Mumbai: Shipping companies may continue to hurt from the impact of the global downturn this year, say analysts and executives following some bleak earnings results and forecasts.
Third quarter net profit for the country’s largest private shipping company, Great Eastern Shipping Co. Ltd, fell 67.94%. Another large private firm, Varun Shipping Co. Ltd, slipped into a loss in the quarter from a profit a year earlier.
Kapil Yadav, a research analyst at Dolat Capital Market Pvt. Ltd, says the global economic slowdown has led to excess capacity in the industry and freight rates would continue to be under pressure. “The shipping companies will face challenges for the next six to eight months,” he said.
Freight rates for container and dry bulk cargo ships have been declining since early 2008. Great Eastern Shipping in its outlook says large US oil inventories and flat growth in consumption from developed economies will probably keep tanker rates in check.
Declining profit: Containers at the Jawaharlal Nehru port. Freight rates are expected to remain low due to excess capacity in the industry. Ashesh Shah / Mint
“The continuing surge in the movement of bulk commodities will largely depend on China’s sustained raw material consumption,” the firm said in its outlook for the dry bulk market, adding: “On the supply side, the key factor will be the scrapping, cancellations and slippages in the deliveries for the current year.”
Yadav said concerns over supply may be addressed to an extent as the International Maritime Organization has mandated that single-hull tankers be replaced with double-hull vessels by December globally. “This should give lesser pressure on tankers operated by Indian companies.”
Some firms are banking more on non-shipping activities for the years ahead.
Essar Shipping Ports and Logistics Ltd, a Mumbai-based firm with ports, logistics and oilfields services in its portfolio, reported a 85.23% drop in quarterly net profit for its shipping business. On a consolidated basis, its net profit surged 69%.
“The idea behind diversifying into ports and oilfields was to remove the volatility of the cyclical shipping business,” V. Ashok, chief financial officer of Essar Shipping, said. “Going ahead, shipping may not form substantial portion of the revenues, but ports.”
Great Eastern Shipping and Varun Shipping, too, have diversified into other segments.