Can India become shipping’s next China this decade?

China's rise as a dominant economic force in the early twenty-first century has had a considerable impact on the global shipping industry. The country's remarkable economic growth, fuelled by its export-oriented manufacturing industry, raised demand for raw materials and finished goods, resulting in a significant increase in maritime trade. For China, as the world’s largest consumer of raw materials and exporter of finished goods, shipping is just one part of the process which has seen the nation become the second largest economy and the China growth story being rightly voted by Splash readers in December 2019 as the shipping story of the past decade. With India's economy growing, its population now larger than China's, and China's population beginning to fall, many expect India to deliver the next significant boost to global trade and propel the shipping sector. India's gross domestic product (GDP) increased by 7.8% in the April-June quarter, the strongest rate in a year and slightly higher than the market's forecast of 7.7%. The service sector contributed significantly to this growth, aided by robust consumer demand and rising government investment spending. In general, economic indications for the first half of 2023 point to an expansionary economy powered by domestic demand. Steel output increased by 12% year on year in the April-June quarter, while steel consumption increased by 10% year on year. Assuming that the country’s economy and population continue to grow along the current lines, the international seaborne trade flows involving India could face some considerable changes during the remainder of the decade, Ulf Bergman, senior economist at shipping data platform ShipFix tells Splash Extra. The per capita income of India is projected to grow around 70% by 2030 and is expected to reach around $4,000 from current levels of $2,450, as per a report by Standard Chartered Bank, leading the country towards a middle-income economy with a GDP of $6trn. Standard Chartered sees the primary factor propelling significant economic growth as external trade, which is anticipated to nearly double to $2.1trn by 2030. This substantial increase would be a significant jump from the $1.2trn recorded in fiscal 2023, when the GDP stood at $3.5trn. Despite short-term hurdles from rate hikes and a global downturn, S&P Global forecasts Asia's third-largest economy to grow at an average annual rate of 6.7% to March 2031, led by manufacturing and services exports and consumer demand. Projections show that India's economy could reach $6.7trn from $3.4trn in fiscal 2023 and, if realised, see the country overtake Japan and Germany to become the third largest economy in the world. From a shipping perspective, looking at numbers from Clarksons, Indian companies currently own around 1.5% of fleet tonnage, ranking 17th globally, while China is at the top, holding around 16%. India flags some 0.7% of global tonnage and is ranked 20th, compared to China, which ranks 6th. Globally, India is the second ship recycling nation, holding a 30% share and the 21st in shipbuilding. The country is ranked among the top five countries supplying trained manpower, with a 17% growth in seafarers in the last three years. About 12% of the world merchant fleet is manned by Indian seafarers and the shipmanagement industry in India is expected to develop significantly over the next several years, with a CAGR of over 6%. At the end of 2022, the country reported a fleet strength of 1,520 vessels with a gross tonnage of 13.69m. However, whether the nation will be able to replicate China's success in the 2020s is uncertain and requires a detailed analysis of various factors. For Maria Bertzeletou, market analyst at diversified shipping services group Signal, one crucial factor is India's economic expansion, which could lead to a rise in the demand for shipping services through economic liberalisation policies, investments in infrastructure, and encouragement of manufacturing and exports. Tankers When looking at the energy side and oil flows during the last two years, Bertzeletou says the volume of India's monthly oil imports has been quite fluctuating on both the dirty and clean side. Russia has played an important role in increasing India's oil purchases and is one of the primary oil producers that meet India's energy needs. Mette Frederiksen, head of research and insight at UK-based VLCC pool operator Tankers International, observes increased oil demand that will "not slow anytime soon" as the country's production is not enough and relies on imports, most of which are seaborne. "In the VLCC market, we count 25–30 liftings destined for India each month,” Fredriksen tells Splash Extra, but she highlights that India is geographically closer to producing countries, both in the Middle East and in the Atlantic basin, than China, for example, and that each of these cargoes travels a shorter distance than they do when the destination is China. "Therefore, for