The end of 2013 and the dawn of New Year have brought cheer to shipping companies, with freight rates touching a three-year high, mostly on the back of increased demand for movement of oil and iron ore.
Shipping companies that have been battling a lean freight market in the last few years are, however, still cautious about the outlook for the rest of the year.
K. M. Sheth, Executive Chairman, Great Eastern Shipping Company, says: “Well, at the moment, things look good. But probably it is seasonal as there is increased movement of oil and dry cargo in winter. But whether it is sustainable or not remains to be seen as there is still excess tonnage in the market.”
Rates were on the rise since November, especially in the tanker segment. A very large crude carrier, for instance, earned an average of $45,000 a day on certain key routes in December, the highest since January 2010. Apart from a spike in demand for hauling of crude, the market hardened, as the number of new VLCCs on order slid to the lowest level in the last five years.
Baltic Dry Index The Baltic Dry Index, which measures the cost of shipping commodities across key routes, also crawled up from 1,599 in November to 2,155 in December.
The strong demand growth in the bulk segment has been mostly on account of increased Chinese imports of iron ore and coal. Butunlike in the VLC segment, new ship orders continue to join the existing fleet, snuffing out hopes of a meaningful rebound in rates. “On the supply side, fleet growth is expected to be somewhere around 6 per cent. For instance, in 2012, about 25 million dwt of dry bulk ships were ordered. During January to September, 46 million dwt of these vessels have been ordered. If we annualise this, we are talking of 61 million dwt being ordered in the full year (2013), which would be the third-highest on record, including the boom years of 2005 to 2007. So it looks as if recovery will be short-lived or somewhat muted,” Shivkumar, Group CFO of Great Eastern, told an analysts’ meet in November.
To confirm these fears, the Bulk Dry Index has again slipped from the December highs to 1,350 levels in the last few days, although tanker rates remain firm. Much depends on how much China will continue to import in the coming months, analysts say.
amitmitra@thehindu.co.in