The Hindu Business Line : Shipping firms ride high on buoyant dry bulk rates

When a global shipping major recently bought a contract of a cape-size bulk carrier for a whopping $105 million and that too for delivery after one year, the message that beeped across the world's shipping community was clear — the bulk cargo freight market is going to gain buoyancy in the months to come.

Indeed, shipping companies are reverting their focus on bulk cargo, with the freight rates in this segment firming up significantly in the last few months. Economic growth and urbanisation in emerging markets, especially in the BRIC (Brazil, Russia, India dn China) and Far East and increasing global production have been pushing up freight rates in the bulk cargo segment.

Good news from Budget

Indian shipping companies too are joining the race for bulk cargo with vigour. For Indian shipowners engaged in bulk cargo movement, there was one more nugget of good news in the recent Union Budget. Imposition of an export duty of Rs 300 on export of iron ore from India may have turned iron ore exporters into a disgruntled lot, but for the shipping industry this was good news. For, China, which imports about 23 per cent of its iron ore from India, will now have to source the ore from Brazil. And this means longer haul, read more earnings, for the shipping companies.

Industry analysts, in fact, point out that increasing voyage lengths, as dry bulk ships are now travelling longer distances, is one of the factors shoring up freight rates in this segment.

Another factor that boosted dry bulk rates is the congestion at Australia's New Castle port, arguably the world's largest coal handling port. Reports indicate that about 70 ships are at present waiting at the port to be loaded. With the congestion significantly delaying the turnaround time of ships and vessels getting held up at the port, the freight rates in the dry bulk sector have shot up significantly in the last few weeks. For example, the spot rates of bigger dry bulk vessels surged by over 90 per cent to touch $70,000 per day last week, as compared to the same week last year.

Yet another factor contributing to the trend is the tonne-mile demand. In the dry bulk segment this is estimated to have increased by about 6.5 per cent in 2006.

The total quantity of dry bulk cargo being hauled all across the globe has also steadily increased from 2,538 million tonnes in 2004 to 2,792 million tonnes in 2006 — it is expected to touch 2,900 million tonnes by the end of 2007. Bulk cargoes include coking coal, steam coal, grain and iron ore.

Tonne-mile demand

The Baltic Dry Bulk Index at the end of the first week of January 2007 was 4421, which was almost 80 per cent more than what it was in the same week of January 2006 (2438). "Relatively higher crude prices would keep coal fired power plants running at high capacities and provide strong demand for thermal coal. Tonne-mile demand growth is expected to continue, especially in the cape-size sector, while Chinese demand is expected to be strong with 2008 Olympics being the catalyst, which will increase prominence of infrastructure development in mid China and Eastern China. All this indicate that freight rates in this segment will remain strong in the near term," an industry analyst said.

Movement of grain to Australia, which is facing drought conditions for the first time since 2003, is also expected to fuel seasonal demand of dry bulk ships as well.

Indian shipping companies operate a fleet of 70 dry bulk carriers, the biggest players being Shipping Corporation of India, Great Eastern shipping and Mercator Lines. GE Shipping expects to take delivery of two bulk carriers in this quarter, while other companies are scouring for such vessels.

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