Economy

Freight market picks up, but ship owners cautious still

Amit Mitra Hyderabad | Updated on March 10, 2011 Published on March 10, 2011

Turnaround time: A file picture of a very large crude carrier.





Revival of coking coal exports from flood-hit east coast of Australia and iron ore volumes from Brazil have nudged up global freight rates in the last three weeks, as movement of commodities gathered pace from the damp levels in January 2011.

Outlook

But ship owners are still cautious on their outlook on the freight market for the next six months, as demand for commodities is not yet picking up even while new ships are joining the global fleet to scout for cargoes.

Another fact that can impact the freight market adversely is the situation in Libya and other countries, which, analysts feel, can force ship owners to take longer routes to deliver the cargoes. “From the perspective of the industry, we continue to have a cautious outlook for the freight market for the next six to 12 months.

Well hedged

“But as a company, we are well hedged, as almost our entire fleet of 25 vessels are on long term contracts ranging from three to five years,” Mr A.R. Ramakrishnan, Director of Essar Shipping, Ports and Logistics Ltd (ESPLL), told Business Line. Shipping analysts say long term rates (between 3 and 5 years) are some times thrice the rates in the spot market.

Tankers

Both the bulk and tanker segments have shown signs of a pick-up. Earnings of a very large crude carrier (VLCC), which fell from an average of $ 7,365 a day during the October to December 2010 quarter to $2,754 in January 11, picked up to a level of about $20,000 a day by mid-February to touch $15,615 in the first week of this month. Similarly, on the bulk size, the Baltic Dry Index (BDI) firmed up marginally from 1,181 in the first week of February to 1,317 on March 3, 2011.

Iron ore movements

Analysts estimate that the shortfalls in ore movement from Australia due to severe flooding in Queensland in December and January, coupled with weather-related delays to iron ore shipments from South Africa and Brazil, measured up to about five per cent of the global coal and iron ore trade.

“Freight market trends in the coming months will chiefly hinge on the demand pick-up for key commodities and the pricing of the raw materials. For example, the rise in iron ore prices may stifle demand for the commodity. Also, China's tightening of monetary policy and its push for energy conservation will have an impact on the market,” Mr Ramakrishnan said.

Analysts feel that the addition of new ships in the global fleet, which is estimated to be 25 per cent of the existing fleet in the next two years, will keep a lid on freight rates, especially in the bulk segment.

Published on March 10, 2011
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