Archana Shukla

Mumbai: State-owned Shipping Corporation of India’s (SCI) attempt to diversify its business brings to mind an old saying — ‘don’t try riding on two boats at the same time’.

The country’s largest shipping company by fleet size has planned forays into shipbuilding, terminal management and dredging.These initiatives are in various stages of development and are yet to take off.

Experts remain divided on the efficacy of the moves.

Sudhir Rangnekar, chairman of Sical Logistics, who was associated with SCI for 31 years till 2006, asked at a recent press conference, “Should the company look at diversification or rather focus on its core competencies?”

SCI honchos talk of the diversification helping the company to backward-integrate.

Umesh C Grover, director-technical and offshore division, SCI, said, “We are optimistic of our plans and it would work as a backward integration for us.”

It is not new for a shipping line to diversify into allied maritime sectors. The global maritime industry has seen many shipping majors enter terminal operations to have a greater control at the terminal and assure capacity is available for captive use.

A classic example is that of A P Møller — Maersk AS group, known for its Maersk shipping line. It is a diversified conglomerate operating in shipping, oil & gas, shipbuilding, retail, IT and many other industries. It initially entered terminal management to assist the shipping company get enough capacity and then expanded into this as a separate business vertical.

Philip Littlejohn, country director, India, APM Terminals, said, “Now our focus is on being an independent terminal operator, focussing on servicing a portfolio of shipping lines.”

But, does this line of argument hold true for SCI? So, why are people raising questions?

For one, critics feel SCI does not have the volumes or the expertise to justify a diversification into sectors like terminal management, or shipbuilding.

Maersk holds about 15% of the global container shipping business and has a commanding position to look at forward and backward integration. Diversification would dilute SCI’s management pool by spreading it thin over many areas, at a time when management resources are scarce.

Instead, analysts say SCI should look at developing its resources, improving efficiencies and reducing costs.

An industry expert said, “SCI should increase its fleet and look at carrying more Indian cargo from the country, which is currently dominated by foreign flag ships.”

Rangnekar, too, said SCI could work up a competitive advantage and be the largest Indian carrier by volume. Towards this end, the terminal management foray could help it secure capacities.

However, SCI’s Grover feels otherwise.

“The new initiatives would help us go more into logistics services at a time when everyone is looking at integrated services, and would add value to our business.”

Understandably, terminal management is seen as a compatible line of business. But, the same can’t be said of the other two businesses SCI plans to enter.

Shipbuilding, for one, raises questions about integration with the core business. Being capital intensive, it could weigh heavy on SCI, feel experts. Also, these are boom times for shipping and it might get difficult for SCI to sustain the business when the down cycle starts, they add.

Grover, though, clarified that SCI was looking for partners and planned to have only a minority stake in the shipyard.

“A ship owner can add his own expertise to shipbuilding. However, we would leave the main job with the experts.”

Further, along with shipbuilding, shipyards also need to provide ship repair facilities, which not many yards today are capable of.This segment is operational at any given time, and has a market even during the down cycle, Grover added.

D T Joseph, former shipping secretary said, “Although the productivity levels cannot be the same as a core shipyard, SCI would be a much better player being from the maritime sector, than any novice player investing in a shipyard.”

Shipbuilding has been attracting new players of late. Mercator Lines has tied up with Mech Marine Engineers Pvt Ltd for setting up a shipyard.

Joseph raises the strongest argument in favour of SCI’s move, “There have been bouts of this debate of core competency versus diversification every now and then. However, shipping being a cyclic business, diversification can at times help when the markets are down.”

Source : DNA