AMIT MITRA, THE HINDU BUSINESS LINE
Uncertainty in Europe and oversupply of new tonnage would continue to squeeze the margins of ship owners for next few months
August 19, 2012:
The financial weather forecast for the shipping industry continues to show turbulence ahead. It was a challenging period for the industry last quarter and the outlook remains the same for the coming quarters.
Bruised by a slump in trade, subdued freight rates and high fuel costs, shipping companies reported moderate to flat growth last quarter. Industry experts say the uncertainty in Europe and oversupply of new tonnage would continue to squeeze the margins of ship owners at least for the next few months, with a lot depending on how Chinese trade moves forward.
LONG-TERM BENEFITS
However, ship owners, who tilted more in favour of long-term contracts, could manage to get better yields, as the spot market continued to be relatively more depressed.
For instance, almost the entire fleet of Essar Shipping, which reported a 186 per cent increase in its first quarter net profit at Rs 53.9 crore, is in the long-term market. “This (strategy) is keeping us going strong. A tanker on a one-year time charter, for instance, earned between $18,000 and $21,000 a day, while the same asset on the spot market could hardly get $4,000 a day,” A.R. Ramakrishnan, Managing Director of the company, said.
Great Eastern Shipping, on the other hand, has 78 per cent of its dry bulk fleet and 44 per cent of its tankers on the spot market.
“Time charter rates have not improved significantly, but (even then) we decided to fix a couple of ships at reasonable rates for three to five years period. Some of these vessels were in the Aframax asset class,” G.Shivakumar, Group Chief Financial Officer (CFO), said in a post-results analysts conference call.
TEMPORARY GAINS
The April-June quarter started off on a brighter note, both for tanker and dry bulk ship owners. Tanker rates inched up in the first half of the quarter as Saudi Arabia stepped up crude production and the Iran tension heightened, prompting refineries to tank up additional oil. But this increase in rates was soon quelled as new vessels entered the market to chase this marginal rise in demand for crude movement — there was an estimated six per cent year-on-year fleet addition. In the dry bulk segment, a slight revival in steel and minor bulk trades moved up rates for smaller vessels a tad.
However, slowdown in iron ore exports from Brazil to Asia kept the bigger ships at bay. This got reflected in the movement of Baltic Dry Index, which tracks cost of movement of dry bulk cargoes across key ocean routes. The index rose from an average of 1,021 in April to 1,101 in May and then slid to 937 in June. Similarly, in the tanker segment, rates for a very large crude carrier rose from an average of $13,348 a day in March 2012 to $17,368 in April, only to slip to $16,362 in May and $7,085 in June.
TYC LOWER
Although relatively less volatile, the average TCY (Time Charter Yield) for the quarter was also lower across segments. For dry bulk ships, the TCY slipped from $16,569 a day in the first quarter of 2011-12 to $11,076 last quarter, a fall of 33 per cent.
Similarly, product carriers saw their TCY dipping 16 per cent to touch an average $13,770 during the first quarter of this fiscal from $16,326 in the year-ago period.
For crude carriers, the fall was comparatively less at four per cent — from $20,097 to $19,302 in the first quarter of this fiscal. Ship owners see no marked improvement in rates in the rest of the year. “Overall, I think for both the dry bulkers and tankers, freight rates are going to be under pressure in the next few months,” Ramakrishnan said. In the tanker category, analysts feel that any disruption in the Strait of Hormuz by Iran could have an impact on the tanker movement in the region. OPEC expects oil demand to grow only by 0.82 million barrels a day (mb/d) in 2013, as compared to 0.9 mb/d in 2012. A senior official of Shipping Corp of India (SCI) expected the freight market to pick up only from the second quarter of 2013.
“Bunker costs have gone up substantially compared to the year-ago period. Given the current market scenario, we have done our best,” he said.
SCI reported a net loss of Rs 54.87 crore for the quarter, the second successive quarter the firm was in negative territory. Experts agree that supply of new vessels and scrapping of old vessels will play a crucial role in movement of freight rates for the rest of the year.
“Scrapping activity is continuing, but is still not a very significant number. On and off you see 16 to 17-year-old ships getting scrapped, but unfortunately scrapping activity has not really picked up.
Scrapping for the first half of the year is about 6.5 million tankers, which is not a very large number,” Shivakumar pointed out.
While on the one hand scrapping was lesser than expected, new vessels continued to join the existing fleet chasing the same cargo. It is estimated that the product tanker fleet grew three per cent year-on-year (yoy), while the dry bulk fleet saw 15 per cent yoy additions during the quarter.
ASSET PRICES FLAT
The industry has not seen any significant improvement in asset prices due to these inadequate scrapping trends.
Asset prices are mostly flat and were marginally down by five to 10 per cent only across certain segments, prompting ship owners to be cautious in their acquisition programmes.
The bottom-line for the shipping industry is thus clear — it will have to sail through a rough weather at least for some more months, before expecting clear blue skies again.
