Ocean freight decline hits shipping firms

China slowdown, oversupply of vessels play spoilsport.

Domestic shipping companies are headed for tough times, as ocean freight rates are plummeting on account of the Chinese slowdown and supply of more vessels than cargoes.

The sluggish trend in the freight rates is bound to dampen the companies' profitability. Both tanker and dry bulk rates have registered a decline, according to analysts.

"The freight rates of vessels "" such as very large crude carriers (VLCCs), Suezmax, Aframax and clean tankers "" have posted a sharp fall. However, effects of this slump in freight rates will be more in 2007 and 2008 than this year," said a leading shipping industry analyst.

He said the slowdown in the tanker market could mainly be attributed to abundance of tonnage. "Tanker rates are heading southward as supplies of vessels are more compared with the existing number of cargoes in the international market. More deliveries of tanker vessels "" as well as dry bulk carriers "" are expected this year," he said.

Sudhir S Rangnekar, director, Shipping Corporation of India (SCI), however, observed that the sluggish trend in the tanker sector is a "temporary phenomenon", compared with the bulk sector. "Tanker rates will pick up once the winter sets in full swing," Rangnekar said.

Meanwhile, the Baltic indices, the main indicator for commodity freight rates, have also shown a declining trend. Indices, including Baltic Dry Index, Baltic Capesize Index, Baltic Panamax Index and Baltic Handymax Index, have gone down substantially.

Analysts said the decline in the bulk sector is due to the slowdown in the Chinese economy. "China's hunger to produce steel seems to be over, and this led to a slowdown in iron exports, which in turn took a toll on freight rates of the dry bulk sector," they said.

On the other side, freight rates of container shipping were ruling firm with steady growth in containerised trade. "Container freight rates have started looking up when other commodity freight rates are sliding. Ironically, Indian companies are not much exposed to container trade, except SCI with a miniscule presence," a container shipping company executive said.

The average ocean freight rate for VLCCs during the third quarter of the current financial year plummeted 41.4 per cent to $73,427 a day, from $1,25,404 a day for the corresponding period of the last financial year. The average Suezmax rate posted a 32.4 per cent slump to $63,397 a day in the quarter under review against $93,719 a day in the same period last year, while Aframax rates fell to $41,522 a day from last year.

The average clean tanker rate slipped to $24,898 a day during the third quarter this financial year versus $ 26,502 a day last year. In the dry bulk sector, Baltic Index reported a 42.3 per cent fall to $2,937 a day in the quarter from $5,092 a day in the corresponding period last year.

"While Baltic Capesize Index fell 39 per cent during the third quarter, Baltic Panamax Index slipped 49.2 per cent. Baltic Handymax Index has also posted a 41.2 per cent decline," industry analysts added.