Bulk shipping rates sink further as cargo volumes dip

Global non-oil trade volumes shrank further, plunging the shipping markets deeper into gloom in the last few weeks.

The Baltic Dry Index, which measures cost of shipping of dry bulk cargoes, sank to just above 500 levels, the lowest in about the 30-year old history of the index.

While a few ship owners are optimistic about a quicker recovery, AK Gupta, Chairman and Managing Director of Shipping Corporation of India, strikes a more realistic note. “The (dry bulk) market is in shambles. I do not think there will be any meaningful recovery before two years,” he told BusinessLine on the sidelines of an event here last week.

He attributed the plunge of the index to shrinking cargo volumes and over supply of ships in the market.

SCI, India’s biggest ship owner, operates 17 dry bulk ships, out of its total fleet of 69 vessels.

The index first hit its lowest in the first week of February when it dipped to 560 levels — it tanked from 1,300 in mid-November to 800-odd in mid-December. Before this, the lowest the index had touched was in February 2012, when it slipped to below 700. At its peak since the index came into existence, it touched close to 11,000 in May 2008.

Gupta said, at current levels, dry bulk vessels were struggling to get daily hire charges of between $4,000 and $5,000 a day. “This is barely sufficient to breakeven on a voyage,” he says.

The situation has worsened as too many ships are chasing the shrinking volumes.

On March 9, a cape-size vessel got a daily charter price of $4768, while a Panamax got $4707, as against their year-ago rates of $24,748 and $8,757 respectively.

Globally, shipping companies are trying different methods to reduce current exposure to bulk markets. One trend has been that ship owners, who placed orders for new bulk carriers, are trying to convert these ships mid-way during construction into tankers, which are commanding better freight rates. There have been reports of cancellation of orders too.

“With regard to cancellations, a lot of it does not come out (in the open), but some of the companies have publicly converted or announced conversion of dry bulk orders to tanker orders. So Capesize vessels have been converted to LR1 tankers or LR2 tankers. But it is few and far between,” Shivakumar, Group CFO of Great Eastern Shipping, said at an analysts meet last month.

Shipping companies are being somewhat compensated by the better buoyancy in the tanker segment, as lower crude prices have increased demand for shipment of the oil. Gupta said traders are even hiring very large crude carriers (VLCCs) just to store the crude.

“At least 35 VLCCs are being used for storage globally — so those many ships have gone out of market, which is pushing up the rates,” he said.

SCI, which has four VLCCs, is expected to take deliver of its fifth new carrier being built in China in a few weeks.

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