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Amit Mitra

Mumbai , July 22

AFTER steering through bleak days during the last three months, Indian shipping companies now seem to have partying days ahead. This comes in the wake of global freight rates showing signs of firming up, after flagging steadily in the last quarter.

Going by the futures market and other indications, shipping analysts predict that the freight rate will continue to move up, especially as demand for oil in the US is rising as it starts stockpiling for the winter.

The biggest gainers after the freight market began to firm up are VLCC (Very Large Crude Carrier) owners, with the rates in this segment shooting up by nearly 100 per cent in less than a month. Freight rates for VLCC are considered the benchmark and the rates in other segments such as Panamax and Suezmax tankers generally follow in that direction.

Take, for instance, the World Scale (WS) index. It fell from 50 on June 1 to 52 on June 15, after which it rose to 70 on July 1 and touched 100 on July 15, representing a nearly 100-per-cent rise in one month.

Typically, at WS index 125, a VLCC would earn nearly $75,000 per day in freight rates. Even in the futures market, as per the Marex Exchange working in Norway, the rate for the fourth quarter of 2005 moved up from WS 110 on June 1 to 125 by July 15.

Said a shipping analyst: "At this rate the WS index may settle between 140 and 170 during the winter period. Charterers have started fixing VLCCs around 40 days in advance, which is a sure sign of the hardening of freight rates."

Even if viewed from the perspective of tanker earnings, the trend becomes clear. The VLCC earnings fell from an average of $36,404 per day in April this year to $26,103 per day in May and touched a bottom of $19,201 per day in June. The graph began to change course in July, with rates climbing up to $30,081 on July 8, $34,043 on July 13 and $39,300 on July 19.

Of course, compared with the rates in the same segment that VLCC owners got in July last year, these are still less. In July last year, the VLCC rates were upwards of $64,000 per day.

"Here you have got to take in to account that last year was an unprecedented year for shipping companies in terms of freight rates," an analyst pointed out.

The downward trend in the last quarter has been attributed to factors such as rising crude stocks in the US, the weak WTI-Brent spread limited interest in the west of Suez routes and low tanker scrapings.

Explained an analyst: "Most of the AG crude stocks is linked to Dubai or Brent and the spreads are weak.

Therefore, chartering trends from the Middle East showed that more than 70 per cent of the crude exports from the region are moving to the Far East.

The skew towards the short haul Eastern trades has resulted in the reduction of tonne miles, oversupply of tankers in the Arabian Gulf and significant weakness in the VLCC market during this period."

Now, however, it appears that things are about to change. With the US demand rising, the International Energy Agency (IEA) has predicted a demand growth of 1.7 million barrels per day in the last quarter of 2005.

Thus, ship owners, especially in the VLCC and tanker segment can expect a steady rise in earnings in the ensuing months.

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