Affreightment guidelines seen impacting fortunes

The shipping industry feels that the new guidelines issued by the directorate general of shipping on contracts of affreightment (COA) will definitely have an impact on its fortunes.

The industry is, however, keeping quiet as the guidelines have been evolved only after extensive consultations with it. Further, there is a growing recognition in an increasingly competitive environment, the interest of all stakeholders will have to be kept in mind.

The new guidelines stipulate that Indian companies will be able to exercise their first right of refusal only if the difference between their quote and the lowest quote is up to 10 per cent for COA.

Earlier, they could quote any amount and later bag the contract by matching the lowest quote.

Further, in all contracts of affreightment about one third of ships deployed will have to be under the Indian flag. Earlier, they could deploy ships which they had chartered from foreign companies.

"Both these stipulations will have some effect on the domestic ship owners. However these guidelines were issued only after a series of meetings with us. So we have no problems," S S Kulkarni, secretary general of the Indian National Shipowners Association (INSA) said.

" The move is a welcome one as it will ultimately benefit clients of shipping companies. Transportation costs are a part of the overall costs in the production chain. We are always advising our clients on how to cut down these costs. Further, everybody has to compete in a globalised industry like shipping," said Sanjay Mehta , CEO and managing director of Essar Shipping said.

Another shipping industry official however expressed apprehensions about whether some part of the guidelines could be implemented or not.

" Many of the private companies which charter the ships do not follow a system where bids in sealed envelopes are called for. In such a case how is one to know which is the lowest bid and which is the second lowest bid," said a representative of a shipping company.

Naresh Salecha, senior deputy director-general of shipping however points out that there are inherent safeguards built into the guidelines.

"First of all charterers will have to maintain detailed records about the ships that they have chartered. Further, it does not makes sense for any private company that is chartering a ship to favour one particular ship owner," Salecha said.

The guidelines were issued after certain segments of the industry like cement and steel makers said that they wanted blanket permission to charter foreign ships as they found the whole process of getting an NOC from the domestic ship owners quite cumbersome.

Finally, a via media was found after discussions by the directorate-general with all the stakeholders.

The other salient feature of the guidelines are that the period of licence of a COA will be normally one year. However, in exceptional cases where the charterer can furnish good and sufficient reasons, it may be extended for a further period of 2 years.

The maximum permissible period shall be 3 years.

Further, the charterer has to circulate an enquiry/or invite International Competitive Bidding (ICB) from ship owners including Indian ship owners through INSA and Indian Coastal Conference (ICC), who shall intimate the charterer and the Directorate General of Shipping immediately.

In case no offer is received from the Indian ship owners of INSA/ICC within 3 stipulated working days, the charterer shall be free to apply to Directorate General of Shipping for licence in favour of foreign flag vessels proposed to be chartered.

Indian ship owners shall identify and offer their own vessel(s) for the entire performance of the proposed COA.

In case the vessel(s) offered by the Indian ship owners is under construction, such offers shall be considered only against an undertaking furnished by Indian ship owners that the vessel(s) shall be converted to Indian flag prior to the commencement of the contract.