Uncertainty in Europe and oversupply of new tonnage would continue to squeeze the margins of ship owners for next few months
August 19, 2012:
The financial weather forecast for the shipping industry continues to show turbulence ahead. It was a challenging period for the industry last quarter and the outlook remains the same for the coming quarters.
Bruised by a slump in trade, subdued freight rates and high fuel costs, shipping companies reported moderate to flat growth last quarter. Industry experts say the uncertainty in Europe and oversupply of new tonnage would continue to squeeze the margins of ship owners at least for the next few months, with a lot depending on how Chinese trade moves forward.
LONG-TERM BENEFITS
However, ship owners, who tilted more in favour of long-term contracts, could manage to get better yields, as the spot market continued to be relatively more depressed.
For instance, almost the entire fleet of Essar Shipping, which reported a 186 per cent increase in its first quarter net profit at Rs 53.9 crore, is in the long-term market. “This (strategy) is keeping us going strong. A tanker on a one-year time charter, for instance, earned between $18,000 and $21,000 a day, while the same asset on the spot market could hardly get $4,000 a day,” A.R. Ramakrishnan, Managing Director of the company, said.
Great Eastern Shipping, on the other hand, has 78 per cent of its dry bulk fleet and 44 per cent of its tankers on the spot market.
“Time charter rates have not improved significantly, but (even then) we decided to fix a couple of ships at reasonable rates for three to five years period. Some of these vessels were in the Aframax asset class,” G.Shivakumar, Group Chief Financial Officer (CFO), said in a post-results analysts conference call.
TEMPORARY GAINS
The April-June quarter started off on a brighter note, both for tanker and dry bulk ship owners. Tanker rates inched up in the first half of the quarter as Saudi Arabia stepped up crude production and the Iran tension heightened, prompting refineries to tank up additional oil. But this increase in rates was soon quelled as new vessels entered the market to chase this marginal rise in demand for crude movement — there was an estimated six per cent year-on-year fleet addition. In the dry bulk segment, a slight revival in steel and minor bulk trades moved up rates for smaller vessels a tad.
However, slowdown in iron ore exports from Brazil to Asia kept the bigger ships at bay. This got reflected in the movement of Baltic Dry Index, which tracks cost of movement of dry bulk cargoes across key ocean routes. The index rose from an average of 1,021 in April to 1,101 in May and then slid to 937 in June. Similarly, in the tanker segment, rates for a very large crude carrier rose from an average of $13,348 a day in March 2012 to $17,368 in April, only to slip to $16,362 in May and $7,085 in June.
TYC LOWER
Although relatively less volatile, the average TCY (Time Charter Yield) for the quarter was also lower across segments. For dry bulk ships, the TCY slipped from $16,569 a day in the first quarter of 2011-12 to $11,076 last quarter, a fall of 33 per cent.
Similarly, product carriers saw their TCY dipping 16 per cent to touch an average $13,770 during the first quarter of this fiscal from $16,326 in the year-ago period.
For crude carriers, the fall was comparatively less at four per cent — from $20,097 to $19,302 in the first quarter of this fiscal. Ship owners see no marked improvement in rates in the rest of the year. “Overall, I think for both the dry bulkers and tankers, freight rates are going to be under pressure in the next few months,” Ramakrishnan said. In the tanker category, analysts feel that any disruption in the Strait of Hormuz by Iran could have an impact on the tanker movement in the region. OPEC expects oil demand to grow only by 0.82 million barrels a day (mb/d) in 2013, as compared to 0.9 mb/d in 2012. A senior official of Shipping Corp of India (SCI) expected the freight market to pick up only from the second quarter of 2013.
“Bunker costs have gone up substantially compared to the year-ago period. Given the current market scenario, we have done our best,” he said.
SCI reported a net loss of Rs 54.87 crore for the quarter, the second successive quarter the firm was in negative territory. Experts agree that supply of new vessels and scrapping of old vessels will play a crucial role in movement of freight rates for the rest of the year.
“Scrapping activity is continuing, but is still not a very significant number. On and off you see 16 to 17-year-old ships getting scrapped, but unfortunately scrapping activity has not really picked up.
Scrapping for the first half of the year is about 6.5 million tankers, which is not a very large number,” Shivakumar pointed out.
While on the one hand scrapping was lesser than expected, new vessels continued to join the existing fleet chasing the same cargo. It is estimated that the product tanker fleet grew three per cent year-on-year (yoy), while the dry bulk fleet saw 15 per cent yoy additions during the quarter.
ASSET PRICES FLAT
The industry has not seen any significant improvement in asset prices due to these inadequate scrapping trends.
Asset prices are mostly flat and were marginally down by five to 10 per cent only across certain segments, prompting ship owners to be cautious in their acquisition programmes.
The bottom-line for the shipping industry is thus clear — it will have to sail through a rough weather at least for some more months, before expecting clear blue skies again.
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