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i-maritime News Service

Rise in global tanker rates fails to boost Indian shipping industry - 2013-06-07

The faint uptick in global tanker rates earlier this month has not helped much in raising the spirits of the Indian shipping industry, as shipping companies had to wade through a tepid freight market the whole of last fiscal, worsened by a lacklustre trade, rising fuel costs and over-supply of ships. While some in the industry feel that the pressure on freight rates may begin to ease only towards the year-end, the general expectation is that 2013-14 may not be much different than the last fiscal.

Most shipping companies reported flat earnings or dip in profits for the year due to the depressed market conditions. SCI registered two consecutive years of losses, in the last quarter of last fiscal its net loss was Rs 281.40 crore. Essar Shipping posted a nearly 100 per cent drop in its quarterly consolidated net profit for the quarter at Rs 5 lakh against Rs 55 crore in the year-ago period. Great Eastern’s standalone net profit for the year was almost flat at Rs 146 crore.

In its market commentary for the last quarter, Great Eastern Shipping said that the crude tanker market continued to under-perform in the wake of subdued demand from western economies and seasonal refinery maintenance, though the product tanker segment mirrored some strength due to rise in demand of distillate cargoes from the US to South American countries.

Charter rates for larger assets in the dry bulk segment were also meek due to lower iron ore imports from Brazil to Asia and reduced coal shipments from Australia due to floods. The Baltic Dry Index fell from an average of 1,020 in the first quarter to 841 in the second, then inched up to 944 in the third and slumped again to 797 in the fourth quarter of last fiscal.

In its report in February, India Ratings and Research predicted that profit margins of shipping companies, which declined in 2012, would remain under pressure this year due to the dual impact of reduced revenue and high fuel prices. “Companies that embarked on debt-fuelled capex plans during 2007-08 when vessel prices were at their peak are likely to be worse off in 2013 in relation to their debt servicing capabilities,” it said.

Companies which deployed their ships on long-term charters managed to get better yields than those in the spot market. For instance, Essar Shipping, which has over 60 per cent of its fleet in the long-term market, could get a daily earning of $30,000 for its VLCC (very large crude carrier), while the same asset in the spot elsewhere was struggling to bring home $10,000 a day. “We could make up for the dull market conditions through increased operational efficiency and better voyage planning. We ensured minimum empty haulage, picking up return cargoes through our network,” Ramakrishnan said.

The new fiscal started off on a brighter note for large tanker owners, mostly due to increased long-haul voyages. From an average of $1,344 a day in the last quarter, rates for VLCCs moved up beyond the $8,000 mark in the second week of May. Shipping analysts say that with new refineries, especially in India, having capability to crack dirty crude, oil companies preferred to bring crude from Latin America for refining due to cheaper costs. Moving crude from Latin America to India would take somewhere around 40 days, while shipping the parcel from West Asia would take just four days. Experts report increased shale gas movement to have boosted tanker rates.

However, this positive movement has not significantly cheered up the industry. The International Energy Agency expects oil demand growth to remain muted in 2013 at 0.9 per cent to 90.6 million barrels a day due to unstable European environment, spending cuts in the US and weakening of commodity demand from China.

Although there has been an increase in scrapping of older vessels, supply overhang continues to be a worry. Close to 7.5 million DWT of dry bulk vessels went to the scrap yard during the January to March 2013 period, but industry captains feel that there should be more scrapping to shorten the demand-supply mismatch. In the tanker segment, less than two million DWT of crude carriers were scrapped during this period, as against nine million DWT in 2012.

Against this background, the shipping industry is stepping up on operational efficiency and better voyage planning to steer through what looks like another year of choppy freight markets.

Source: The Hindu Business Line