It's a problem of plenty for Indian shipping companies. As global trade zooms they are ploughing through the waves at full steam, moving cargo around the world and raking in handsome profits.

Also, they are going on a spending spree, snapping up everything from giant oil carriers to older, second-hand vessels.

But that's where their troubles start. Globally the shipping industry is going through a boom phase and shipyards around the world are fully booked for years ahead.

So, it's tougher than ever to buy ships without paying exorbitant prices. "There are too few ships chasing too many goods today," says Sudhir Rangnekar, director, Shipping Corporation of India.

Take a look at the state-owned SCI, which is scouring the globe for new vessels. Last year the SCI had put its expansion plans on hold because it was being readied for divestment. This year the divestment plans have been shelved and the SCI is on a global shopping spree.

Most importantly, in 2005 it will be adding to its fleet two Very Large Crude Carriers. The new ships ordered from a South Korean shipyard cost $65 million each.

Next on the SCI's shopping list are two bulk carriers and two smaller vessels. How much is the SCI spending this year on its new fleet: a whopping Rs 1,063 crore (Rs 10.63 billion).

But the Rs 3,179-crore (Rs 31.79 billion) SCI isn't the only player looking at expanding its fleet. Great Eastern Shipping spent Rs 490 crore (Rs 4.9 billion) last year to buy eight second-hand vessels for its fleet. Great Eastern has grown swiftly in recent years.

Back in 2002 it had 30 vessels with a total capacity of 1.33 million dead weight tonnes. By 2007 it will have 43 ships and will have almost tripled its capacity. In the next two years it will be spending $210 million and adding six ships.

Then there are players like Essar Shipping and Varun Shipping that are also determined to grab growth opportunities while they last. Essar has just bought a double-hull VLCC and it wants to expand capacity by around 1 million DWT over the next three to four years. And Varun Shipping is rumoured to be spending about $100 million on new ships this year followed by around $150 million next year.

Even smaller players like Mercator Lines have similar expansion plans. Mercator, has just bought a VLCC and an aframax (also used to transport crude oil) is scheduled to arrive in September. The two ships cost Rs 265 crore (Rs 2.65 billion) and Mercator is planning to spend another Rs 565 crore (Rs 5.65 billion) on expansion.

That's quite a turnaround for an industry that was down in the dumps two or three years ago. Now it's growing at 11 per cent.

Says Arun Mehta, vice chairman & managing director, Varun Shipping Company" "The industry is passing through a very buoyant phase primarily due to the improvement in world trade."

There's no secret about what has triggered the global shipping boom. Communist China is importing vast quantities of bulky commodities like oil, coal, iron ore and steel.

"Bulk quantities are moving to China and then are being exported as finished products to countries like the US and this movement has caused the upswing," says Rangnekar. Even today 95 per cent of world trade takes place via sea.

But the Indian companies have even more reason to rejoice than shipping giants in other parts of the world. Currently India processes about 112 million metric tonnes of crude in the country; of this, 75-80 million metric tonnes is imported while the rest is domestically produced. And this demand for crude is expected to grow 3 per cent to 4 per cent annually.

"India being an energy deficient country we are importing most of our requirements for crude," says Harish Mittal, chairman and managing director, Mercator Lines.

That's not all. World economic growth is being fuelled by demand from countries like China and India.  Says Bharat Sheth, managing director, Great Eastern Shipping, "Currently, a significant contribution is coming out of developing countries, where demand has yet not saturated and scope for increase in demand is higher, improving the prospects for business."

The industry is also expected to benefit from the recently introduced tonnage tax, which earlier used to net at 20 per cent but has now come down to 3.5 per cent to 4 per cent.

Says Sanjay Mehta, managing director, Essar Shipping, "The income tax payable by shipping companies will be charged at a fixed rate based on the net registered tonnage of the shipping company, which is in line with global practices." Players say this will enable them to invest larger sums in buying ships.

Nevertheless, there's a limit to how much these companies can grow. Shipyards around the world are working round the clock and new orders will only be delivered in a few years time. Besides that the prices, particularly of tankers and bulk carriers are prohibitive.

Take for example the prices of acquiring a VLCC. In Juy 2003, a shipping company would have had to pay $67 million to acquire a new ship but the same vessel would now cost around $92 million.

In comparison, last July a second-hand, five-year-old VLCC would have cost roughly $60 million to $62 million but it would now be around $90 million. Players say today prices are at a 30 per cent premium compared to a year back mainly due to the strong freight markets.

The high prices of steel are also adding to the cost of new ships. Also, the shipbuilding yards are fully booked till 2007. Says Sheth, "If an order were placed now, it wouldn't reach before 2009. This is keeping tonnage supply in check and a further increase in asset prices."

Inevitably, in such a situation the prices of chartering vessels have climbed steeply. In 2002, a chartered aframax would have cost $15,990 a day, against today's $ 22,400 a day.

"The critical aspect is what part of the cycle in the market a company acquires in. Mid-cycle acquisitions or charters still hold value for a company since it can more than recover the costs before the slowdown begins," says a shipping analyst.

So while some players are concentrating on niche areas like Varun, which largely caters to the liquified petroleum gas market, other players like Great Eastern have acquired single hull ships (not allowed at some ports due to environmental considerations). The SCI is looking at expanding its fleet of tankers and also getting into the transportation of liquified natural gas.