Choppy freight markets squeeze shipping firms' earnings

Amit Mitra Hyderabad | Updated on March 12, 2018

Choppy freight markets continued to apply the squeeze on earnings of shipping companies last quarter.

Industry observers feel that the markets will remain challenging in the present quarter, both in the tanker and bulk segments. A significant trend has been that smaller vessels attracted better rates than bigger assets. For example, if a capsize vessel earned between $8,000 and $10,000, supermax and Panamax carriers raked in between $12,000 and $14,000 a day.

“From the perspective of the industry, we continue to have a cautious outlook for the freight market for the next six to 12 months. 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,” says Mr A.R. Ramakrishnan, Director of Essar Shipping, Ports and Logistics Ltd (ESPLL).

The dry bulk rates fell by over 30 per cent in the last quarter compared with the corresponding period of last fiscal. The Baltic Dry Index, which measures the cost of transportation across key routes, touched an average of 1,531 during the July to September quarter, against 2,349 in the year-ago period.

The fall was more pronounced in the tanker segment. A Very Large Crude Carrier (VLCC) could earn an average of just $3,951 a day during the last three months compared with $7,314 a day in the corresponding quarter of last fiscal. Similarly, a Suezmax tanker got just $1,980 a day compared with $7,389 a day in the second quarter of last fiscal.

Many shipping companies are seeing this trend in freight market as an opportunity to buy second-hand assets. Industry observers say that at these numbers in the spot market, many shipowners will not be able to remain afloat, and hence, put their assets on the block.

Addition to global shipping fleet will also keep a lid on freight rates, with the supply pressure estimated at 20 per cent in the tanker segment and about 40 per cent in the dry bulk segment. Some analysts also believe that some deliveries may not take place, with shipowners not being in a position to take the deliveries.

Published on October 14, 2011

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