Environmental Forces In The Indian Shipping Industry

The global shipbuilding industry has changed in the last two decades, the demand and supply of goods in the international market, that many sectors in the market of shipbuilding in force.

The transport of goods in bulk can only be transported by large commercial cargo ships. Shipping industry is a huge industry that requires a lot of skilled and cheap labour. Shipping industry requires expensive investments. In the 1960s Europe were dominant in this industry. Globalization and free trade have opened up opportunities for new life to the shipping industry.

There are many factors that directly or indirectly affects to the present day companies such as government policies, regulations, laws, competition, technology, international organizations, institutions of world trade, minimum wage, accidents, risk, violence, safety, labour, supplies, etc.

So for any company to survive they have to manage the strategies accordingly to overcome those factors. But in practice it is virtually impossible to consider all these various factors. There are certain forces like “PEST” that determine the external factors to the environments of shipping industry.

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Here I found that, the Indian government is providing enormous support to promote foreign trade for the economic development and from my personal experience in shipping industry under “Shipping Corporation of India (SCI)” gave me thrust to explore more about the Indian shipping industry. Here I analysed the Indian shipping industries growth and present situation using PEST forces.

The four environmental forces [PEST] are discussed in this report are as follows

1. Political

2. Economic

3. Social

4. Technology

1 Introduction

1.1 MACRO ENVIRONMENT

The major external and uncontrollable factors that influence an organization’s decision making, and affect its performance and strategies. These factors include the economic factors; demographics, legal, political, and social conditions, technological changes, and natural forces.

A PEST analysis is used to analyze the external environment that affects al firms. PEST is a short form of political, economical, social and technological factors of the external macro environment. Changes in the external environment also create new opportunities and the letters are rearranged to construct the more optimistic term of STEP analysis.

Many macro environmental factors are country specific and a PEST analysis will need to be performed for all countries of interest. Specific examples of macro environment influences include competitors, changes in interest rates, changes in cultural tastes, disastrous weather, or government regulations.

1.2 Indian shipping Industry

In today’s fast moving world of airplanes, traveling by sea is very slow, but when we talk about transporting heavy and mass delivery of goods, ships can be the only option. The marine and the sea trade have always been given the first preference in India and also all over the world. This is the main reason that, marine industry is considered the largest transportation industry. Shipping industry involves huge workforce, huge investment and modern technology for smooth running. Shipping is a time consuming process. As we know import and exports contribute the national income of the country, where major imports and exports are done through the sea. The main driving factor of this industry is the GDP growth. Over the past years the shipping industry has shifted it’s primarily base from the dominating nation like Europe to now Asia.

The Indian shipping consists of about 616 vessels with a total capacity of 6.62 million gross tonnages (GRT). Of these, about 258 ships in overseas trade and the other layers operate domestic routes. After a period of decline, both tonnage and fleet size has grown recently with the addition of vessels – tugs, survey vessels, towing vessels and pilot vessels – one of the Ports and Maritime Board. These were recorded between April 2002 and March 2003. There are approximately 55 shipping companies in the industry, of which 19 are exclusively in the coastal areas of trade and 29 operating in the overseas trade. The rest operate in both types of trade.

  A few major players dominate the sector. Of these, the State “Shipping Corporation of India (SCI)” and the private sector’s Great Eastern Shipping has mixed fleet. Other companies like Essar Shipping are focused on energy trade and mainly operates tankers. Chowgule Shipping and Varun shipping are two other major companies in the industry. Varun Shipping is especially deals with bulk, gas and chemical transport and Chowgule shipping moves bulk commodities like iron ore, grain, coal, fertilizer, etc

Here we will analyze the overall Indian shipping industry using PEST analysis which refers to factors like Political, Economic, Social and Technological factors.

2 Political Factors

Shipping industry in India is administered by central government through “Ministry of Shipping” with the individual responsibility to plan policies, programme and its implementation. Every port in India is governed under Major Port Trust Act’ 1963 and Indian Ports Act’ 1980 and administered independently by board of trustees under direct orders from central government. Due to the immense involvement of the government political force are more important in India.

