IndianOil seeks shipping alliances
New Delhi   17-Aug-2007
Flagship refiner-marketer IndianOil Corporation is revamping its shipping architecture as part of its strategy to increase security of oil movement, freight optimization, control over supply chain and reduce outgo on ocean freight which makes up the single-largest cost element after crude. The company is looking for forging alliances with shipping firms as well as long-term hiring of vessels. A blueprint for reforming sea transportation suggests that the company's total oil movement be divided equally among vessels acquired through alliance, long-term charter, one-year COA (contract of afreightment) and spot hiring. Alliances have been suggested for 10-15 years, with fixed or floating rates and cost-plus tariff formulas as freight options. In the fixed rate scenario, tariff could be flat or a a fixed rate with periodic adjustment of bunker price. The floating rate could be linked to market benchmark or come with a cap and floor on the benchmark rate. IndianOil at present moves crude through a mix of voyage charters and COA. It moves products along the coast through single-hull vessels, which are hired through time- and voyage-charters. " The single-hull ships, though cheaper than double-hull variants, however, pose a problem as globally they have to be phased out by 2010 in line with international maritime norms, which is expected to push up ocean freight. The company's recent corporate strategy stressed the need for revamping the shipping strategy in view of the growing oil demand and volatility in ocean freight. "Freight threat is for real and there is a need to develop strategy for tonnage security along with cost minimization," the meeting noted. The options discussed included buying ships, forming joint venture and investing in equity of a shipping firm. Senior executives, however, later took the view that the joint venure route may not be the best option for the company at the moment. They suggested a gradual approach and the general view is now veering towards forming alliances and long-term charters. "All options are being studied. We may start with these two for the next 2-4 years to see how things progress. "We will then come back to the drawing board for forming up a long-term plan," a senior executive involved in the exercise said.