|
With the shipping industry still sailing in
troubled waters, Fitch Ratings has taken a
negative outlook on it for the year 2010. Due to
excess capacity across tankers, bulk carriers
and container ships, coupled with declining
freight and charter rates, shipping industry in
a daunting state.
“Demand for Indian shipping is going to remain
subdued in 2010 and 2011 due to the decline in
overall global trade volumes,” said the report.
With global trade volumes expected to be
range–bound, charter rates will be kept low and
will pressurize the margins of the shipping
companies.
The shipping industry has undergone probably the
worst phase during the economic slowdown last
year. However, since March 2009, there have been
significant improvements in freight rates
including very large cargo carriers (VLCCs) and
Aframax tankers.
Long–term charter contracts have reduced
volatility to some extent, and provide some
revenue visibility. And hence, with the fall and
rise in volatility of the charter rates,
shipping companies now prefer long–term
contracts to hedge risk. Companies with
long–term contracts have been shielded to some
extent from the sharp decline. However, these
contracts generally have a tenor of around one
year, and it is likely that charter rates will
see some reduction upon renewal.
In the year ahead, shipping industry will need
to line up further capex as about half of the
cargo ships under the Indian flag are to be
phased out in 2010, due to the International
Maritime Organisation’s (IMO) directive to
replace single–hull ships with double–hulls.
This coupled with older age of ships is a major
factor contributing to the necessity for further
capex this year.
However, most of the Indian companies have
limited room to purchase new vessels, due to the
lack of availability of funds and the reluctance
of banks to lend to this sector. “Order
cancellations and postponements, and the
phasing–out of single–hull vessels, have to some
extent staggered the availability of excess
capacity, but the global shipping market is
bound to face excess supply over the medium
term,” explained Fitch in its report.
Since 2008, there has been a decline in traffic
handled at the ports vis-ŕ-vis growth in tonnage
capacity and port handling capacity. The gross
tonnage remained flat during this period, and
remained around the 9.3-9.4 million tonne range
at December 2009. Fitch expects traffic volumes
to remain range–bound in FY10 and FY11.
The modernisation of Indian ports has led to an
increase in competition from the international
vessels at the country’s domestic ports.
Source: Financial Express
|
