Shipping companies are faced with massive underutilisation of vessel capacity due to a fall in trade volumes. The worst hit are container and liner vessels.
Official sources said shipping companies had been diverting their existing liner vessels for transportation of bulk cargo to cover operating costs. There are no actual numbers, but industry sources indicate that there has been a steep drop in container traffic in major ports on account of a fall in trade volumes. Current estimates are that traffic in all the major ports has shown a drop of at least 35 per cent which translates into fall in freight earnings of major shipping companies.
The sources said that among the shipping companies that are expected to be hit are Shipping Corporation of India, Chowgule Steam, Tolani Shipping and Varun Shipping. The companies which have older vessels, diversified operations or have already tied up time charters are in a position to escape recession.
Time charter would mean that irrespective of the vessel usage, there will still be a minimum cash flow during the charter period.
Industry fears that if the recession continues, there could be a series of cancellations of existing time charter agreements. In fact, most cargo operators are preferring the voyage charter for moving the cargo in anticapation of further falls in freight rates. "If that happens, there could be a crisis in the industry that could lead to a reduction in national tonnage." This is because the shipping companies are likely to resort to sale of vessels at this stage. Unless the earnings are sufficient, shipping companies will find even debt servicing difficult. The companies are expected to resort to vessel sales rather than delaying debt service payments.
Companies like SCI with diversified operations already have tankers which are expected to be used on a time charter basis with the oil industry. The pricing mechanism of linking it to the `AFRAMAX' index, based on the route will mean substantial earnings for companies sufficient to set of earnings drop in other sectors. Currently there are atleast 10 vessels built after 1994 with a total configuration of about 9,16,000 dead weight tonnes which have not yet fully recovered thier fixed costs. This is because the current earnings of about less than $10,000 per day is barely sufficent to meet the vessel operating costs.
