The Hindu Business Line : Shipping cos see higher Q1 net despite soft spot freight rates

DESPITE the softening of global shipping spot freight rates across all asset classes, Indian shipping companies notched up significant increases in their incomes and net profits for the first quarter of the current fiscal as compared to the year-ago period.

The companies have attributed different factors to the jump in their net profits, including a sharper focus on period charters, which earned better rates than the spot market.

The other factors were higher revenue days, sale of vessels and improved day rates achieved on spot fixtures.

Except for Shipping Corporation of India (SCI), most of the major shipping companies have reported an increase in their income and net profit.

SCI's net profit came down from Rs 318.50 crore in the first quarter of last fiscal to Rs 274.07 crore for the quarter ended June 30, 2005.

Its income also flagged from Rs 894.81 crore to Rs 815.92 crore during this period.

Analysts have attributed the fall in SCI's profit to a drop in its tonnage, as the company, bound by Government restrictions, had not been able to buy ships, while it had to scrap some of its vessels.

Also, unlike other companies, SCI could not sell any of its vessels.

The private sector shipping companies, on the other hand, raked in significant increases in profits.

Great Eastern Shipping reported an increase in net profit of 245 per cent (from Rs 102.43 crore to Rs 353.42 crore).

Mercator's jump was 102 per cent (from Rs 20.66 crore to Rs 41.92 crore). Varun Shipping posted a 268 per cent (from Rs 7.29 crore to Rs 26.81 crore) and Essar Shipping recorded a 263 per cent increase (from 30.37 crore to Rs 110.37 crore).

These increases would look significant, if the fall in global spot freight rates are taken into account — normally, a shipping company's earnings are directly linked to freight rates. Analysts say that tight oil markets during the quarter had resulted in the spiralling of oil prices.

At the same time, tanker demand growth was unable to keep pace with the 1.9 per cent growth in the tanker fleet, resulting in a sharp fall in spot freight rates.

The worst hit was the very large crude carrier (VLCC) segment.

While the average VLCC spot rate for the first quarter of last fiscal was $53,290 per day , it tumbled to an average of $26,519 last quarter.

Similarly, the rates in the Suezmax segment fell from $39,069 per day to $29,670.

The Baltic Clean Tanker Index, which was 1,276 on April 1 2005, settled at 1,122 on June 30, 2005.

The dry bulk rates also softened during the quarter, primarily due to an increased fleet growth and reduced port delays.

Most of the shipping companies could partly offset the fall in spot freight rates by increasing their focus on period charters, which are booked in advance and hence fetch better rates than those prevailing in the spot market.

In this, G.E. Shipping benefited the most, with its operating margin at 82 per cent being the highest as compared to other shipping companies during the quarter.

The operating margin of Mercator was 51 per cent, while that of SCI was 43 per cent. Varun Shipping posted an operating margin of 55 per cent and Essar Shipping, 58 per cent.

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