Shipping rates may sail smooth

Baltic Dry Index likely to correct further, but going will still be strong

MUMBAI: Commodity shipping and tanker rates, which touched record highs last year, are expected to remain firm this year as well.

On the dry bulk side, which includes shipping coal, iron ore, cement and grains, London-based Baltic Exchange’s Baltic Dry Index (BDI), an indicator of commodity shipping rates, is at an all-time high and analysts remain bullish on the index for this year, too.

Ole Slorer and Darren Gacicia, analysts with Morgan Stanley Research, in their December 2007 report said the extraordinary conditions of 2007 were not expected to be repeated, but the next two years would still be solid by historical standards.

Imports by developing countries like China and India are expected to be the biggest driver for dry bulk rates. India’s coal requirements are set to increase with the ultra mega power plants planned. On the other hand, China’s growing steel industry now has to look beyond India for its iron ore imports and South America is the only next option.

“The key for freight rates is not only the quantum of cargo but also from where it is coming and the distance it is travelling,” reasoned Anjali Kumar, company spokesperson, Great Eastern Shipping.

Meanwhile, BDI, which breached the 11,000 mark in December 2007, fell 1.51% to 8,756 on January 3, 2008 — the lowest in over three months.

Experts look at it as a correction, attributed partly to lower iron ore imports by Chinese steelmakers. They maintain, however, that the indices cannot fall beyond a point (~8,000-9,000) and will eventually rule at a healthy level.

However, an Essar Shipping spokesman said the US subprime crisis could queer the pitch. “The dry indices would largely depend on how the US resolves the subprime crisis, as it affects the commodity demands from countries like China, eventually influencing the freight rates,” he said.

In the tanker segment, after an interesting journey with highs and sudden lows last year, very large crude carrier (VLCC) rates reached a record high of $219,000 per day in December 2007 as compared with $59,000 in the first quarter and $29,850 in the third quarter of FY07. The Aframax and Suezmax type of tankers also recorded almost 100% growth in rates owing to the severe winters in the American and European regions.

Slorer and Gacicia added that although the current lofty environment in the tanker rates might be unsustainable, the outlook for the year as a whole appears to be a lot better than indicated by consensus earnings expectations.

Kapil Yadav, analyst with Dolat Capital said, “Tanker rates would drop as the winter passes by. However, they would definitely be much higher, around $80,000-90,000 per day in VLCC, which is still more than 100%.”

Shortage in the fleet supply is also expected to be one of the crucial factors in the rising shipping rates. A look at the carrying capacity of the global fleet shows that commodity ships has climbed to 386 million dead weight tonnes (DWT) and tankers to 382 DWT. Deadweight tonne is a measure of a ship’s capacity for carrying cargo, fuel and supplies. However, this increase in demand is far more than the fleet supply.

Kumar, on the other hand, feels supply will ease going forward as some of the fleet on order is to be delivered in a phased manner in 2-3 years.

Also, the South Korean government’s decision to defer the ban on single-hull vessels by two years will add to available ships, the Essar Shipping spokesperson added.

A senior official of a leading Indian shipping line said, “The winter of 2009 would see historically high rates for tankers as there would be a huge shortage of VLCCs.” 

Given all these, industry watchers are optimistic for freight rates to remain firm in both dry and wet markets.

s_archana23@dnaindia.net