2.1 Appointment of Custom House Agents

Customs House Agent (CHA) is a person who is appointed by the government to act as an agent for operation of any business relating to the entry or departure of conveyances or the import or export of goods at any Customs station. These agents are governed by Customs House Agents Licensing Regulations, 1984 which involve responsibilities like filing bills of entry, shipping bills, submitting documents, helping in examination of goods, payment of duty on behalf of principal, storage and movement of goods. These agents act as an intermediate between importer, exporter, clearing agent and custom house due to the more involvement and technical behaviour of work involved in connection with the clearance of cargo. These agents are selected after clearing certain criteria’s like minimum qualification as graduation, practical working experience in customs for 3 years, consistency of applicant, financial soundness and completion of oral and written examination with maximum 3 attempts.

This kind of agents affects positively in the Indian shipping sector, because it prevents the fraud and illegal entry and controls the activities of shipping business in a particular manner.

2.2 Infrastructure Development

Maritime transport is a national social and economic development infrastructure. It will affect the speed, structure and mode of development. 90% of India’s foreign trade conducted by sea, unlike the existing port infrastructure and trade will not be sufficient treatment. In recent years, the Government has started in return for up to 100% of the tax exemption of up to 10 years to promote PPP model in infrastructure project investment up to 100% relief, ADI’s incentives. As a result of this a huge amount of investments have been made by foreign companies like Maersk, P&O Ports, Dubai Ports International and PSA Singapore for the development of port and operation activities.

This type of activity helps to encourage the shipping industry for the new investors, while it also gives the benefit to the existing market players by providing loans and other facilities, and helps in development of sites, this factor is positively affect the industry.

2.3 Anti Sea Piracy:

Government is actively involved in reducing the sea piracy in Gulf of Aden off Somalia coast. Pirates became a major problem in the recent time for the shipping industry, especially during the trade and transit between India and other counties like Sudan, Saudi Arabia, Djibouti, Egypt and Ethiopia. To protect vessels and crew from such pirate attacks, India has deployed its naval warship in Gulf of Aden since 2008 under informal Contact Group on Piracy off the Coast of Somalia (CGPCS). This was accepted by 22 countries for securing their vessels from the coast of Somalia from pirates. Around 59 Indian vessels are hijacked in the year 2009 till date but none of the crew members or vessels has been held detained due to proactive and timely measures by government.

This policy negatively affects the industry, because due to policy of government businesses in sea is not safe at Somalia coast. So the shipping business was suffering a lot because none of the companies want to do their business in such dangerous places.

2.4 Safeguarding Domestic Market:

With the action of anti dumping and anti subsidy measures and comply with the WTO agreement, government seek to provide necessary relief and protection to domestic companies against dumping of goods and articles at cheaper rates by exporting companies of foreign countries. India has been a victim since long time against such unfair practices in items like import of chemicals, petrochemicals, pharmaceuticals, textile, steel and other consumer products which were dumped at cheaper rates than offered by Indian companies. Under these anti dumping measures government charges an additional duty on such cheap imported products making it equivalent to price offered by domestic market.

These factors will effect negatively to the shipping business in India. This is because the anti dumping and high duty will discourage the foreign players to invest in Indian market, because of less opportunity and less import in such a situation.

2.5 Promoting Exports:

To overcome shortcomings on account of multiple controls and clearances, absence of world class infrastructure, unstable fiscal regime and with a view to attract larger foreign investments in India, the Special Economic Zones (SEZs) Policy was announced in April 2000. This policy intends to make SEZs an engine for economic growth, employment opportunities, attract foreign direct investment, infrastructure development with attractive incentives like exemption from central and state taxes, 100% income tax exemption for 5 years, duty free imports, exemption from custom and excise duties etc. As a result there are presently 105 SEZ units operational in India with continuous growth rate of more than 50% annually. Even during the period of recession when global markets were struggling Indian SEZs were booming with growth rate of 93% and 50% in fiscal year 2008-2009 and 2009-20010 respectively.

