The Hindu Business Line : Growing from better fleet management

SHIPPING companies appear to have become significantly matured in their fleet management techniques, going by the second-quarter results that they have reported.

Despite a 30-40 per cent fall in global spot freight rates and a steep rise in fuel prices in the wake of a surge in crude prices, most shipping companies reported an increase in net profit during the quarter compared to the corresponding previous period.

Analysts attribute this trend to better fleet distribution in the spot and long-term contract markets by the shipping companies.

Except for Shipping Corporation of India (SCI) and Essar Shipping, most companies, such as Great Eastern Shipping, Varun Shipping, and Mercator Lines, registered an increase, though marginal, in second-quarter profits.

What bailed out these shipping companies was their fleet management technique, which involves less exposure to the spot market and more bookings under long-term contracts.

"Although SCI owns India's biggest tonnage, its profit for the quarter was only Rs 149.93 crore, against Rs 210.13 crore earlier. One reason for the fall could be its overexposure to the spot market," a shipping analyst said.

While GE Shipping reported 6 per cent jump in second-quarter profit to Rs 177.45 crore (Rs 167.18 crore), Mercator and Varun Shipping reported figures of Rs 35.34 crore (Rs 31.64 crore) and Rs 43.37 crore (Rs 21.19 crore) respectively.

GE Shipping had a significant slice of its fleet covered in the long-term contract market.

A company official said: "About 60 per cent of our crude fleet is covered till March 2006, and in terms of revenue days, 86 per cent of our product fleet and 35 per cent of the dry bulk fleet is covered. The long-term contracts are typically up to 12 months, but could go up to 24 and even 36 months."

Spot market dips: Going by reports, the spot market experienced a significant dip during the quarter.

While very large crude carriers (VLCCs) earned an average of $30,000 a day in the spot market (against $49,000 a day in the corresponding previous quarter), Suezmax and Aframax tankers earned $22,000 ($34,000) and $18,000 ($21,000) respectively.

Even in the dry bulk segment, the fall was marked: the spot market earning of a handymax vessel in this category was $17,000 against $20,000 earlier.

Analysts, however, said that there were indications of the spot market firming up towards the end of the quarter, giving rise to hopes that the third quarter would be relatively better than the second.

For example, the Baltic Dirty Tanker index, which was at 1,194 on July 1, dipped to a low of 973 during the quarter and scaled up by 56 per cent to 1,514 on September 30 (1,962 on September 29, 2004). As on October 26, 2005 it was at 2,254.

The two hurricanes that lashed the US coast were initially responsible for firming up the product market, and the impact subsequently percolated to the crude market.

On the dry bulk side, China increased its intake of iron ore in September and October, which again resulted in the firming up of the dry bulk spot market.

"There are enough indications that the current quarter will be better than the previous one for the shipping companies," an analyst said.

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