5% today.

Thus one of shipping’s biggest contributions is the tremendous boost it has given to the world trade by bringing down the cost of shipping. These are just a few aspects that highlight how shipping has been a silent contributor to our everyday lives.