The Hindu Business Line : Shipping freight rates may hit new trajectory

AFTER a softening of rates in early December, the shipping freight market is likely to hit a new trajectory, with the rates, especially in the tanker segment, beginning to trace an upward course.

Shipping analysts expect that the freight rates will continue its upward movement as the winter progresses and touch their peak in January, before another phase of "correction".

As the freight rates began to dip from their unprecedented highs in mid-November in the wake of a delayed winter in the US, more than normal rise in US product inventories and a cut in OPEC output, the bourses reflected this sentiment, with most shipping stocks recording a fall. But, analysts say, even the average rates of this month are more than double than those in last December.

"With the market now seeming to enter a new trajectory, it is expected to be in fine balance in the coming weeks, especially given the fact that most of the incremental oil supply is coming from long haul sources," according to an analyst.

The spot market freight rates in the VLCC (Very Large Crude Carrier) segment, which touched a record high of $1.7 lakh per day on November 10, fell to $1.06 lakh on December 17. Similarly, the Baltic Dirty Tanker Index touched a historic high on November 18 at 3,194 and since then it has corrected to about 2,290.

According to market reports, the average rate for a VLCC rose from $1.07 lakh per day in October to $1.52 lakh in November, before flagging to $1.37 lakh in the first 17 days of December. Similarly, in the Suezmax segment, the average rates swelled from $87,738 to $1.13 lakh in November, before stabilising at $87,258 in December.

The slight correction in December notwithstanding, the freight rates still reflect a sturdy trend compared to the rates prevailing last winter. The average VLCC rate in October, November and the first 17 days in December last year were $23,563, $66,018 and $72,018, respectively, less than half the rates that prevailed in the corresponding period of this fiscal.

But, while the average rates scaled up from $66,018 in October to $72,018 in the first half of December last year, this time around the rates fell from $1.52 lakh to $1.37 lakh.

"Typically the market peaks in early January, then corrects into the summer, but this year the market clearly seems to have peaked much earlier in November itself. But consider this: in 2003-04 winter the peak VLCC rate was $83,500 on January 23, 2004, but this year it touched a high of $1.7 lakh in mid-November and has now corrected to over $1.05 lakh. The point is these rates are still more than 50 per higher than the 2003-04 peak winter rates," an analyst pointed out.

It is thus felt that the freight rates will now begin to move up, especially given the fact that crude demand continues to be buoyant, with the International Energy Agency predicting a 1.7 per cent rise in demand in 2005.

"As we enter into 2005, we believe that the markets should average at least around the November-December 2004 levels, even taking into account the correction that takes place as winter gives way to summer," the analyst said.