Why ship repair yards lag global peers

Drydocking facilities for ship repairs in India are far from adequate as compared to shipbuilding capacities. Hence, the country's ship repair industry is no match for the global competition.

As per a research paper - A Comparative Study of Maritime Operations in India by Harish Mukundan at the Massachusetts Institute of Technology - shipbuilding is characterised by high capital investments, cyclical business and low levels of automation with profitability coming from the scale of operations.

"With rising labour costs in previously developed economies, shipbuilding has slowly moved towards countries with a lower wage structure. While Japan, Korea and now China have taken advantage of this situation, Indian shipbuilding has just not been able to cash in on this trend. This is in spite of the availability of technical expertise, geographical location and lower wage levels," said the research paper.

Certain policy measure has been undertaken by the government towards ship repairs, however, it is a long road for the industry to be internationally competitive in this segment. For example, speciality dry docks for different kinds of vessels are something that is missing from the Indian peninsula, said an expert.

In June 2016, the Ministry of Shipping had come out with the guidelines for awarding bids for shipbuilding, dry-docking and ship repair works. As per the guidelines, meant to support shipbuilding and ship repair industry, government departments or agencies, including public sector undertakings procuring any type of vessels for governmental purposes or for their own use or requiring ship repair, shall henceforth, till 2025, grant the "Right of First Refusal" to Indian shipyards to enable them to match the lowest rate offered by the foreign bidder.

"Further from 2025 onwards, only Indian-built vessels shall be procured by such departments and agencies for governmental purposes or for own purposes. Such departments and agencies have to undertake bulk tendering for their entire vessel related requirements with deliveries starting from 2017-2018. This is in line with international practice where many countries, in order to provide dedicated order book support to domestic shipyards, place their ship-acquisition, repair or chartering requirements on their shipyards," read a Ministry of Shipping document.

In order to support the Indian shipyards, an important criteria of 'prior experience' in the building or repairing of specific type and size of vessel too has been removed. Therefore, the most important factor will be to check if the Indian shipyards possess adequate capability or not.

However, the move is still inadequate for the industry. "Globally, this sector is supported by the government, by way of orders and subsidies. Both these aspects are uncertain in India. If we look at India's position globally, as compared to Korea we are at a nascent stage," said Manish Agarwal, leader, capital projects & infrastructure, PwC India.

Looking at the global competition, Reliance Defence and Engineering Ltd last year had signed a servicing and repair pact with the US Navy for its Seventh Fleet. Other shipbuilders, including PSUs, are now banking on naval orders not only from India but also the warships they have built and exported to other countries in South East Asia, West Asia, South America, Africa, etc.

This is the only significant international order for India as compared to other Asian countries like Japan, Singapore and Sri Lanka, who are more aggressive in getting foreign ship repair orders. The most dissuading factor being inadequate infrastructure support services needed.

Among the areas where India loses the battle to bag global ship repair order is lack of availability of spares within the country as most of the Original Equipment Manufacturers (OEMs) are foreign-based. There are merchant shipowners who prefer to get their vessels repaired and refit abroad due to this reason.

"Even if a ship is built in India, a substantial percentage say 65% of the equipment for the vessel is imported including the most important component like iron," said a shipyard official.

Other reasons for the global players not finding Indian peninsula attractive for repairs are time delays and cost overruns.

Even a working paper by Exim Bank hasn't praised the sector and reads, "While the Indian seaborne trade has been growing rapidly, Indian shipping and shipbuilding sector has been lagging behind despite their development potential. Indian registered ships form just about 1.1% of the global shipping stock. India's foreign trade is being increasingly serviced by foreign-flagged vessels whose share in the Indian shipping market has increased from 60% in the 1980s to about 92% by 2009–2010. This is both a cause of concern and a huge opportunity for India's shipping and shipbuilding sector."

On the other hand, one of the state-owned shipyard is spreading its presence in this segment. "Ship repair facilities and dry docks need to be strategically located near to sea routes of communication. India has an advantage due to its strategic location. Cochin Shipyard already has a good set up in Kerala. Even other shipbuilders are gradually inching towards the shipyards," a PSU official told DNA Money.

In fact, Cochin Shipyard has also set up a dry docking base at Mumbai Port and is also looking at a presence on the eastern coast with a drydocking facility at Kolkata Port.

As per the Ministry of Shipping guideline issued a couple of years ago, for now, the focus remains on making India 'self-sufficient' in ship repair requirements. Eventually, if the industry matures, the objective mentioned in the 12th Manufacturing Plan of the Planning Commission may be followed to emerge as a dominant ship repair centre "displacing Colombo, Dubai, Singapore and Bahrain. In order to reach that destination, it is still a long sail for India.

IN TIGHT SPOT

• $12bn – Estimated global ship repair industry
   
• 2% – Share India had in global ship repair industry in FY10
   
• 1.1% – Indian registered ships form of the global shipping stock

INDIAN YARDS  IN ROUGH WATERS

• Cochin Shipyard Limited, Kochi
   
• Mazagon Dock Limited, Mumbai
   
• Goa Shipyard Limited, Vasco-Da-Gama
   
• Hindustan Shipyard Limited, Vishakapatnam
   
• Hooghly Dock and Port Engineers, Kolkata
   
• Garden Reach Shipbuilders & Engineers Limited, Kolkata
   
• Alcock Ashdown Company Limited, Bhavnagar
   
• ABG Shipyard, Surat
   
• Chowgule & Company Limited Shipbuilding Division, Margaon
   
• Larsen & Toubro Shipyard and Offshore Works, Hazira
   
• Larsen & Toubro Shipbuilding, Kattupalli (Chennai)
   
• Reliance Defence and Engineering Limited, Pipavav