Maritime Shipping Economics

Almost all the crude oil and LPG that India imports comes by sea, in special ships called tankers and gas carriers. The money paid to move this cargo is called freight. Freight is not a fixed price. It rises and falls every day with demand, supply of ships, fuel costs, and the danger on the route. Understanding how ships are hired, priced and insured explains why a war far away can raise the price of petrol and cooking gas in an Indian town.

Why does shipping cost matter so much?

You can think of freight like the auto-rickshaw fare to bring vegetables from the mandi to your shop. If fares double, your vegetables cost more, even if the farmer's price is the same. In the same way, when tanker freight jumps, the "landed cost" of oil in India (price of oil plus freight plus insurance) rises.

India pays foreign shipping lines close to USD 75 billion a year in freight for moving goods like crude oil, gas, coal and fertiliser, according to figures cited by the Ministry of Ports, Shipping and Waterways. This money leaves the country and adds to the import bill.

What kinds of ships carry oil and gas?

Tankers are grouped by size. Size is measured in deadweight tonnage (DWT), which means how many tonnes of cargo, fuel and stores a ship can carry.

• Aframax: about 80,000 to 120,000 DWT, carrying roughly 6 to 8 lakh barrels of crude. Common on shorter routes.
• Suezmax: about 120,000 to 200,000 DWT, around 10 lakh (1 million) barrels. The name comes from the largest ship size that can pass the Suez Canal when fully loaded.
• VLCC (Very Large Crude Carrier): about 200,000 to 320,000 DWT, around 20 lakh (2 million) barrels. The main ship for long trips from the Persian Gulf to Asia.
• ULCC (Ultra Large Crude Carrier): above about 320,000 DWT. Very few are in use.
• LPG carriers: LPG is a gas, so it is carried as a liquid, either under pressure or by cooling it (propane is cooled to about minus 42°C). The biggest LPG ships are VLGCs (Very Large Gas Carriers), of roughly 75,000 to 90,000 cubic metres. Gas carriers are measured in cubic metres, not DWT.

How is a ship hired? The three main charters

A shipper who does not own ships hires them from shipowners. The contract is called a charter party. There are three main types:

• Voyage charter: You hire the ship for one trip, from one port to another, for one cargo. You pay freight per tonne or per barrel (or as a lump sum). The shipowner runs the ship and pays for its fuel. This is like booking a taxi for one ride.
• Time charter: You hire the ship for a fixed period, say one or three years. You pay a daily rate called hire. The owner keeps the crew and keeps the ship in good shape, but you decide where it goes and you pay for fuel and port charges. This is like renting a car with a driver for a month.
• Bareboat (demise) charter: You hire only the empty ship, with no crew. You employ the crew, manage it and insure it. It is close to owning the ship and is often used as a way to finance a ship.

Spot market vs term market

A voyage charter fixed for an immediate cargo at today's price is called a spot deal. A time charter locks in a rate for months or years. When the market is calm, spot can be cheaper and more flexible. When there is a crisis and few ships are available, spot rates can double or triple within weeks. A company that had already locked in ships on time charter is then protected. This is why a company may keep a mix of both.

How are tanker freight rates quoted?

Much of the world's tanker trade is priced using a scale called Worldscale. Worldscale publishes a base ("flat") rate in US dollars per tonne for each route every year. Deals are then struck as a percentage of that base. For example, "WS 100" means the base rate, "WS 150" means 150% of it. The Baltic Exchange in London publishes daily freight assessments for major routes.

Its Baltic Dirty Tanker Index tracks crude oil freight and the Baltic Clean Tanker Index tracks refined products like petrol and diesel. (Do not mix these with the Baltic Dry Index, which tracks dry bulk ships carrying coal, iron ore and grain.)

What is war-risk insurance?

Normal ship insurance does not cover damage from war, missiles, mines or seizure. So owners buy separate war-risk cover. In London, a body called the Joint War Committee, made up of marine insurers, publishes a list of "Listed Areas" where the danger is high. A ship entering a listed area must tell its insurer and pay an additional premium for that voyage, usually set as a percentage of the ship's value.

