China slowdown, rise in tonnage take toll on freight rates

Leaving shipping companies in rough waters, ocean freight rates of tankers and bulk carriers have fallen substantially following the rise in tonnage worldwide and recent cutback of imports by China.

"With China putting tighter grip on imports of oil, iron ore and coal and the rise in global tonnage, ocean freight rates are going to be affected for atleast couple of months,"said A K Mitra, director Shipping Corporation of India (SCI).

On short-term view, the freight rates would recover by September and october after the seasonal dip in purchases in monsoon period. But in long-term, issues like chinese slowdown, vessel scrapping and vessel acquisitions are going to be decisive in lifting freight rates, Mitra said.

According to a leading shipping analyst, the freight rates for Very Large Crude Carrier (VLCC) has slipped to usd 17,758 on June 9, 2005 from usd 22,991 on june 3, 2005 while the average vlcc rate in april 2005 was at usd 36,404.

"Suezmax vessel's rate per day was marked at usd 30,003 on june 3. Now the same vessel was available for usd 24,439 as on june 9", he said.

Against the April 2005 average of Aframax vessel (usd22,550 per day) and clean cargo vessel (usd 19,773), the frieght rates are now hovering around usd 18,206 and usd 14,192 respectively.

Mitra said "the main indicator for commodity-freight rates, known as the baltic dry index, has slipped to usd 2,931 per day as on June 9 from usd 3,093 on June 3, while April 2005 avearge daily freight rate stood at usd 4,608."

Other indices like baltic capsize index, baltic panamax index and baltic handymax index have also fallen in mid-June, he said.

Great Eastern Shipping Company Ltd general manager (planning), Rajat Dutta said the situation had changed from last year with more vessel joining the global fleet.

"At present the condition is that too many ships are chasing too few cargo. While last year witnessed oil demand growing at 3.4 per cent ,this year shows only 2.5 per cent growth. Slowdown in China is also one of the reason in cooling down of freight rates," Dutta said.

Shipping analysts said the supply of vessels had gone up. The tanker fleet including VLCC, Suezmax, Aframax, Panamax, Clean Cargo Vessels grew from 327.91 million dead weight tonne (dwt) in March 2005 to 331.91 million dwt.

Meanwhile, dry bulk fleet including Capesize, Panamax, Handymax, Handysize grew from 325.86 million dwt to 330.41, they said.

"out of the total tanker tonnage, 15 per cent will go for scrapping but 87 million dwt tonnage is ready in the order book to join tanker fleet. On contrary, the order book of dry bulk fleet is only at 69 million dwt while 97 million dwt is meant for scrapping," Mitra said.

Mitra said no wonders were expected at the tanker side while dry bulk rates may show positive signals once winter sets in.

Asked about the impact on bottomline, he said the critical factor would be operating expenses in the light of low freight rates.

"The rising bunker prices are going to put certain pressures in the profit margins of shipping companies," he added.