Somali pirates make Indian coal consumers pay more

Somali pirates are adding to the costs of the South African coal imported by Indian consumers from the Richards Bay Coal Terminal (RBCT).

Freight rates from RBCT to Indian West Coast have shot up by about a fourth in past few weeks as shipping lines take alternative routes by avoiding the traditional route along the East Coast of Africa, which is infested with piracy. This has resulted in increased voyage time by about three days to around 17-18 days.

“The freight rates have gone up by about $4 per tonne in the past couple of weeks from Richards Bay to the Indian West Coast due to the increase in bunker rates,” said Mr James O'Connell, Managing Editor, Platts International Coal , the energy information provider.

Transportation costs for each tonne of coal on Panamax vessels works out to about $20 per tonne from RCBT to the Indian West Coast. Now it costs around $25 per tonne, said Mr Kishore Sippy, Managing Director of Swaraaj Shipping & Logistics Pvt Ltd.

“Vessels are now going all the way near Colombo before heading north to the Indian West Coast. While existing contracts are not affected by the hike, the future quotations could get affected,” Mr Sippy added.

India has emerged as the largest buyer of South African coal, displacing Europe, and accounted for a third of 63 tonnes that RBCT exported.

Indian National Shipowners' Association (INSA) CEO, Mr Anil Devli, said “Freight charges have gone up recently due to diversion by ships importing coal from Africa. But, to India, about 20 per cent of coal imports come from Africa – that too primarily from South Africa, from where the diversion required is not very high.”

Use of longer routes leads to higher bunker (fuel used in ships) consumption.

“Looking at the bunker consumption, a coal laden Supramax doing round trip from Richards Bay to Mundra, for instance, will have to spend about three days extra at sea to avoid the piracy affected route translating into an additional daily bunker cost of approximately $2,500 per day,” Ms Shalini Shekhawat, Analyst, Dry Bulk Shipping, Drewry Maritime Services, said.

However, on a long-term basis, there has been a decline in charges.

“The rates for round trip from EC India to Richards Bay, and back to India, (for the standard 55,000 dwt Supramax bulker typically used on the route) has only been falling since the early 2010 till this point. For instance, from $17,500 per day in mid-2010, the daily trip rate on the route has fallen to $14,000 per day in the latest reported data,” said Ms Shekhawat.

Explaining the fall in rates, Ms Shekhawat said, “Even as Somali piracy meant vessels having to spend more days to ship the cargo, the overall decrease in dry bulk freight rates (due to excess supply of ships) led to the decline. Moreover, since in trip chartering, the bunker costs have to be covered by the charterers, the fall in trip rates also reflects the charterers attempt to shift part of increase in the bunker costs because of longer hauls onto the ship owners by bargaining for lower trip rates.”

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