|
Shipping companies are increasingly scrambling
to deploy their ships in the long-term contract
market instead of the spot market, as the global
freight market is expected to remain volatile in
the medium-term. Although there have been some
signs of recovery this month in the tanker
segment, the overall freight market continues to
be damp and ship owners are not bullish on their
earnings in the coming quarters.
“Earnings from shipping still remains uncertain,
as global economies are still recovering. It is
not going to be easy to judge how long this will
take — it is going to be a long process. No one
can really put a number to earnings. Outlook for
the next 12-18 months is not very bullish,” says
Mr V. Ashok, Director of Essar Shipping Ports
and Logistics Ltd.
Industry analysts say that India and China are
the current key growth drivers and the freight
market movement will largely hinge on how these
two countries rev up their economies. The Baltic
Freight Index, an indicator of the cost of
shipping of key commodities such as grains, iron
ore and coal across major sea routes, had
swooned to multiple-year lows of 663 points last
year. “It has recovered to the level of 2,500
points in the first half of August 2009 chiefly
on demand from China and India,” an analyst
said.
However, these levels are still much lower when
compared to those last year. For example, on
August 20, 2008, the Baltic Dry Index was at
7,344 points, while on the same day this year it
stood at 2,534.
Tanker segment Similar sentiment breezes through
the tanker market, although the recovery is
slightly better than the bulk segment. From an
average daily earning of $5,128 per day for a
very large crude carrier (VLCC) in July, the
charter rate crossed the $6,000 a day mark in
the last week.
In July last year, a VLCC owner could earn as
much as $119,722 a day — that period was,
however, considered an unprecedented boom period
for the global shipping industry. “Overall,
freight rates for tankers (ships that carry
crude oil and liquids) have fallen about 40-60
per cent over last year, while dry bulk carriers
earn about 70 per cent less than last year,” an
analyst said.
In order to hedge themselves from the risk of a
volatile freight market, shipping companies are
deploying more ships in the long term market,
although the spot market is usually know to
yield better returns. Says Mr Ashok: “To
insulate our company from the cyclicality of day
rates across all segments, ESPLL has put most of
its vessels on long-term contracts. Some of its
vessels are due for renewals in April 2010.”
Source: The Hindu Business Line
| 
