The Hindu Business Line : Weak freight rates reverse gear for shipping stocks

INDIAN shipping companies might have reported handsome increase in their net profits in the last fiscal, but a weakening freight market appears to be playing spoilt-sport for these companies' stock price.

Stocks of shipping companies have registered a fall in the last week between 7 per cent and 10 per cent in the wake of a softening global freight market.

In today's trading, the Shipping Corporation of India stock closed at Rs 144.15, down 0.72 per cent on the BSE. Essar Shipping was down 0.76 per cent at Rs 32.75, Mercator Lines declined 0.48 per cent at Rs 82.85 and Varun Shipping was down by 3.38 per cent at Rs 37.15. However, Great Eastern Shipping gained 0.25 per cent at Rs 140.80.

According to analysts, the freight market trend was more pronounced in the VLCC (Very Large Crude Carrier) segment. From June 3 to 9, the VLCC rate plummeted from $22,991 per day to $17,758 per day, going by the market fixtures reported by various brokers.

Last year on June 9, the VLCC rate was as high as $63,169 per day. In fact, the VLCC rate fell from an average of $36,404 per day in April this year to an average of $26,103 per day in May, while in the corresponding months of 2004 the rates were $46,191 and $51,119 per day respectively.

Similarly in the Suezmax segment, the spot rates fell from $30,003 per day on June 3 to $24,439 per day on June 9 — the rate in the same segment was $44,811 on June 9 of 2004.

The trend was no different in the dry bulk sector. The first week of this month saw the Baltic Dry Index decreasing from 3,003 to 3,163, as against the over 4,000 level it maintained in the first week of June last year.

"Last year, the freight market touched unprecedented highs. So, this correction is only to be expected. It is felt that the market will further weaken and pick up only from September or October," a shipping analyst said.

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