A new PSU isn't the answer

A lot has been written about India's burgeoning freight costs and what must be done about them.

- MICHEAL PINTO

Experts warn that the country, which incurred freight costs of $85 billion in 2019-20, will see that figure rise to about $400 billion by 2047. What rankles even more is that all this money is being paid out to foreign shipping companies. So now, public sector undertakings (PSUs) in the fields of gas, oil, coal and fertiliser are being asked to leap into the (for them) uncharted waters of shipping by floating their own shipping company. Once more policymakers seem to be going back to the old and tested remedy for any financial or managerial problem: Start another PSU.

The first point to be considered is whether a new company, whether government or private, will actually result in the reduction of freight costs. The plain answer seems to be a resounding no. Freight is a function of the market and freight rates are determined by the forces of supply and demand. It is true that you will be offered different freight rates depending on whether you access the spot market or go in for a long-term charter. There are pros and cons attached to both. But in either case, a government company is unlikely to offer a lower rate than that dictated by the market.