Can you imagine a Very Large Crude Carrier (VLCC) getting booked in the spot market for just a couple of thousands of dollars a day? Some VLCC owners have had to ship crude for this price, as tanker rates crashed this month, owing to over supply of new vessels and a subdued demand.
The Organisation of Petroleum Exporting Countries expects oil demand to grow only by 0.82 million barrels a day in 2013, lower than earlier expected. Ship owners could draw some comfort from the marginal hardening of rates in the dry bulk sector, as Chinese imports picked up in the last two weeks. Overall, the industry expects freight rates to remain depressed in the coming months.
“I think rates will remain dull at least till mid-2013, given the new ships that are scheduled for delivery. Hopefully, by then the global economic conditions could see some brightening,” A.R. Ramakrishnan, Managing Director of Essar Shipping, said.
The fall in tanker rates was pronounced in the VLCC segment. Going by the market fixtures reported by various brokers, VLCC rates tumbled from this year’s high of $17,368 a day in April to an average of $1300 in September and touched a bottom of about $100 in the second week of this month.
“These rates hardly cover the operational cost of a VLCC. These vessels require at least between $8,000 and $9,000 a day as operational cost, including crew salary and fuel. It will be higher if you take in the interest and cost of vessel,” Ramakrishnan pointed out.
And to make matters worse for vessel owners, bunker costs have gone up substantially in the last few weeks. On the dry bulk side, there was some positive movement as demand for shipping picked up in China, especially for cape-size vessels. The Baltic Dry Index, which tracks cost of movement of dry bulk cargoes across key ocean routes, crawled up from 777 on October 1 to 941 on October 15.
Shipping experts say about 15-20 per cent of the existing fleet size of cape-size vessels and eight to 10 per cent of the tanker fleet are scheduled for delivery in the next few months. While firms that put their fleet on long-term contracts could get better rates than the spot players, even then profitability was hit due to lack of back haul cargoes.
“Long term charter prices cover only one leg of the journey. Hence, it is crucial to get back haul cargoes to maintain profitability. In our case, we have been successful in this regard,” Ramakrishnan said. Essar Shipping has its entire fleet on long-term charter, having assured cargo from its group companies such as Essar Steel and Essar Oil.