The Hindu Business Line : Katrina aftermath pushes up freight rates

THE Katrina hurricane may have wreaked havoc along the US coast, but its aftermath is now spreading ripples across the global freight market, which has begun to inch northwards. With the hurricane damaging refineries, the US has stepped up consumption of petroleum products, resulting in the firming up of the freight market.

For shipping companies, the first quarter of the current fiscal was bleak, as the freight rates plummeted, but from July it began to firm up.

Going by the futures market and other indications, analysts predict that the freight rate will continue to move up, in the aftermath of Katrina and the approaching winter, when US starts stockpiling oil.

The biggest gainers after the freight market began to firm up are the VLCC (very large crude carrier) owners, with the rates in this segment shooting up in July. Freight rates for VLCC are considered the benchmark and the rates in other segments such as Panamax and Suezmax tankers generally follow in that direction.

The VLCC earnings fell from an average of $36,404 per day in April this year to $26,103 per day in May and touched a bottom of $19,201 per day in June. The graph began to subsequently change course, with the average rate in this segment touching $23,239 in August. On September 8, shipping companies earned $25,648 for a VLCC run.

Of course, compared to the rates that VLCC owners got in September last year, these are still lower. In July, August and September last year, the average VLCC rates were $67,171, $54,201 and $56,826 per day respectively.

"Here you have got to take in to account that last year was an unprecedented year for shipping companies in terms of freight rates," an analyst pointed out.

The downward trend in the first quarter of the current fiscal has been attributed to factors such as rising crude stocks in US, the weak WTI-Brent spread limited interest in the west of Suez routes and low tanker scrapings.

But, after Katrina, the US has now begun to get large supplies of petroleum products, as its refining capacity is impaired.

Also, analysts say, its Strategic Petroleum Reserve (SPR) is also dwindling, which means the US will have to continue to import crude and petroleum products. Also, when the US begins its winter stockpiling, the demand will further grow.

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