For the Strait of Hormuz, this was about 0.25% of the ship's value before the 2026 conflict. During 2026 it rose to several per cent at times. For a tanker worth USD 100 million, even 3% means USD 3 million for one trip. That cost is added to the freight and finally to the price of the fuel.

India's position and Indian examples

• Indian-flagged ships (ships registered in India) carry only about 7 to 8% of India's export and import cargo by sea, down from about 40% in the late 1980s.
• As of December 2025, India's fleet had about 1,592 ships with a total gross tonnage of about 14 million GT (Ministry of Ports, Shipping and Waterways data).
• In July 2021, the Union Cabinet approved a ₹1,624 crore scheme over five years to give a subsidy to Indian shipping companies in government tenders for importing cargo such as crude, LPG, coal and fertiliser.
• The Merchant Shipping Act, 2025 (Act No. 24 of 2025, assent 18 August 2025) replaced the Merchant Shipping Act, 1958 and modernised rules on ship registration. The Bills of Lading Act, 2025 replaced an 1856 law.
• In September 2025, the Union Cabinet approved a ₹69,725 crore package for shipbuilding and maritime finance, including a ₹25,000 crore Maritime Development Fund.
• The Shipping Corporation of India (SCI), a public sector company, is India's largest shipping line and has long carried crude for Indian oil companies.

Commonly confused concepts

• Time charter vs voyage charter: Time charter = ship hired for a period, daily hire, charterer pays fuel. Voyage charter = ship hired for one trip, freight per cargo, owner pays fuel.
• Time charter vs bareboat charter: In a time charter the owner provides the crew. In a bareboat charter the charterer provides the crew and runs the ship.
• DWT vs GT: Deadweight tonnage measures how much weight a ship can carry. Gross tonnage (GT) measures the total enclosed volume (size) of the ship. Fleet sizes are usually given in GT.
• Baltic Dry Index vs Baltic Dirty Tanker Index: "Dry" is for dry bulk cargo like coal and grain. "Dirty" is for crude oil in tankers.
• Freight vs war-risk premium: Freight is paid to the shipowner for carrying the cargo. The war-risk premium is paid to insurers to cover war damage. Both rise in a crisis.

Issues, criticism and the way forward

• Heavy dependence on foreign ships: Paying foreign lines about USD 75 billion a year is a large outflow of foreign exchange. In a crisis, foreign owners may refuse to go to risky areas or demand very high rates.
• Higher cost of Indian flag: Industry groups say running a ship under the Indian flag costs about 16 to 20% more than under foreign flags, because of taxes, finance costs and rules. So Indian ships often lose cargo even when given a "right of first refusal" (the right to match the lowest foreign bid).
• Owning ships is costly and slow: A new VLCC costs over USD 100 million and takes years to build. Owned ships also have to earn money in quiet times, when spot rates may be lower than the cost of owning.
• Insurance concentration: Most marine insurance is written in London and a few other centres. India has been building domestic capacity, but war cover still depends heavily on global markets.
• Way forward suggested: experts and official plans point to cheaper long-term ship finance, more Indian-flagged tonnage owned by public sector oil and shipping companies, long-term charters with Indian shipyards, and Indian insurance pools for risky routes.

Concepts to Know

• Freight: The fee paid to carry goods by ship from one port to another.
• Landed cost: The full cost of an import when it reaches India: the price of the goods plus freight plus insurance (and port charges).
• Charter party: The written contract between a shipowner and the person hiring the ship.
• Hire: The daily rent paid under a time charter.
• Indian-flagged ship: A ship registered in India. It follows Indian law and flies the Indian flag.
• Gross tonnage (GT): A measure of a ship's overall internal volume, used to count fleet size.
• Chokepoint: A narrow sea passage that many ships must use, so a blockage there disrupts world trade.