With freight rates still low, many original buyers cancel bookings at yards.
India’s leading sea carriers, Shipping Corporation of India (SCI), GE Shipping and Mercator Lines, are looking at buying ships for resale from yards, as their original buyers succumb to the downturn in shipping cycles and cancel purchase contracts.
“It is for the first time that we are looking at buying resale ships,” said S Hajara, chairman and managing director of SCI. The company bought one such tanker early this week. “Sensing the opportunity, we closed the purchase of our first resale vessel in the record time of a month and a half period,” said Umesh Grover, director, technical and offshore, at the company. SCI expects to buy two more vessels, one a dry bulk carrier, in the next two to three months.
Since SCI was awarded the Navratna category amongst public sector companies in 2008, it requires only its own board’s approval for any ship buying.
According to industry estimates, prices for newly-built very large crude carriers (VLCCs) and capesize bulk carriers at yards had dropped by 30 per cent to $100 million (Rs 460 crore) and by 40 per cent to $56 million (Rs 250 crore), respectively, in the past two years. This had given Indian shipping companies the opportunity to replace their old tonnage with the new one.
“Old vessels are not sustainable in the low freight rate scenario,” said H K Mittal, chairman and managing director at Mercator Lines. The company is expecting the Baltic Dry Index (which tracks worldwide shipping prices) to be close to the 3,500-level this year, down from the peak of 11,700 in 2008. “We need new vessels with more efficient engines that consume fewer bunkers,” he said.
The company is also considering selling some of its old Panamax ones, of 60,000-65,000 dwt for scrapping and replacing these with new ones of about 90,000 dwt. Mercator currently has 12 bulk carriers.
According to an industry estimate, in 2010, new ships that will form 24.6 per cent of the world’s present capacity for dry bulk carriers are due for delivery from yards. This is putting pressure on prices and some orders for new ships are being cancelled by their original buyers. Similarly, ships amounting to 13 per cent of the present fleet for crude tankers and 11.6 per cent of the present capacity of product tankers are due for delivery this year.
“With the overhang of new deliveries from yards this year, we expect one more round of correction in asset prices,” said a company spokesperson at Great Eastern Shipping. As the price further corrects, he said, they would be watching for an opportunity to buy more ships. There is a cash reserve of Rs 3,000 crore, which it plans to use for the acquisition of assets and it is considering resale opportunities at the yards.
