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Amit Mitra

Hyderabad, Oct. 19

Shipping companies are likely to report lower earnings for the second quarter of the current fiscal, with the global freight markets remaining lacklustre during the period.

The freight market, both in the tanker and the dry bulk segments, fell steadily during the three months in the spot market and plummeted to levels far below those that prevailed during the year-ago period.

Bleak outlook

There were no definite signs of recovery even by October first week and analysts expect the market to stay weak in the coming months.

Shipping companies do not appear to be bullish on their earnings in the coming quarters, with most betting on the long-term to duck uncertainties in the spot market.

"Earnings from shipping remains uncertain, as global economies are still recovering. It is not going to be easy to judge how long this will take - it is going to be a long process. No one can really put a number to earnings.

Outlook for the next 12 to 18 months is not very bullish. Over supplies will further hit freight rates in the coming months," says Mr V. Ashok, Director of Essar Shipping Ports and Logistics Ltd.

In the tanker segment, the earnings a day for a very large crude carrier (VLCC) fell from an average $17,247 in June to $5,128 in July, $5031 in August and $3212 in September.

Ship owners got an average $4514/day for a VLCC during the second quarter against $11,209 in the first quarter of the current fiscal. This is way below the average earnings of $94,335 and $67,208 during the first and second quarters of the last fiscal.

Suezmax segment

Similarly in the Suezmax segment, the average earnings a day during the second quarter of this fiscal were $3362 against $10,482 in the first quarter. Last fiscal, shipping companies received about $63,312 and $51,143 a day during the first two quarters respectively.

In the dry bulk side, things were no better. The Baltic Dry Index (BDI), an indicator of the cost of shipping key commodities such as grains, iron ore and coal across major sea routes, flagged from 3,823 in June to 3,362 in July, 2,685 in August and 2,351 in September. During the entire second quarter of the fiscal, the BDI hovered around an average of 2,811 compared with 7,104 in the corresponding quarter of last fiscal.

"Overall, freight rates for tankers have fallen about 40-60 per cent over last year, while dry bulk carriers earn about 70 per cent less than last year," an analyst said. He added that India and China are the key growth drivers and the freight market movement will largely hinge on how these two countries rev up their economies.

To hedge themselves from the risk of the uncertainties in the freight market, shipping companies are increasingly deploying their ships in the long-term market on a fixed rate basis, although the spot market is usually known to yield better returns. Says Mr Ashok of Essar Shipping: "To insulate our company from the cyclicality of day rates acrosssegments, ESPLL has put most of its vessels on long-term contracts. Some of these vessels will come up for renewals in April 2010."

More Stories on : Shipping/Ports | Outlook | Financial Performance

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