In a move aimed at stren­gthening supply chain security for the group, the autos-

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to-software Tata group has stepped up focus on its shipping business, which is run as a 50:50 joint venture with Japan’s Nippon Yusen Kabu­shiki Kaisha (NYK Line).

“Our present fleet stre­ngth is 11 ships. Eight more vessels will join the fleet. They have already been contracted, either as owned or long-term charters,” Rajiv Mukerji, managing director, Tata NYK Shipping told Financial Chronicle. In 2008, FC had reported that Tata NYK planned to invest $1 billion to expand to a fleet of 13 Capesize ships in five years. With the present expansion, the joint venture (JV) will be boosting its fleet strength by well over 50 per cent of its current strength.

“All the eight ships being added are new builds. Two of them (one Cape and one Supramax) will be owned by us while the remaining six will be chartered,” said Mukerji. He however declined to reveal the financing mix for the business expansion. However, FC learns that Japan’s Nippon Export & Investment Insurance (NEXI) has decided to provide Buyer’s Credit Insurance regarding financing to the Singapore headquartered Tata NYK Shipping. The financing will be used by TATA NYK for the purchase of a bulk carrier from Japan’s Oshima Shipbuilding. Routed through Sumitomo Corporation, said NEXI in a media announcement recently. Japan Bank for International Corporation (JBIC) and Mizuho Corporate Bank will provide the loan and NEXI’s insurance will cover the loan provided by Mizuho Corporate Bank.

“Three new Capesize ships (1.8 lakh dead weight tonnes), two new Panamax ships (79,500 DWT) and three new Supramax ships (58,000 DWT) will be added to our fleet by April 2011,” said Mukerji. The company plans to give up one Supramax carrier once this fleet expansion is complete. Recently, the Tata Steel board approved an additional equity investment in the JV, which analysts said is being used to part-fund the new buys.

The Singapore headquartered JV handles the dry-bulk and break-bulk cargo requirements of Tata Steel. This includes transporting the coal, which Tata Steel imports, besides exporting steel. More importantly, the shipping company serves as a key link for NatSteel, which has operations in South East Asia and China.

Tata NYK also serves the sea transport needs of Tata Power for imported coal and Tata Chemicals, which needs to import rock phosphate for the manufacture of fertilisers.

“Tata NYK is building supply chain security by the creation of a modern and cost-competitive fleet, which it is seeking to deploy to carry Tata group’s cargo (and also for other Indian customers). A mix of dry bulk vessels — from Capesize to Supramax — gives the group flexibility in port cho­ice, costs, long-term contracts and pricing; and secures it against freight volatility,” said Mukerji. He added that the JV had resulted in “substantive cost benefits for the Tata group” which he declined to quantify.

The company aims to acquire a dominant share in the Indian market besides servicing all Tata dry bulk and break-bulk cargo anywhere in the world. By also servicing third-party cargo, the venture hopes to keep rates for Tatas competitive. “Tata group’s share of cargo to the total cargo we carry is 46 per cent as on March 31, 2010,” Mukerji said.

NYK is one of Japan’s largest marine transportation companies with operations across the world. NYK Holdings, a wholly-owned subsidiary of NYK, also acquired a 26 per cent stake in TM International Logistics (TMILL), which is a subsidiary of Tata Steel, in March 2010. TMILL specialises in the provision of steel-related logistics and harbour operation services. Media reports suggest this company is buying three tugs for Rs 120 crore as a prelude to its entry into port management services. It initially acquired the right to operate Berth 12 at Haldia. Later, it extended operations to Paradip as well.