How Atmanirbhar Bharat can help cut crude shipment costs

Why in the News

Indian Oil Corporation (IOCL) has reportedly hired a foreign Very Large Crude Carrier (VLCC) for a record $47.75 million (Rs 458 crore) to ship crude oil from Mexico’s east coast to Paradip. It is the highest freight ever paid for an India bound crude cargo. The case made for Atmanirbhar Bharat in shipping is that such contracts should go to Indian flag ships, keeping foreign exchange and supply chain control at home.

What does the record charter show about freight?

1. Freight: Freight is the fee a cargo owner pays a shipowner to carry goods, much like a taxi fare charged per trip. When ships are scarce, that fare rises sharply.
2. The ship hired: The super tanker Zourva is a 12 year old VLCC registered in Malta and owned by Minerva Marine Inc., so the entire fare goes to a foreign owner.
3. Double whammy: Indian refiners already pay high oil prices, and freight paid to foreign ships adds a second cost, which the industry calls a “double whammy”.
4. Drain of forex: Freight paid to a non Indian entity sends foreign exchange (forex) out of the country.
5. The takeaway: In a supply crisis, who owns the ship decides whether a record freight bill stays in India or leaves it.

Why have crude shipping costs surged?

1. Gulf supply lost: Before the war in the Gulf region, the Persian Gulf supplied roughly 50 to 60% of India’s crude, and refiners must now buy from sources farther away.
2. Longer voyages: Greater distances lengthen each round voyage, so every ship completes fewer trips and the supply of available tankers shrinks.
3. Red Sea diversions: Geopolitical risks in the Red Sea force ships onto longer routes, which adds voyage days, makes ships scarce and sends freight rates soaring.

Why does the flag of the ship matter?

1. Doklam precedent: In July 2017, at the height of the Doklam standoff with China, Indian oil companies made India’s first ever purchase of crude oil from the United States.
2. Chinese carriage: The 1.6 million barrels came on an ex-ship basis, meaning the seller arranged the shipping, and that carriage went to Petrochina on Chinese flag ships.
3. Strategic risk: The price was “very competitive”. But during a standoff with China, India let a Chinese firm control the delivery of its cargo and earn its freight.
4. Freight kept at home: Had this year’s contract gone to an Indian ship, freight of over Rs 400 crore would have stayed within the Indian economy.
5. Vocal for local: Such lucrative contracts often go to foreign ships, which runs against the government’s “vocal for local” push.

Challenges

1. Thin Indian fleet: Indian flag ships carry less than 5% of India’s overseas trade, so suitable Indian tonnage is often unavailable when a cargo must move.
2. Cost disadvantage: Indian shipowners face a high cost of finance and run an ageing fleet, so they often lose open tenders on price.
3. Lowest bid rules: Public sector refiners must usually accept the lowest bid, so preferring Indian ships needs explicit policy backing.
4. Volatile freight market: Freight rates swing with wars and route risks that no charterer controls.

Way Forward

1. Indian flag first: Public sector charterers should award long distance crude contracts to Indian flag ships, or tender strategically when Indian tonnage is available.
2. Right of first refusal: Enforce the existing right of first refusal, which lets an Indian flag ship match the lowest foreign bid for government cargo.
3. Shipowner and charterer partnerships: Build Atmanirbhar Bharat partnerships between Indian shipowners and charterers on the principle of “Serve from India”, to control sensitive supply chains.
4. Fleet expansion: Use the Maritime Development Fund announced in Budget 2025-26 to finance more Indian flag tankers.

Conclusion

A war that made ships scarce has shown that India’s energy security depends on who carries its crude as well as who sells it. Whether public sector refiners begin to prefer Indian flag ships in their tenders is the change to watch.

Back2Basics: Very Large Crude Carrier (VLCC)

1. What it is: A VLCC is an oil tanker of roughly 200,000 to 320,000 deadweight tonnes, the total weight of cargo, fuel and stores a ship can carry.
2. Capacity: A single VLCC carries about 2 million barrels of crude, which makes it the standard ship for long haul crude trade.
3. Smaller tankers: Suezmax and Aframax tankers carry about 1 million and 0.75 million barrels respectively.
4. Ultra Large Crude Carriers: The largest class, above 320,000 deadweight tonnes.

Matching Previous Year Question

“[2026] In what way(s) does the Vizhinjam International Seaport represent a structural shift in India’s maritime trade and logistics policy? 1. By functioning exclusively as a domestic cargo hub to reduce reliance on coastal shipping and eliminate the need for foreign collaborations. 2. By focusing primarily on passenger cruise tourism and heritage shipping to increase Kerala’s profile as a maritime heritage destination. 3. By leveraging its natural deep draft and strategic location to reduce dependence on foreign trans-shipment ports, enhance revenue retention, and reposition India in regional maritime trade. Select the answer using the code given below: (a) 1 only (b) 1 and 2 (c) 2 and 3 (d) 3 only ANSWER: D”