China cools down freight rates

After a year of about record global shipping, freight rates have dropped following the Chinese government's decision to cool down the economy.

China has decided to up investment by only about 10 per cent this year against 46 per cent last year. This has led to fewer imports such as iron ore, crude, petrochemicals and coal, which in turn led to a drop in freight rates.

The fall in rates ranges from below a percentage point to about 20 per cent, sources said.

Between April 13 to April 28, freight rates for very large crude carriers dropped from around $49,000 a day to about $40,400 levels. Similarly, rates for Suezmax tankers during the same period fell from around $37, 900 a day to about $31,000 a day. The only exception to this was Aframax carriers where freight rates actually rose from $19,000 a day to about $ 20,000 a day.

The story of falling freight rates has been replicated in the dry bulk sector with the drop ranging around 3 per cent to about 27.5 per cent, source said.

"This is not surprising. Earlier, there was a demand-supply mismatch. Now with the Chinese government deciding to go slow on investments, supply is catching up with demand," said P K Srivastava, the CMD of the state-owned Shipping Corporation of India, which is the country's largest shipping line.

Analysts are, however, quick to dismiss all talk of freight rates being on a downward spiral now.

"We are certainly not in a downward spiral. This is only a correction after the record levels last year," said K Ramachandran, head advisory desk of BNP Paribas.

Other analysts also point out that although freight rates have fallen they are still far higher than the five-year averages.

For instance, the five-year average spot market rate for a Suezmax tanker between 1999 and 2003 is about $ 27,995. These are indications that while record levels of last year may perhaps not comeback it is still good times for the shipping industry, say analysts.

"Tanker freight rates are likely to rise around June-July when the US which has record low levels of crude, starts storing up again for the winter," says Ramachandran.

Heading southward

• China's decision this year to curb investments has led to fewer imports of iron ore, crude, petrochemicals and coal
• The fall in rates ranges from below a percentage point to about 20 per cent.
• However, analysts dismiss all talk of freight rates being on a downward spiral