The April-June quarter was a challenging one for Indian shipping companies, with the global freight market remaining frail, both in the tanker and bulk segments.
Ship owners feel that the next few quarters may not see any significant improvement in the market, especially in the wake of global fears of another recession.
Baltic index
The Baltic index, which measures the cost of transportation of bulk cargoes across key sea routes, had retreated 42 per cent when compared to the same period in the previous fiscal.
Shipping analysts feel that dry bulk freight rates are expected to remain volatile due to huge fleet additions, despite the significant upswing in scrapping activities. So far this year, some 13 million DWT had ended up in the global scrapping yards.
The Baltic Dry Index touched an average of 1,376 during the quarter, as against 3,297 during the corresponding period of last fiscal. In the first week of this month, the index hovered between 1,250 and 1,270.
“Essar Shipping could battle the tough market conditions primarily through our strategy to enter long term charter of vessels, which provides a natural hedge and ensures long term visibility of revenues,” Mr A.R. Ramakrishnan, the company's Managing Director, said.
Tanker freight
The tanker freight market was also subdued throughout the quarter, primarily due to lesser Japanese crude imports, stagnant oil demand from developed economies and the ongoing MENA crisis.
For example, a very large crude carrier (VLCC) could earn an average of $1,870 a day during the quarter, as against $32,166 in the year-ago period. In the first week of this month, it had touched $4,853 a day.
World oil demand is expected to grow by 1.47 million barrels a day to 91 million barrels a day in 2012.
“But declining demand from major industrialised nations, higher crude prices and aggravating European debt crisis is expected to have a negative effect on the oil demand. The on-going Libyan tension has materially tightened the crude supply market. Steady fleet addition and high fuel cost are also expected to drag down the effective day rates and operating margins of the tanker operators,” according to the latest market outlook of Great Eastern Shipping.
However, shipping companies are going ahead with their fleet expansion plans.
Great Eastern, for instance, is going ahead with its capex commitment of $55 million (about Rs 242 crore) — out of this, $33 million has already been advanced to various shipyards as stage payments.