Ship prices on fire, purchases docked

With prices of new vessels and second-hand ships hitting the roof in the global market, Indian shipping companies are shelving their fleet acquisition programmes.

Shipping yards across the globe are booked till 2009. As a result, second-hand vessel prices have shot up by 15 per cent in the last six months, while prices of new vessels available for resale have gone up by an average of 20 per cent. New, large oil tanker prices have gone up by over 70 per cent in the last three years.

"Domestic shipping companies cannot place an order for a new ship as shipyards worldwide are overbooked till 2009. We always want to acquire vessels. Now we are waiting and watching for the right opportunity, as vessel prices are rising," said Harish Kumar Mittal, chairman and managing director, Mercator Lines.

Shreyas Shipping & Logistics Executive Director Anil Devli also points out that his company's vessel acquisition programme has been delayed due to non-availability of the right vessels and high prices.

The rise in prices has been attributed partly to the International Maritime Organisation's (IMO's) new rule that envisages phasing out single-hull vessels by 2010. Also, rising steel prices are doing their bit.

Over 32 per cent of the existing global fleet consists of single-hull tankers, which the IMO wants to phase out to control pollution. The price rise has more of an impact on oil tankers, which constitute over 45 per cent of the fleet of Indian shipping companies.

Indian companies are, of course, in a spot. "The return on investment and current vessel prices are not matching. Availability of suitable vessels for our business is another critical issue," Mittal pointed out.

Representatives of Varun Shipping and Essar Shipping said they were constantly looking out for "right vessels at the right price".

"Though prices have gone up, we are looking for the right kind of vessel," the executives said.

"At present, we are looking for ships available on resale, as they can be deployed immediately. But the prices are very high. A shortage of main engines for ships has added to the rise in vessel prices," said Shipping Corporation of India Director Sudhir S Rangnekar.

Industry sources said the price of a new Very Large Crude Carrier (VLCC) had shot up by 69 per cent to $125 million in 2006, from $74 million in 2003.

The second-hand price of a VLCC was reported to be nearly $117 million, a difference of just $8 million. The message is clear: the gap between the price of a new vessel and a second-hand vessel of three years is narrowing.

Prices of other crude carriers such as Suezmax and Aframax (smaller oil vessels) have also shot up. A Suezmax carrier, which was available three years ago for $50 million, is priced at $80 million. A second-hand Suezmax vessel will cost up to $75 million.

Another tanker with lower capacity, Aframax, costs $65 million currently, against $40 million during 2003. "There is hardly any difference between a new Aframax and a second-hand one, due to strong demand," sources said.