These factors will positively affect the shipping business in India. As the other benefits and tax saving in SEZ is more, the foreign companies are interested to invest in Indian Shipping Industry, which will improve the development of Indian shipping industry. Also 100% benefit in tax and other duty free schemes encourage the domestic companies to invest more and more and export as much as possible. This will result into high growth of industry. Overall, from the above factors, two factors will negatively affects the shipping industry and two will positively affect the shipping industry in India. All the present and upcoming governments are interested in development of shipping industry. So, the political factors are positively affects the shipping industry.

3 Economic Factors:

Economic factors are as important as political factors that affect not only this industry but every industry in every corner of the world. Change in economic conditions at domestic or at international level mostly affects the functioning of each industry, following are some of the economic factors that may affect shipping industry.

Exchange Rates are required for determining the custom duties and excise duties, assessment of import and export goods, payment of duties etc. These rates are not uniform and fluctuate daily in line with demand-supply factors existing in international markets. The Indian government used to inform the shipping authority about the monthly exchange rate, through monthly notification. This ensures that dealing and communication between trade bodies and government agencies, in respect of duties and value of goods is uniformed across all ports and across all custom houses throughout India, instead of different rates and different value.

3.1 Rationalization Measures

With the incentives like minimal or zero custom duty, government is promoting trade of medical equipments, construction machineries, renewable sources of energy, bio degradable products, solar energy, export of species, tea/ coffee plantation and agricultural machinery etc. At the same time the Indian government demotes import of products like petrol, diesel, precious metals which add no value to the economy as a whole. These validation measures are available to improve infrastructure, quality of life of people, better facilities and environment friendly products.

These factors affect positively to the shipping industries, as encouragement from the government for export, agricultural improvements etc will increase the export and increase the profitability of Indian shipping industry.

3.2 Push ‘n’ Pull Factors

Due to global recession for the last few years liquidity of countries around the world has affected badly. As a result of the recession many governments have increased the percentage rates on fixed and saving deposits to pull out money from its people to fund the shortage. This move was successful to some extent which was further boosted by relaxation in income tax slabs. For example, individual in India earning 5 lacks (0.5 million) or more was paying 30% tax under previous rules which is now decreased by 20% under “Union Budget 2010-11”. This means saving of Rs 50,000 by way of tax annually which has indirectly increased the buying power of that individual. Government also made tax relaxations, if the investment is made in national health care, medical and infrastructure projects. These new procedures and relaxations have provided relief to around 60% of taxpayers by way of savings in taxes.

This factor is also positively affects the shipping industry indirectly, as the circulation of money getting high, the demographic pattern of people will also change like income, purchasing power etc. which will increase the business of shipping by more movement of goods and services for meet the high demands.

3.3 Inflation

The inflation rate reflects changes in supply and demand conditions in economy. Inflation management therefore involves controlling demand and supply factors by various monetary and fiscal measures respectively. Before global recession wholesale price index (WPI) inflation was high due to the raw material and fuel prices increase, resulting decreased due to meltdown in the global economy, which has resulted in the sharp decline in commodity prices. Due to the above factors the inflation rate in India during the period 2008-09 was 10.20% which has reached to 1.63% in 2009-10. As regards food inflation, the continuous increase in inflation rate from start of 2009-10 was majorly due to unfavourable monsoon in India which was worst since 1972. Food inflation has reached double digits because of shortage in supply of wheat, rice, pulses, sugar, onions and potatoes.

Government initiated several anti-inflationary measures such as exempting duties on import of rice, wheat, pulses, edible oils to bring more imports to country and also allowing distribution of rice and wheat to consumers through public distribution centres (PDS). So to control the increase in price further trading, exports have also been suspended for rice, wheat and onions. However inflation in India was much better and inactive compared to other countries of world.

Inflation rate negatively affect the Indian shipping industry, because high rate of inflation will resulted into high prices and high rate of transfer of goods will decrease the business of shipping. Overall, economic factors are positively affects the shipping industry. Except inflation all factors are positively affects the shipping industry and growth rate is also high.

