 "Only way out for domestic shipping companies is to pass through it")
“Shipping is cyclical but this depression is the worst I have seen,” S Hajara, former chairman and managing director of Shipping Corporation, told Business Standard. “What made it worse was that just before the crisis asset prices were at their peak and companies invested at these levels,” he added.
Shipping Corporation, the country's largest shipping company, has had heavy losses in the last three years. Mercator's shipping business reported a profit in 2013-14 after a gap of three years. Both companies had debt-equity ratios above 1.25 on March 31, 2014.
Dry bulk freight rates are hitting new lows every day, while tankers and containers are managing the show for companies with diversified fleets. “One option is that the companies can identify special segments for assured revenue,” said Sudarshan Shreenivas, senior analyst with India Ratings. State-owned Poompuhar Shipping Corporation ferries coal to thermal power stations in Tamil Nadu. This provides the company assured revenue, though the margin is thin.
“Companies can look for fixed container trade routes like India-Singapore and India-Thailand, which continue to be busy. Though the scope is limited, these offer assured business,” Sreenivas added.
Scrapping old dry bulk vessels is another option to bring down fleet maintenance costs and pay off debt. “We are mulling scrapping two 30-year-old bulk carriers,” said a senior executive with Essar Shipping. “We are looking to get them scrapped in Bangladesh, China or Pakistan, wherever we get the best price,” he said. Essar Shipping's consolidated debt in 2013-14 was Rs 5,600 crore.
Shipping Corporation has a 69-vessel fleet, 70 per cent tankers. This offsets some of the loss it is taking on its 17 dry bulk carriers.
“We are tightening costs. Scrapping one of our bulk carriers is also something we are discussing,” said Captain Kowshik Kuchroo, president, shipping, at Mercator. The company has seven tankers, one very large crude carrier, and 13 bulk vessels. Mercator's bulk business is handled by its Singapore subsidiary, Mercator Lines.
“Of the entire country's fleet, around 60 per cent are tankers and the rest bulk carriers and container ships. Globally, companies have 90-95 per cent exposure to bulk, making their situation more grim,” Hajara said. The industry expects the bulk trade will remain sluggish, and the container, offshore and tanker traffic will make up for losses.
“Dry bulk shipments are an indicator of global economic activity. From prevailing rates it easy to predict the global economy is not picking up in the next six months,” said Sreenivas. “For the next two years, the bulk segment is not going anywhere,” Kuchroo added.
Tanker and offshore traffic, though looking promising now, will depend on crude oil prices. “Onshore exploration has been coming down for quite some time and so offshore exploration will not slow to a great extent if crude oil prices fall a bit more,” Sreenivas said.
“Falling bulk freight is expected to push out private equity players that had made speculative buys. This will shrink the order book and bring some discipline into the dry segment,” Kuchroo pointed out.
Analysts recommend investors to remain invested in companies like Shipping Corporation and Great Eastern Shipping that have diversified fleets. “The sentiment is weak in the shipping sector, but the worst is behind us,” said Vikram Suryavanshi, senior analyst with Antique Broking.