Monday, December 29, 2008
Shipping rates dip on commodity bust
Monday, 29 December 2008
Ever since there has been a fall in demand for commodities, Indian shipping companies have been witnessing a crash in their charter rates. It is now felt that the worst is yet to come as a further decrease is expected in both earnings and book values when the new ships are delivered. These ships were ordered at the height of the shipping boom. According to Shipping Corporation of India (SCI) director Umesh Grover, the shipping capacity tonnage on order due over the next three years stands at 72% of the existing dry bulk fleet. Moreover, Indian shipping companies with an average fleet size in excess of 20 years will be in bad shape as the demand for new vessels increases.
Indian shipping majors such as SCI, Great Eastern (GE) Shipping already idle some of their vessels and also have plans to mothball their other vessels too.
“The situation is reaching a stage where shipping companies are unable to earn even the operating cost of vessels. The Capesize vessels, which were earning in excess of $1,50,000 per day, are not in a position to cover even their basic operating expenses of $6,000-7,000 per day,” said Mr Grover.
In addition, there are interest payments that are not a part of this. Moreover, the time charter period rates and contract freight rates are now under renegotiation. Some contracts are being unilaterally cancelled, he added. In such a scenario, older ships are likely to find their way to the scrap yards. According to Mr Grover, prices of dry bulk ships have, however, fallen by more than 50% and there are hardly any buyers even at these prices.
Industry analysts point out that the collapse in freight and time charter rates has reduced the flow of new and second-hand building deals. Overall, trading volumes are thin accompanied by many cases of distress sales. Mr Grover said that even if there was some demand coming from tankers or in the offshore segment, it has become difficult to secure trade finance.
Investors have stopped giving shipping companies any credit for earnings or assets. The situation is expected to be worsen in the time to come as the sudden absence of a large quantity of cargo that has been piling up at the exporter’s docksides has reduced the spot earnings market to zero.
Source: Economic Times
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