January 2016 | Sangeeta Menon

'An asset-light strategy is our preferred path'

Tata NYK Shipping Pte, the shipping arm of the Tata group, can write a manual on how to survive in tough times. The company was set up in 2007 as a 50:50 joint venture between Tata Steel and Japanese shipping major NYK Line. Headquartered in Singapore to take advantage of its strategic location as a global shipping hub, Tata NYK primarily caters to the dry bulk and break bulk cargo requirements of Tata companies and the Indian market. Set up just before the economic slowdown of 2008, the company has navigated rough waters ever since.

In an interview with Sangeeta Menon, Dinesh Shastri, managing director of Tata NYK, explains how its strategy of adopting an asset-light business model will help the company in the years ahead.

For Tata NYK, it’s been over seven years of sailing in choppy seas. What are the company’s big achievements?
One of our strengths is our fleet. Tata NYK has a young fleet of vessels, technologically advanced and rated five-star by ship rating agencies. We operate primarily in the Indian market, the fastest growing segment today. As a result, we have gained significant expertise and knowledge. We have also built strong relationships with our customers as well as port authorities and ancillary service providers.

In terms of cargo carried, Tata NYK has grown from 2 million MT in 2008 to 22 million MT in 2015. We have grown steadily into one of the top five players in India. In spite of the current market’s depressed circumstances, the company still projects growth in cargo to cross 40 million MT over the next five years. Our biggest customers being Tata Steel and Tata Power, our growth will be primarily centred around the Tata group and the Indian market.

What are the reasons for Tata NYK’s slow growth?
When we started out in 2007, the global shipping industry was riding a wave, with prices at an all-time high. Everybody was quite bullish on the China growth story and the uptrend was expected to continue. In 2007-08, we took on some long-term investments in terms of capacity building — we bought some ships and also entered into long-term charter agreements.

Since all these investments took place when the industry was in a boom phase, the costs were higher than the current market. Unfortunately, with the global slowdown of 2008, the shipping industry went into a tailspin in our very first year of operation and has been on a downtrend since then. The markets are currently at historic lows and are expected to remain so in the near future. Steady growth with an asset-light strategy is the preferred path currently for the company.

What challenges do you expect to face over the next few years? 
One of the main challenges has been the glut in the dry bulk shipping industry, mainly due to over-supply of vessels. This has been further compounded by the slowdown in the Chinese economy.

While the future of shipping is expected to be better, this is most likely to happen beyond 2018 once the order book for vessels is reduced, creating better capacity utilisation. Growth is going to be, at best, moderate. At times like these, shipping companies will have to focus on innovation and work on creating greater internal efficiencies.

How will Tata NYK address this?
The years of struggle have made us very cost-conscious. Over the next few years, we will focus on reducing our legacy costs and expanding our capacity through a business model that is asset light. We will look to charter vessels for short-term requirements and avoid entering into long-term commitments. The focus will be more on cargo and customers.

We believe that we can create long-term value for the promoters by taking advantage of the current low freight environment. We will work to improve our customer-centricity as we believe that our parentage and experience allows us to offer greater value to our customers in these tough times.

Success in shipping is basically about building good routes. We have an advantage here because our partnership with Tata companies provides us with opportunities in triangulation, wherein routes are optimised in such a manner that the vessel picks up cargo on its return journey as well.

How do you see Tata NYK evolving over the next five years?
The next few years present us with an opportunity to further consolidate our position with the Tata group businesses both globally and in India. Tata Steel and Tata Power will continue to account for more than 60 percent of our business.

We will also grow our share of business with other large steel and power producers in India. With Indian imports increasing steadily, we have a sustained cargo book to look out for opportunities in the current market. Having weathered the storm, we will now look to consolidate.

This interview is part of a special report on Tata group's presence in the ASEAN region, featured in the January 2016 issue of Tata Review:
Overview: Foothold in ASEAN
'Singapore is the nodal country for ASEAN', KV Rao, resident director for ASEAN, Tata Sons
'We want to encourage global innovation', Vinod Kumar, managing director and CEO, Tata Communications
'We learn a lot from this market', Girish Ramachandran, president, TCS APAC
'NatSteel will focus on sustainable profitability', Ashish Anupam, president and CEO of NatSteel Holdings
'Singapore is pivotal to our ASEAN growth', Anish Raghunandan, vice president, East and South Asia, Tata Technologies
'Singapore is a key market for us', J Niranjan, CEO, Tata Capital Pte
'This year looks set to be a record year', PV Balasubramaniam, CEO, York Transport Equipment (Asia)
'We will consolidate our business here', Alfred Egli, head, minerals vertical, Tata International Singapore Pte
'Our opex costs are industry benchmarks', SS Varma, vice president, operations, Trust Energy Resources Pte