Bangalore / Mumbai: Around this time last year, the dry bulk sector—which includes iron ore, coal, grain and other bulk commodities— came to the rescue of shipping firms after tanker rates that traditionally generated much of their revenue slackened.
The tanker sector is back on track now, but rates for dry bulk carriers fell to a six-year low last week as the global economy slows and obtaining trade finance becomes difficult. In the last three months, tanker rates have dropped by 10-15%. During the same period, dry bulk shipping rates have dropped by 80-90%. “Tanker market is holding on and is yet to show the nervousness of the financial market turmoil,” said T.V. Shanbhag, group adviser to Mumbai-based ship broking firm Trans Ocean Agency Pvt. Ltd.
“Dry bulk shipping has been on a roll and what we are seeing is completely unprecedented,”?said Anjali Kumar,?spokesperson for Great Eastern Shipping Co. Ltd, the country’s biggest private shipping firm. “Fortunately, the tanker sector is doing well and is helping us cope with the situation.”
The Baltic Dry Index, a benchmark for shipping bulk commodities, on 17 October tumbled nearly 7% from 1,615 points to 1,506, its lowest since November 2002. The index has plunged 53.2% since the end of September, and 86% since 20 May, when it had hit a high of 11,893 points.
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Local shipping companies Great Eastern Shipping, Mercator Lines Ltd, Shipping Corp. of India Ltd (SCI) and Essar Shipping Ports and Logistics Ltd, among others, own 106 dry bulk carriers, or 32.4% of India’s total fleet of 879 ships.
“It’s a pathetic situation,” said an official at SCI, India’s biggest shipping firm, who did not want to be named as company policy bars him from speaking to the media.
“Life is a bit tough. There is not much one can do at the moment, except hope that things will turn around soon,” added Great Eastern’s Kumar.
Shipping executives Mint spoke with said renting out ships had become infeasible because of the low rates. They also feared payment defaults by those who have hired ships on spot basis because of the global financial crunch.
“Traders who hire ships on spot basis are facing difficulties to secure letters of credit from banks,” said an executive at Chowgule Steamships Ltd, who did not want to be named. Letters of credit assure a shipper of payment for a cargo after it is loaded on a ship, but before the buyer receives it.
The squeeze on trade credit is also restricting commodities shipments. Around 90% of the world’s $14 trillion (Rs683 trillion) trade is handled via trade credit, the SCI official said.
“You don’t know the credit worthiness of the guy hiring the ship... The best and the biggest of names are defaulting,” said an executive at Apeejay Shipping Ltd, who too did not want to be named.
Stock prices of local shipping firms have been hit by the steep fall in dry bulk shipping. Mercator Lines (Singapore) Pte Ltd, the dry bulk ship-owning subsidiary of Mercator Lines, has seen its stock plummet close to 80% from its listing price on the Singapore stock exchange on 14 December. The subsidiary of India’s second biggest private shipping firm gets revenues largely from long-term, fixed-rate contracts ranging from 11 months to five years, with customers such as ArcelorMittal and Tata Power Ltd. A Mercator spokesman declined comment.
Fortunately for many local firms, new dry bulk carriers ordered when the Baltic Dry Index was at its peak would be delivered only in 2010.
“This will give us some respite,” said Kumar. The firm has ordered eight dry bulk ships, which will add to the 11 such ships it currently owns.
The SCI executive cited earlier said the firm has ordered new dry bulk carriers with a 25-year perspective. The firm, 80.12% owned by the Indian government, has ordered 10 dry bulk ships from South Korea’s STX Shipbuilding Co. Ltd for $507.6 million and is looking to buy more such ships to add to the 20 it owns now.
“We are not worried about the short-term effect,” the SCI official said.
Graphics by Paras Jain / Mint