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Jul 12, 2012, 08.23 AM IST
S Hajra, CMD, Shipping Corporation of India (SCI), explains to CNBC-TV18 that the rates were restored to levels prevalent five years ago in order to boost demand and control supply. Low container rates, he adds, forced the SCI to post its first loss in 28 years.
Below is an edited transcript of the interview on CNBC-TV18. Also watch the accompanying video.
Q: Are these increased rates for standard containers on all routes originating from India? What is the reason for this increase?
A: We don't call them an increase but a rate restoration. The freight rates had completely crashed last year and virtually all shipping lines across the world, including the Shipping Corporation of India (SCI), incurred huge losses.
That was one of the main reasons why the SCI posted an overall loss after 28 years. So obviously the level at which they were charging along with bunker costs, were totally unsustainable.
Almost all container operators have decided to increase rates in lines with levels prevalent five-years ago. This is the only industry where over the years, the rates have fallen instead of falling down.
Q: Do you have enough pricing power or is demand waiting for an increase in prices?
A: Yes, I think there is growth in demand across all the segments. But the problem has always been that the growth in supply has surpassed all growth in demand.
But nevertheless, at the moment container operators all over the world are maintaining some discipline and trying to rationalise the sales of their slot capacities. So in most segments today, demand and supply is somewhat equal.
Q: So would you see more of such rate restoration in the coming months?
A: Yes. We hope that effort to restore rates across the shipping sector holds. In the coming months, we will be able to again increase the rate to some extent because even this hike of USD 200, in our opinion, is just not enough even though the bunker cost has come down to prevail at USD 570 from USD 750.
But nevertheless the finance and all the other costs are going up and we have a serious problem as far as exchange rate is concerned. Unfortunately according to accounting standards, the exchange rate is forcing us to book losses on the P&L. Though it is not a cash loss, we still have to reevaluate our foreign exchange loans and put it in the books.
Q: Last quarter you posted a significant loss and despite the extraordinary income that you recorded. There are expectations that there will be losses in FY13 too. Do you expect to record marginal profits this year with the increase in prices?
A: I will not be able to comment on specifics as SCI’s P&L is not shared with the stock exchange. But as far as the entire shipping industry is concerned, FY13 will continue to be challenging with the added problems foreign exchange fluctuation. But despite all that, we hope that FY13 will be slightly better for the Indian shipping industry, than 2011-12.
Q: We are not asking for any specific guidance, but only a broad direction. Will SCI end in the black at the end of FY13?
A: That itself I cannot comment on. But as I said for the entire Indian shipping industry I do hope the year of 2012-13 will be better than 2011-12.
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