crude tankers, the tonne-mile element of India's growth story is unlikely to be as significant as what we saw when China began its oil import boom," she notes. India’s oil consumption is currently around a third of that of China, according to Maritime Strategies International (MSI). The country is set to consume and import more oil out to 2030, but only by an additional 1m barrels per day, which will be matched by similar increases in China, notes Dr Adam Kent, managing director of the UK consultantcy, reminding that between 2000 and 2010, China’s oil consumption increased by a little under 5m barrels per day. The world's biggest shipbroker, Clarksons, listed India at 12% of global seaborne crude imports in tonnes in 2022. Although second in the world, it was still 11% behind China, but it maintains good growth prospects given expanding refinery capacity. According to analysts at GlobalData, India is set to dominate the newbuild and expansion refinery projects in Asia, accounting for 45% of the upcoming crude oil refinery projects starts in the region between 2023 and 2027, fuelled by rising demand for petroleum products. Bulkers Bulk imports are expected to play a significant role in the Indian economy in the future, as they will increase demand for ships and the number of tonne-days and miles for various size classes of bulk carriers. According to the Signal Ocean Platform Report of Commodities Flows, the volume of commodity imports destined for India from all origins was exceptionally high last year, while there was a weaker trend in the previous year. However, the year-to-date monthly volumes were higher than those in 2021. Bergman at Shipfix believes that in terms of imports, demand for commodities sourced overseas will increase as economic growth and a larger population put pressure on domestic resources, guided by the Indian government's move to curb exports of various commodities such as wheat, rice and sugar, to safeguard domestic supplies. "It serves to indicate that substantial increases in demand could translate into higher seaborne imports as supplies remain tight. Hence, imports of agricultural commodities may rise to feed the growing population. Additionally, continued growth and a higher probability of heatwaves will fuel higher demand for electricity and, by extension, coal, leading to increased seaborne imports in the coming years, primarily supporting demand in the mid-sized vessel segments," Bergman predicts. Signal's Bertzeletou points to the gradual strengthening of the Indian economy through increased iron ore exports this year, while the steel industry is also taking measures for strong development and growth as the Indian Steel Association (ISA) expects a rise in demand from 119.9m tonnes to 128.9m tonnes during 2023 and 2024. For Bergman, it is also reasonable to envision a shift in seaborne exports of dry bulk commodities as India's economy expands more. "Increased domestic demand for raw materials may put pressure on exports of ores and minerals, as well as finished steel products, leading to less support for tonnage demand in the future," he says. Head of Clarksons Research, Stephen Gordon, sees India not as a major importer of iron ore or grains but in fact as a net exporter given “abundant" domestic production of both. But although the country ranked second in global steel production in 2022 with 7%, China ultimately held the throne with a 55% market share. India accounted for about 7% of total global seaborne imports in tonnes in 2022, with China accounting for about 22%. The country was at the top of global seaborne coal imports in tonnes in 2022, but Clarksons projects China is on track to overtake again this year. "India has strong coal demand growth potential, but there is a debate over the outlook for seaborne imports as India is also seeing firm domestic production growth," Gordon points out. MSI’s Kent deems steel consumption a leading indicator of the type of economic expansion that benefits shipping the most because middle-class growth often leads to greater demand for commodities used to build cities, housing, infrastructure, and utilities. India is actively taking measures to enhance its infrastructure, with approximately $2trn allocated to infrastructure projects between 2019 and 2025. In February, the government approved a budget of $122.29bn for capital expenditure in the next fiscal year, reflecting a 33% increase from the previous year. These funds are earmarked for projects related to roads, energy, and job creation, potentially leading to increased imports of construction materials and higher import volumes. However, Kent notes that in comparison to China's political framework and prioritisation of infrastructure and industry, which have enabled actions and investments to be made efficiently and swiftly, this is moving at a slower pace and less consistent central decision making in India. India’s steel consumption in 2022 was 120m tonnes and by 2030, MSI is forecasting this to increase to 175m tonnes. "If