The Hindu Business Line : Shipowners gearing up for gloomy days

Plummeting freight rates and a sharp drop in earnings as a fall-out of the economic slowdown continue to stalk Indian shipping companies. Having had a smooth sail till a few months back, shipowners are now gearing up for gloomy days.

Fall in freight rates

Freight rates, especially in the dry bulk, sector continue to drop, as demand for iron ore and coal movement to China are yet to pick up — about 90 per cent of incremental demand on dry bulk cargoes globally actually emanate out of demand in China.

Tanker owners, which have not yet faced the kind of pinch that owners of bulk carriers had, also fear that freight rates may fall, especially with OPEC recently announcing 1.5 million barrels a day cut in supply, effective from December.

Although this would have a negative impact, the movement of tanker freight rates will, however, depend more on the kind of winter demand that emerges in the coming weeks.

Analysts say that the drop in volume in the dry bulk sector in the last few weeks would be about 90 per cent.

Slowdown in trade

A recent report by Gupta Equities feels that the drop in BDI was primarily due to the slowdown in iron ore trade. Industry sources say that in certain asset classes such as capsize vessels, many ship owners are barely managing to rake in daily earnings only slightly above operating costs and, in some cases, even below the breakeven level.

In fact, there have been instances in the last few weeks of many shipowners globally keeping their vessels idle, not willing to participate in any fresh trades.

Shipowners fear they make have to take the extreme step of mothballing ships at designated places for a year or longer, if earnings fell below operating costs for six months. Analysts, however, maintain that it is now too early to say if such steps may be taken by shipping companies globally.

Deploying other assets

Some shipping companies are trying to make up for the shortfall in cash recovery from the current spot rates in certain categories of ships by deploying other assets.

For example, smaller ships are more in demand as the parcel size of commodities being ships get smaller.

Shipping analysts feel that gloomy market conditions will continue in the current quarter and the next quarter, especially with many Chinese steel mills cutting production sharply as the country faces a surplus in its steel inventories.

In fact, recent time charters on the dry bulk segment were at a very marginal premium to spot rates, with the level of chartering itself being at a low level.

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