A record drop in freight rates for crude and refined oil carriers has put Indian shipping companies such as state-run Shipping Corporation of India (SCI), Great Eastern Shipping, Mercator Lines and Varun Shipping in troubled waters.
Freight rates for tankers have dropped to its lowest level in about a decade following the offloading of stocks by speculators, who were using such ships as storage since December when oil prices dropped to a record low.
Baltic Dirty Tanker Index (BDTI), the benchmark for the freight rate crude carriers, dropped to 457 on Friday, an 86 per cent decline from its all-time high of 3,194 on November 17, 2004.
Similarly, Baltic Clean Tanker Index, the benchmark for the refined oil and product carriers, dropped to 347, an 82 per cent decline from its all-time high of 1,929 on December 24, 2005. These indices were launched in 2001 and no historical data is available for the period before this.
“We are worried if our long terms charters would sustain at this level,” said K S Nair, director, bulk carrier and tanker segment, SCI, the country's largest shipping company. The company has 40 crude and product tankers, about 80 per cent of which is on contracts.
Tankers are usually on three months to one year contracts. With the sharp decline in the freight rates, companies using the ships may default on the contracts.
Shipping companies are already under pressure following a sharp decline in the freight rate for the dry bulk carriers. Baltic Dry Index, the benchmark for the freight rate for such ships, declined by about 94 per cent to 663 on December 5 last year from its record high of 11,793 about six months back. Baltic was at 1,682 on Friday.
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It was the tanker rates that were giving the shipping companies the much-needed cushion against high losses as its demand continued during the winter season. With the winter season getting over, that demand has gone down. The demand for tankers also continued as the sharp decline in crude oil prices made the speculators store it in large carriers.
“Speculator who used the crude carriers as storage since the crude prices bottomed, are offloading now,” said Jehangir Adi Master, an analyst with Mumbai-based brokerage Pranav Securities.
The price for benchmark Brent crude declined to $34 per barrel on December 24 last year. A lot of speculators used large crude carriers to store the crude at low level. On Monday, Brent was available for $50 a barrel, at a 32 percent higher price.
Freight rate for very large crude carriers (VLCCs) has declined to $6,136 per day now in April from an average of $3,3305 per day during the winter season of January to March.
“This would certainly impact the companies,” said Yudhishthir Khatau, managing director, Varun Shipping Company. It has three crude oil carriers. Great Eastern Shipping Company and Mercator Lines did not respond to the calls made for a comment.