you compare this to China’s consumption during the period 2000–2010, which shot up from 210m tonnes to 613m tonnes, and for reference, stood at over 1bn tonnes in 2022, it is clear we are talking about radically larger numbers in the case of China," highlights Kent. He also estimates that India, which has its own domestic reserves of iron ore and coal, like China, and given a relatively modest projected increase in steel consumption, this will not impact shipping demand in the same way China moved the markets twenty years ago. Yiannis Parganas, head of research at Intermodal, notes that India's emphasis on self-sufficiency has kept import volumes for key commodities at much lower levels. Grain imports, for example, are negligible in comparison to China's vast demand for soybeans, wheat, and corn. He shares the view of other analysts regarding the country's seaborne iron ore imports to be significantly lower than demand from China and judges that crude steel produced in India can meet the majority of its demand but is also unlikely to keep pace with China, which is on track to surpass the 1bn tonne barrier for the second year in a row. Strong demand for thermal coal for power generation in India surged to record levels in August, driving demand for bulk carriers and potentially providing ongoing support to Southeast Asian markets in the coming years. In the case of aluminum production, another commodity impacting the shipping freight market, India lags significantly, according to Parganas. "India produces only 4.1m tonnes compared to China's production of around 45m tonnes. While there are projections of a 9m-tonne increase in capacity by the end of 2029, both alumina and bauxite imports are expected to remain lower than China's," he says. Summarisng the Indian dry bulk trade, Shipfix's Bergman reckons the country should become more focused on imports at the expense of exports. However, it is unlikely that the development will mirror how the Chinese seaborne trade evolved during the past two decades. Ports and containers Looking at statistics in the sector, the ports and shipping industry in India have been growing rapidly and contributing to economic progress driven by growth in external trade. India comprises 12 major and over 200 non-major ports situated along its 7,500 km long coastline and a vast network of navigable waterways handling approximately 95% (by volume) and 68% (by value) of India’s external trade. The Indian government has played an important role in supporting the sector with plans to improve shipping and port infrastructure through planned modernisation efforts at an estimated cost of about $25bn. It has allowed foreign direct investment of up to 100% under the automatic route for port and harbor construction and maintenance projects. It has also facilitated a 10-year tax holiday to enterprises that develop, maintain, and operate ports, inland waterways, and inland ports. Signal's Bertzeletou estimates that although these steps have been taken, to compete with already established maritime hubs, the country will need to invest significant sums in expanding and modernising its ports or rely more heavily on privatisation to support its global ambitions. She notes that India has the potential to increase shipping demand by becoming a global manufacturing and export hub, similar to China. "The "Make in India" initiative aims to encourage domestic manufacturing, and its effectiveness will play a crucial role in determining India's impact on the shipping industry." Meanwhile, MSI's Kent claims that although the world is seeing some manufacturing move to India, China will retain the mantel of the world’s largest exporter of manufactured goods for some time to come. "The supply chains and infrastructure that have developed around manufacturing in China are so wide and deep that any transition to a new manufacturing centre would be a slow one. Since 2018, India’s share of US containerised imports has risen from around 3% to 5%, and although China’s share has fallen by nearly ten percentage points over the same period, it still sits at 37% today," he maintains. When examining global container throughput output, intermodal numbers show China accounts for almost 35% of the world share, while India's share is a mere 3%. Conclusion Gordon at Clarksons sees India as having strong potential growth and many opportunities, but not on China’s scale for the moment, adding that although it has become the second largest importer of commodities by tonnes it is lagging China by some margin. Kent from MSI reckons China’s entry to the WTO in 2001 was the catalyst for both a commodity supercycle and the re-centring of global manufacturing to the PRC. Shipping benefited from this boost and the wider ramifications on the global economy; over the first decade of the century aggregate seaborne trade increased by around 40%. But although there will be increased volumes of seaborne trade heading to and from India over the rest of the decade, this will pale in comparison