The Hindu Business Line : Shipping cos make most of freight market boom

Reporting handsome margins in the just ended quarter, shipping companies are gearing up to make major investments for fleet acquisition, as the boom is expected to last at least till 2005-06, after which, market analysts feel, there could be a market correction in the wake of over supply of new ships.

Great Eastern Shipping, the country's largest fleet owner in the private sector, came out with the best third quarter results, which mirrored an increase of 130 per cent in net profit, as compared to the profit in the third quarter of last fiscal, to touch the Rs. 110-crore mark.

During the last nine months, its income soared to Rs. 947.47 crore, as against Rs. 727.6 crore recorded during the first nine months of last fiscal.

Shipping Corporation of India (SCI), India's largest fleet owner, also reported handsome profit, although it could not make the best use of the boom period as it had not been permitted to make any major investments for fleet expansion in the light of its on-going disinvestments programme— it had recently been given the go-ahead to make investments up to Rs. 300 crore by the Government.

The company's net profit during the quarter rose to Rs. 133.23 crore from Rs. 76.22 crore registered in the third quarter of last fiscal, which represents an increase of 74.79 per cent. During the nine-month period, the company's profit stood at Rs. 369.85 crore, as against Rs. 147.29 crore during the first nine months of last fiscal.

Essar Shipping, which is in the race for the majority stake holding in SCI, has reported a net profit of Rs. 36.84 crore, which is up from 16.36 crore in the third quarter of last fiscal, representing an increase of 125 per cent.

Its income also rose from Rs. 122.85 crore in the third quarter of last fiscal to Rs. 148.47 crore this fiscal, up by 21 per cent. Varun Shipping's net profit during the quarter reflected a 259 crore increase— it swelled from Rs. 2.70 crore last fiscal to Rs. 10.04 crore this fiscal.

What has been driving the freight market boom? Says a senior official of Great Eastern Shipping: "the third quarter has been exceptional for the dry bulk markets, as freight rates have been on a meteoric rise. In fact, we have seen that Capesize, Panamax and Handymax segments earned the highest ever freight rates during the last quarter. Chine undoubtedly continued to be the major factor behind the surge in freight rates." Indeed, the Baltic Handymax Index (BHMI), which indicates the freight market movement, shot up from 15,763 on October 1 2003 to 26,593 on December 31 2003 and as on January 29 it stood at whopping 30,213.

Even the tanker market, which was relatively subdued in the second quarter, witnessed buoyancy in the third quarter, with China surpassing Japan to become the world's second largest oil consumer. Market analysts said that increasing long-haul trades, strong winter demand in the Northern Hemisphere, congestion in the Bosphorus Strait and migration of Oil Bulk Oil vessels (OBO vessels are capable of carrying both wet cargo and dry bulk) to the dry bulk trade had positively impacted the tanker market earnings.

The Baltic Clean Tanker Index and the Baltic Dirty Tanker Index, which were 869 and 1006 respectively on October 1 2003, increased to 1099 and 2242 on December 24 2003— they stood at 1317 and 2048 respectively on January 29. "Crude carriers recorded an average TCY (Time Charter Yield) of about US $ 22,600 per day during the quarter, as against $ 21,900 per day in the third quarter of last fiscal," the official of Great Eastern pointed out.

Market analysts feel that the strong recovery led by China and the US is expected to boost world oil demand, while Japan's nuclear plants continue to depend on oil, as they are not fully operational yet (six out of the 17 plants are in operation). Further, the rising natural gas prices have resulted in switching over to oil. "The tanker freight rates are expected to remain healthy, especially with US commercial petroleum stock levels at a 28 year low," an analyst pointed out.

Thus, going by all these indications, shipping companies will be sailing on a steady course towards higher profits in the coming months.