The Hindu Business Line : Shipping lines buoyant despite freight dips

FREIGHT RATES, especially in the tanker segment, may have dipped in recent weeks, but shipping companies have much to cheer about, as they see the market firming up in the coming months. The recently revised estimates of oil demand by the International Energy Agency (IEA) and the reports of increased freight demand from China are the major factors that have bolstered the confidence of the shipping companies. The dipping of freight rates itself has been a subject of debate in shipping circles, with some claiming that there has not really been a fall.

"I do not think the market has actually dipped. Yes, there is a slight fall in the VLCC (Very Large Crude Carrier) rate, but this should not be taken as an index," says Mr J. K. Mittal, chairman and managing director, Mercator Lines Ltd.

Going by the spot market figures from different sources, the VLCC freight rate flagged from $46,645 a day on March 3 to $33,612 on March 8 and $30,290 on March 10. This can be called a dip, considering that on March 10 last year, the VLCC rate was $63,836 per day.

Even taking the average VLCC rate the last few months, the dip is evident. The average rate in November and December 2004 was $1,52,855 and $1,18,244 respectively, which dropped sharply to $35,319 in January before clawing up to $73,833 in February.

Says Mr. Mittal: "Here, you have to take into account the fact that the VLCC segment is very volatile. Take our case. We booked our VLCC at WS (World Scale) 150 about 20 days ago and then at WS 125 about 15 days ago. On the morning of March 11, it dropped to 65 WS, but by the same evening it climbed to WS 90. Even the freight futures in this segment are between 125 and 150 WS for the whole of this year." The trend in other tanker segments was slightly different. For example, the Suezmax rate came down marginally from $41,691 per day on March 3 to $40,975 on March 10, while that in the Aframax segment went up from $31,895 to $33,294 during this period.

Similar was the case in the dry bulk sector. The Baltic Dry Index (BDI) went up marginally from $4,619 on March 3 to $4,791 on March 10, while the Baltic Capesize Index (BCI) climbed from $6,153 to $6,293 during this period. In the corresponding period last year, the BDI and BCI were ruling at over $5,100 and $6,500 respectively.

However, shipping companies are bullish on the outlook for the coming months, projecting the increased oil demand and China's rapid economic growth as the key drivers. In its latest estimates released earlier this month, the IEA has raised the global oil demand forecast by 330 kilo-barrels per day to 84.3 million barrels per day for 2005.

The revision was attributed primarily to the very cold weather in late February and early March, a more robust view of the US economic growth and China's oil demand growth prospects. "Everybody is looking to China with wonder. China is keeping the world busy by importing huge amounts of raw materials and other products.

Chinese charterers are expected to play a major role in the coming years, as the country plans to increase its crude oil refining capacity by 52 million tonnes per year to reach 332 million tonnes by 2010," a shipping industry analyst pointed out.

According to the IEA report, the world oil supply rebounded by 885 kb/day in February to 84 mb/day. Non-OPEC added 445 kb/day, with the recovering North American and North Sea supplies. OPEC's February crude supply rose by 390 kb/day to 29 mb/day on increased supplies from Kuwait, Nigeria, Saudi Arabia and Iraq.

Other reports indicate that to meet this increased demand, shipping companies the world over have placed significant orders for new vessels. It is expected that up to 45 per cent of the world's container fleet and 20-25 per cent of the cape-size bulk carriers will be added in the form of new capacity by 2008.

On the basis of these projections, shipping companies do not appear to be flustered by the slight correction in the freight market. "We expect the market to remain steady in 2005.

We also feel that there will be substantial investment by Indian companies in tonnage acquisition in the course of the next few months," an official with a shipping company pointed out.

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