The Hindu Business Line : Freight rates to be lower by 5 pc in 2006: SCI chief

THE Chairman and Managing Director of SCI, Mr S. Hajara, believes that freight rates will be lower by 5 per cent in 2006, due to an increase in number of ships. Excerpts from CNBC-TV18's exclusive interview with Mr Hajara:

Could you tell us what exactly is happening for the last two months in the shipping market?

Freight rates are staying firm but the shipping market because of the consumption of oil and gas always feels the winter effect. I must say that the shipping market over the last couple of years has stayed very firm and only in the first quarter of this year; there was a slight down turn.

However, it has been arrested and the rates have again gone north. We are very optimistic, of course there are plenty of ship deliveries taking place in the market which will continue till 2008, so that will put some pressure on the supply side, but nevertheless with the world economy doing quite well, and with all around improvement, we are quite optimistic about the shipping industry's fortune.

Where do you see rates stabilising in 2006, with relation to the average rates in 2005?

As compared to 2005, 2006 will be very marginally softer. The rates will almost remain the same as they were in 2005 or may get 5 per cent lower.

Could you break that up for us?

As a matter of fact, out of the 5 million DWT of my company, more than 3 million tonnes is into tankers only. So it is not a fact that the dry bulk market will affect our bottomline, we do have about 1 million tonne as dry bulk. Crude forms the main part of the fleet and definitely crude and other products affect our bottomline more than any other segment of the shipping industry.

Dry bulk has not been as firm as that of liquid bulk in the recent months. It has not crashed, but it has been slightly down since 2004. This upturn has mostly benefited crude and product sector more than the dry bulk sector. Dry bulk sector has not remained as firm as liquid bulk.

A word on the Chinese demand space. Has anything changed in the past month or so on that parameter?

No, nothing has changed and as a matter of fact, economists had very serious concerns about Chinese demands crashing, but fortunately China has come back with good demand for both dry bulk and liquid bulk. China happens to be the most important economy today for driving the world shipping markets.

I am very proud as an Indian and whenever anybody talks about the shipping market and world economy today, India is being talked about almost in the same breath as that of China. I am sure in India as we all know, 59 million tonnes of refining capacity is expected to be added in the next 3-4 years.

Coking coal import and thermal coal import are likely to go up substantially, iron ore export will go up substantially because 41 per cent growth is expected in iron-ore production. So I am sure India will emerge as an important economy in the years to come for the shipping market as well.

Have you been able to change or effect any increases in your long-term charter rates as well?

Long-term charter rates have also shown some increase but SCI does not go for charter rates for more than one year. Somehow as a policy SCI has been going in for a short-term time charter, and of course we have a contract of freightment with IOC, BPCL, and HPCL.

We have a long time charter only to the extent of a year or so with foreign charters but not beyond that.

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