4 Social Forces

4.1 Quick Facts

Indian civilization can be traced back to 3400 BC during the development of Indus Valley Civilization. India lies to the north of the equator between 6°44′ and 35°30′ north latitude and 68°7′ and 97°25′ east longitude. India’s coast is 7,517 kilometres long which consists of 43% sandy beaches, 11% rocky coast including cliffs, and 46% mudflats or marshy coast India has a GDP of over USD 1.367 trillion, the 11th largest in the world. It is the 4th largest in the world in terms of purchasing power parity. Its per capita income is USD 1124, 139th in the world. Population in India is second highest in the world. As of 2010, India’s population is estimated to be 1.18 billion. India ranks 139th globally under medium human development category according to human development index (HDI). Due to significant changes in economic reforms undertaken during the industrial revolution in 1991, India has transformed itself to one of the fastest growing economies in world. India is also a strong member of Commonwealth of Nations, SAARC, and WTO. India’s strong 55,000 military personnel’s are serving in 35 UN peacekeeping operations across 4 continents.

4.2 Demographics

India has more land than any other country except United States, and largest water covered area after Canada and United States. Indian life revolves mostly around agriculture and allied activities in small villages, where the vast majority of Indians live. As per the 2001 census, 72.2% of the population lives in about 638,000 villages and the remaining 27.8% lives in more than 5,100 towns and over 380 urban areas. In languages Hindi is used by over 80% of population in India followed by Muslim (13.4%), Christian (2.4%) and Sikhs (1.3%). Muslim population in India is third largest in world after Indonesia and Pakistan. 57% of population in India is between age group 15-59 years while around 35% of population is below 15 years. Literacy rate in India is 64.8% overall distributed between urban (79.9%) and rural areas (58.7%). This factor is positively affects the shipping industry, as difference in location, demand people will demand different things and import of it will increase the shipping business.

4.3 Cultural Trends

Trends are a sign of new enablers unlocking existing human needs which are constantly changing with time. Cultural trend reflects in many tangible aspects ranging from architecture to attire to food to culture which are deeply embedded in the rich historical and geographical elements of the country. In the past two decades, India has seen number of changes, more seen as an after effect of globalization. A nation of thinkers has become a nation of makers, eco sensitivity is on the rise, and all this has translated into a new language of patriotism, and speaks of a newly defined culture. This cultural shift has definite impacts on the Indian work scenario. Start-ups today have fresh innovative concepts and exciting working models which highlights the key socio-cultural trends in India. Businesses are increasingly catering to rational, practical and current cultural needs and are not based only on traditional models and offerings. Indian society is defined by relatively strict social hierarchy because of high degree of syncretism and cultural pluralism. Marriage is considered to be a thought for life and therefore divorce rate is extremely low in India.

4.4 Recent Trends in 2011

Government has started its long awaited prosperous plan to provide unique identification number to every citizen which would be used primarily as the basis for efficient delivery of welfare services. It would also act as a tool for effective monitoring of various programs and schemes of the Government. This program of unique identification will strengthen transparency and accountability. Plans are also underway to improve literacy rate of 60mn females among 70mn illiterate adults through introduction of “Saakshar Bharat” (Educate India) scheme enhancing post metric scholarships schemes for scheduled cast students. National Social Security Fund for unorganized sector workers to be set up with an initial allocation of Rs. 10,000mn. This fund will support schemes for weavers, toddy tappers, rickshaw pullers etc. Various such measures are being taken by government to improve the education level in rural areas, improving the health of rural people and those living below poverty line, developing rural infrastructure and rural housing.

Overall, socio cultural factors positively affect the industry. Because people are more relay on shipping and this will increases the growth.

5 Technological Factors

Technologies significantly affect human’s ability to control and adapt to their natural environments. Technological development like printer, telephones and internet to name a few have narrowed physical barriers to communication and allowed human to interact freely on a global scale. However, not all technology innovations are good for society like development of nuclear and other weapons which only create destruction. In recent times, more encouragement is being given to new technologies which are environment friendly. Shipping industry is majorly dependent on technology which fastens the movement of goods and ships data processing, control the increased throughput, better delivery and communication, reducing fuel consumption and costs. We will see some of the benefits of technology to revolutionize the shipping industry.

