The Hindu Business Line : Tanker freight rates at all-time high

IT will be a `hot' winter for the shipping industry. Usually the surge in winter demand for oil heats up the tanker freight market to its peaks during the coldest months, but even at this time of the year the freight rates, especially for Very Large Crude Carriers (VLCCs), are at an all-time high.

The shipping industry is gearing up to cash in on the expected flare-up in demand for oil movement in the coming months.

Going by the market fixtures reported by various brokers, the freight rate in the VLCC segment hovered between $51,000 and $54,000 per day in August. The average rate in the VLCC market was $53,290 per day in the first quarter of the current fiscal, as against $36,456 in the corresponding quarter of last fiscal. Considering the fact that the average rate soared from $26,472 per day in the second quarter of last fiscal to $64,124 per day in the last quarter, industry analysts feel that a similar increase could be witnessed this time around, as winter demand for oil picks up.

Similar trends were noticed in the Suezmax sector — the spot rates for the Suezmax market touched an average of $39,069 per day in the first quarter of the current fiscal, against $31,834 in the corresponding quarter of last fiscal.

The rates have been buoyant even in the dry bulk sector so far this year. For example, the Baltic Handymax Index (BHI) clocked an average of 25,473 points in the first quarter of the current fiscal, against 13,149 points in the corresponding quarter of last fiscal.

Analysts have recorded a higher growth rate in the crude oil consumption patterns in the far and south Asian markets, as compared with the Western market. "Currently, China and the rest of Asia are growing at about 0.25 million barrels per day each, but by 2020 it is expected that China alone will have a growth rate of three million barrels per day and the rest of Asia about 4.5 million barrels per day," says an analyst.

For VLCC owners, the going will especially be good in the months ahead. For one, the present VLCC supply-demand balance is seen as extremely tight — in 2003 the VLCC fleet level in the world was about 120 million DWT, including 37 new deliveries, with a utilisation level of 89 per cent.

The buoyant sentiment is reflected in the way most Indian shipping companies are now looking out for acquisition of VLCCs, even though the second-hand market for such carriers is quoting an all time high rate, given the guaranteed returns that these would earn in the coming months.

For Indian shipping companies, going in for VLCCs has acquired a new sense of urgency, as Indian oil companies are waking up to the benefits of transporting oil in VLCCs, after importing crude oil in smaller ships for the last 40 years. The reason is not far to find — at prevailing market rates, cost of transporting crude on VLCCs is about 60 per cent that of smaller Suezmax tankers, which are half the size of the large carriers. "One can work out the economic benefits, given the fact that at current market rates, cost of importing crude from the Middle-East to the West Coast of India on a Suezmax is about $6 per tonne. Similarly to ship crude from Basra in Iraq to Vadinar in Gujarat, the VLCC route would be cheaper by Rs 13 crore per million tonnes, as compared with the Suezmax route," according to analysts.

Moreover, India gets around 15 parcels of VLCCs a month, while the Indian tonnage is not sufficient to service the full trade. "This means, for a VLCC owner, there is a market right in India," say analysts.