DISRUPTIONS in the Strait of Hormuz have demonstrated the urgent need for India to develop a national fleet of carriers across the container, gas and tanker segments to mitigate supply chain challenges.

Indian National Shipowners’ Association chief executive Anil Devli compared the current situation in the Strait of Hormuz to the war between Iran and Iraq in the 1980s, when Indian vessels continued sailing into the Middle East Gulf with a sense of national pride.

According to Devli, Indian cargo that is carried on Indian vessels stands at 8%. This is a statistic Devli finds to be particularly dangerous for India as a nation.

“At times like this, you realise that it is only your own national flagships that will come in and be available to carry cargo,” he said.

The heavy reliance on foreign carriers has made India particularly susceptible to disrupted flows as foreign carriers could forgo servicing India in favour of their home nation, according to YES bank national head of trade product and supply chain business Kiran Susarla.

“When any kind of these disruptions happen, [foreign carriers] will give priority to their local country requirement… maybe we may be at a disadvantage,” Susarla said.

He highlighted agricultural exports being particularly vulnerable, given the short shelf lives of agricultural goods. The cargo could expire while being held at ports. This, according to Susarla, could have negative implications for 15% of Indian exports.

He added: “It’s very important to have our own national fleet so that at least we can prioritise what needs to be exported.”

Cost containment and economic benefits

The current crisis has supported logistical costs globally as container lines levy bunker surcharges while insurance companies raise war risk premiums because of the increased risk from the SOH.

CMA CGM, Maersk, Hapag-Lloyd and ONE are a handful of container carriers that have been forced to levy these surcharges to cope with the higher costs of shipping because of the crisis.

And the lack of a national carrier has resulted in more monetary outflows to foreign companies.

“Today, we pay close to about $70bn as freight to foreign shipping companies. So, we are actually resurrecting and helping foreign shipping companies grow,” Devli said.

Devli also highlighted that a national carrier will have spillover effects on the wider economy, using the rise in legal representatives attending the conference as an anecdotal indicator for how maritime development can benefit other sectors.

“I think it’s important that the government of India realises that we must have a national policy for a national maritime fleet,” Devli said.

Sanctions compliance

The recent turmoil has also brought about challenges in the risk and compliance space, with US levies being placed on Iranian and Russian crude oil to aid with the current supply tightness.

India has been caught in the middle of this storm. In December, it began strategically moving away from Russian crude oil and pivoted to Middle East barrels to curry favour with the US in hopes of a better trade deal.

But the current turmoil has limited options for India, forcing it to pivot back to Russian crude oil because of the turmoil.

The changing regulations on what is sanctioned or not has made it difficult for businesses. Susarla told Lloyd’s List that YES bank is not funding trades that involve Russian crude oil, given existing sanctions by the UK and the EU.

This situation will also magnify another issue that has plagued the Indian shipping market — verifying compliance with existing regulations.

Indian Register of Shipping managing director P K Mishra highlighted that this has been a prevailing problem, with foreign-owned tankers incorrectly assuring buyers that crude oil cargoes and the vessels themselves were unsanctioned. That has not always turned out to be the case.

“When the vessel is coming towards your country, you find out halfway that it is under sanction,” Mishra said.

Because of this, Mishra highlighted that having a national carrier would help with sanctions compliance.

“If it is Indian-flagged, you are sure it is your tonnage. You know exactly who the owners are, so it will be more transparent and you can get the things out. So, all this energy-related crisis can be basically taken care of when we have more Indian tonnage,” he added.

National carrier plans and shipbuilding

India in February announced plans to develop a national carrier in Bharat Container Shipping Line, a consortium backed by a number of companies including the Shipping Corporation of India and the Container Corporation of India.

Devli highlighted that it was a good move to not privatise SCI as this will enable India to depend on BCSL in the same vein that it depends on their air force or military.

But more needs to be done. He added: “I think India also needs to, as a government, come to terms with ensuring divergence in supply chains and ensuring that we have at least some strategic portion of our cargo carried on national fleet, so that in times of difficulty and problems like this, we can have a fleet that we can depend on.”

Devli also said that plans are in the works to develop crude oil carriers — joint venture companies with government-linked oil corporations.

“There is a proposal to build new ships, which are medium range tankers, in joint venture with these companies,” he said.

Expanding the national fleet, in both container and tanker segments, will also bring opportunities to Indian shipyards. This could spark the start of a new ecosystem which, from a trade finance perspective, could be beneficial.

Devli used the example of financing agreements between different companies in Japan for newbuilds.

He said: “The Japanese have a Japanese oil company, a Japanese shipowner, a Japanese shipbuilder; all three of them get together and go to a bank, and that’s how they build their large vessels that they have.”

An integrated system with a home-grown yard could propel India’s maritime ambitions. But it also comes with challenges from a cash-flow perspective.

Susarla observed that Indian maritime players have been pursuing secondhand vessels over newbuildings currently, because “if you buy a secondhand vessel, the cashflows can immediately generate”.

He cautioned players getting into the newbuild segment to prepare for a long gestation period before they start reaping the benefits.