to China’s rise at the start of the century, estimates Kent. For him, from a pure shipping perspective, India sits closer to some of the major exporters and importers, which means the tonne-mile impact is not as significant as importing into or exporting out of China. Intermodal's head of research, Parganas, assumes that although India could be the sole nation capable of mirroring the level of demand seen in China, the Greek shipbroker does not see this taking place in terms of volume from 2023 to 2030. He notes that despite India's impressive GDP growth, averaging 10% since 2004, it still significantly lags behind China. "Analysing data for the same period, it becomes evident that China consistently maintains a trade surplus, reaching its peak in 2022 at $382.7bn, whereas India experiences the opposite, reaching a record deficit of -$177.7bn in 2022,” Parganas says. Delving deeper into GDP data, the Intermodal executive observes that the services sector plays a pivotal role in India's economy, constituting approximately 55% of its GDP and steadily gaining ground. In contrast, manufacturing accounts for a modest 15% and stands at 3% of the world share. From Signal's standpoint, it is difficult to predict whether India will have the same impact on the shipping industry as China, but India has the potential to become a major player in maritime trade. To achieve this, the country will need to focus on sustainable economic growth, infrastructure and manufacturing capacity development, and adapt to changing global dynamics, taking into account environmental and regulatory factors. "India's ability to adapt to economic environment, including factors such as trade tensions, financial crises, and pandemics will determine the impact on the industry," Bertzeletou notes, adding also that, the country's compliance related to emissions and sustainability and its investment in cleaner and more efficient transportation methods will be critical, and its ability to adopt and adapt technological advances will influence its competitiveness. The government's records at the end of last year showed that over 50% of India's tonnage is in its 20s. India's unemployment rate has improved, declining from a high of 10.19% in 2020 to the current rate of 7.95%, according to Intermodal. However, looking at India's literacy rate, the shipbroker sees a different picture, with adult literacy standing at only 74.3% of the total population, in contrast to China's 96.84%. Additionally, the number of IT and mechanical students in India is only half that of China. "We do not anticipate that India's demand will approach China's over the next seven years. Many projects, including aluminum and steel smelters, infrastructure facilities, and others, need to be developed for Indian demand for bulk commodities to align with China's current levels,” says Parganas. He, however, tells Splash Extra that “if one country has the potential to drive shipping demand in the coming years, it would be India”, given its demographic fundamentals and the need for infrastructure development, but in order for this scenario to play out, “a combination of political decisions and a slowdown in China's economy would be necessary for further opportunities to emerge”. Niels Rasmussen, chief shipping analyst at the world's largest shipping organisation, BIMCO, finds it unlikely that India can become the catalyst for global maritime trade growth on par with what was experienced during the 2000s. "The 2000s was a decade of increased globalisation across the world. The opening of China began in 1978 and culminated in membership of the World Trade Organisation in 2001, giving access to a vast new market. India already participates in the global market and is more globalised in terms of trade than China is. Even if India grows, markets will therefore not see the same unique one time effects as when China truly entered global trade,” Rasmussen says. Rasmussen expects China to see slower maritime trade growth in the coming years as economic growth slows and services account for a greater share of that growth. For him, the 2020s currently appear likely to be a decade of reduced globalisation and increased decarbonisation. “Countries are looking to become self-sufficient in key areas while diverting other trade to likeminded partners and oil and coal trades appear likely to peak within the next five years. All this will detract from any India led expansion. All in all, there are good reasons why India will see an expansion of the economy and maritime trade. Unfortunately, it also appears that there are good reasons why this will not spur significantly faster global maritime trade growth," Rasmussen concludes.

Can India become shipping’s next China this decade?

A lot of what’s happening economically on the ground in India mirrors China’s explosive growth at the start of the 21st century, but can the newly crowned world’s most populous nation deliver the fortunes for shipping?

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