5.1 Faster Data Processing

Traditional methods of manual data entry with typewriters for the preparation of shipping documents, invoices, the survey reports, and load / discharge list were taken over by computers and the Internet. Now customers prepare shipping instructions in their own office with computers and direct delivery to shipping companies for the preparation of bills of lading using the internet. Customers also receive web invoices and payments to shipping companies with online banking. This technology has improved in changing the way people have traditionally been the work with greater ease, flexibility and efficiency. Customers can also track estimated arrival / departure of cargo to / from Terminal Operators on site because of the synchronization between companies system and the Internet. CHA and shipping companies have also benefited with this technological improvement. They are now able to communicate with customs, government offices easily through mails and can send official shipping documents using encrypted data transfer channel. These e-business solutions, organizations benefit through low costs, reduction in errors, short processing times, reusable data, real time information, less rekeying, saving of phone, fax and courier costs, secure solutions, seamless flow etc.

These e-solutions have been further boosted in shipping with the introduction of INTTRA (Third E-business platform), which has allowed customers to send the same data to multiple operators, rather than sending each data individually to each operator. Now almost every shipping communication between customer and shipping lines are being done using this system. Another breakthrough in this area was the implementation of customs EDI system (electronic data interchange), which connected Indian customs with companies in international trade electronically. The main purpose for its implementation was to respond quickly to the needs of trade, the reduction of trade interaction with authorities, uniformity of assessment and evaluation across all custom stations, providing quick and correct information and statistics to policy makers. Due to the increased data accuracy, security and management the paper work, operational time and costs reduced drastically.

5.2 Ship Technology

Changes in shipbuilding and engineering design technology and material changes made to reduce carbon dioxide emissions, thereby reducing erosion to save marine ecosystems and to increase fuel efficiency. One innovation which is underway in field of recirculation of exhaust gases in ships, which will reduce pollution of nitrogen oxide in atmosphere. A company named MAN has produced the diesel engine using exhaust gas recirculation (EGR) system that can reduce nitrogen oxide emissions by 50% today and 80% in near future. The system works by directing part of a vessel’s exhaust gas back into the engine scavenge air, reducing the oxygen content in the combustion chamber. The reduced lower combustion temperature in turn reduces the formation of nitrogen oxide. Testing of this prototype system will be done in of the container vessel in current year (2011).

Another technology is developed by SISTEMAR, in design of propeller which is expected to increase efficiency of the ship by 5% to 8%. This contracted and loaded tip (CLT) propeller is an unconventional propeller which will reduce tip vortex, reduce cavitations, improve manoeuvring and will reduce emission by 5% to 8% compared to conventional propellers. After the initial testing it has been found that new propeller has significantly reduced vibrations onboard the ship, increased the efficiency and the propeller is causing low induced pressure pulses.

Overall, technological factors positively affect the shipping industry, because the development of technology will reduce the time of process and useful in timely decisions. New technological advances will increase the business by improving service quality and high performance processing.

6 Conclusions and Recommendation

Container line business is a flamboyant industry not only in India but in whole world. Due to fast economic growth as in the past, trade between India and developed countries has increased appreciably. India is now seen as export making country from its traditional tag of import specific country. As a result of this development, shipping industry is progressing at average rate of 10% during the last 3 years. It is also important that government of India and “Ministry of Shipping” in particular should take more positive steps like setting up automated container terminals, increasing more dry cargo berths, liberal regulations in free movement of foreign exchange and international trade, easing export/ import duties to make this industry work more freely and contribute even more to economic development of the country.

Companies at same time should adapt more technology to make easy and efficient work environment for customers and employees. Looking ahead it seems strong prospective in growth markets, where the number of middle-income consumers is booming. In 2011, government should focus the main part of its attention and investments in these markets. In the start of the worst year ever for container activities is in 2008 &2009 due to recession, the Indian government continued its focus on strengthening competitiveness.