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Shipping companies had to navigate a sedate freight market in the last three months after experiencing some spikes in the tanker and dry bulk rates during the December-January period.
Earnings pressure Shrinking trade volumes, especially those from China, and the glut in the shipping tonnage due to addition of new vessels led to the fall in freight rates. “We expect the markets to pick up from the current low levels after July-August, as there are indications that Chinese export-import trade could gather some momentum,” says AR Ramakrishnan, Managing Director of Essar Shipping. Last quarter earnings will thus be under pressure for most shipping companies, especially those which have substantial presence in the spot market, where rates were lower than long-term charter rates, analysts say.
Touching an average of 2155 in December last, the Baltic Dry Index, which measures shipping cost of dry bulk cargo across key routes, fell to below 1,000 levels in the second half of April. “A capesize ship that fetched $25,000 to $30,000 a day in December is today getting hardly $10,000 in the spot market,” Ramakrishnan told Business Line .
Similarly, the rate for a very large crude carrier, which peaked to an average of $45,000 a day in December, has now slumped to below $15,000 levels.
The rates are slightly better in the long-term charter market. Essar, for instance, has about 25 per cent of its fleet in the spot market and is now focussing more on short-term charters of between three and six months, expecting signs of revival in the latter half of the year.
Fleet expansion Addition of new ships to the existing fleet continued to keep the freight market flat. Last fiscal saw addition of some 80 million deadweight tonnage to the global shipping fleet to the extent of creating a glut in tonnage, as cargoes shrank. Asset prices too rose from their low levels – for instance, a capesize that was available for $40 million some months ago today has a tag of between $55 million and $60 million.
Shipping firms are now cautious on the buying front, while hoping for the markets to firm up towards the end of the fiscal.
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