Shipping firms pin hopes on steady freight rates

After a 30-35 per cent fall in freight rates over the last four months, shipping companies expect the rates to remain firm at current levels. The freight rates had stabilised, they said, adding that freight conditions too looked encouraging for at least a year or two.

"During the previous financial year, the dry bulk freight rates were very high, which the trade could not have sustained for long. A correction was expected, but this does not mean we are in for a downturn," PK Srivastav, chairman and managing director of the Shipping Corporation of India, told Business Standard.

Moreover, compared with the price trough in 2001-02, when the time charter rates for dry bulk carriers had touched a low of $ 6,000 a day, the rates are still high.

In 2003-04, the dry bulk rates for various vessels like Capesize, Panamax and Handymax were in the range of $30,000-$80,000 per day. Thus, even with a 30-35 per cent fall from the peak, shipping companies find themselves in a better position than in 2001.

Essar Shipping Chairman and Managing Director Sanjay Mehta said apart from the stabilisation of rates, another factor for the slowdown was the seasonal nature of the industry, where the demand was much higher during the later part of the year. He said despite being a lean season, freight was much higher now than before.

"The boom in 2003 was driven by pressure from both demand and supply, which was not expected to ease till 2008," Mehta said.

He said favourable demand conditions because of simultaneous growth in China, India and Japan -- all of which are major energy and raw material consuming nations -- would not temper down soon.

Srivastav said, "World dry bulk demand is being clearly led by China, which may continue for quite some time despite the present correction. On the liquid bulk side, the world crude oil demand is also likely to grow, driven by China and India."

He added that the recovery in world trade, coupled with increased outsourcing of manufacturing, was likely to keep container freight rates firm.

Mehta pointed out there had been a shortage of vessels that had perked up the freight rate further during the last fiscal.

While the International Maritime Organisation has ordered the phasing out of single hull tankers by 2006-07, the supply of vessels is booked until 2007-08. The supply situation will ease only when all the deliveries are made.