The Hindu Business Line : Rising freight rates cheer VLCC operators

When Thai Oil, a subsidiary of Thailand's State oil conglomerate, fixed a Kristen Navigation VLCC recently for moving 2.8 lakh tonnes of crude from West Asia for October 15 at a whopping $1,06,000 per day, there was a gasp from the shipping industry. And quickly the gasp turned to cheer, as VLCC rates began to hit the roof, as an immediate fall-out of the Thai Oil booking.

Indeed, never had the going been so good for Indian VLCC owners like Great Eastern Shipping, Mercator Lines and Essar, with the freight market boom bolstering their bottomlines and pushing up their stocks on the bourses — in fact, the stock of Mercator hit a 52-week high on Tuesday.

The spot market for VLCC saw a sharp increase in the last few days.

Going by the fixtures of various brokers, the spot rate for VLCC shot up from $42,718 per day on September 4 to $62,263 on September 21 and $76,614 on September 27.

While the average rate during 2003-04 was $26,470 per day, last month the average rate touched the $54,200 mark.

The VLCC rates from West Africa to the US reached close to the $90,000 mark, while rate for Suezmax tankers on the West Africa to US East Coast route jumped to $55,500 per day.

Oil cos feel pressure

Indian oil companies, already pressured by rising crude prices, claim the increase in freight and demurrage costs will hit them hard. Indian Oil Corporation, country's largest crude importer, expects its monthly freight bill to double to around Rs 170 crore.

"This is definitely going to have a serious impact on us," said a senior Indian Oil official. "Already this year, our freight bill had gone up to Rs 110 crore in July compared with around Rs 83 crore same time last year." The official said IOC expects its freight bills to stabilise at around Rs 170 crore a month, if the current trend continues. Of the Indian oil companies, very few deals are done through a time-charter.

Most VLCCs are hired on a voyage-charter basis. The current jump in freight rates would affect Indian Oil, which imported 29.28 million tonnes (mt) of crude and petroleum products while HPCL and BPCL imported around 9 mt and 4.5 mt crude oil last year. The new record set in freight futures indicates another tanker rate bonanza. In fact, Thai Oil's booking for October 15 significantly increased freight rates last week.

"October freight futures for VLCCs trading on Imarex in Oslo hit W160 on Tuesday, an all-time high and indicative of a very bullish market sentiment," according to an analyst.

"The winter demand is yet to come. Generally, the freight market for VLCCs touches its peak in the winter months, when there is increased movement of oil." he pointed out.