Bangalore: The country’s biggest private shipping firm, Great Eastern Shipping Co. Ltd, or GE Shipping, is looking to sell more ships as outlook for demand and rates remains weak at least for the next 12 months, due to the financial crisis and slump in global trade.
“We are looking to sell a couple of more ships,” Bharat Sheth, deputy chairman and managing director of GE Shipping, told analysts on 30 January, after the company reported an 18% drop in net profit for the December quarter.
“This will also derisk a little more the open position we have in the dry bulk market,” he added.
Value erosion: The Jawaharlal Nehru Port in Navi Mumbai. Sale of ships has also been hit by falling asset prices, which in the case of dry bulk carriers have plummeted by about 70% in the past four-five months. Ashesh Shah / Mint
Though the company expects to take delivery of six bulk carriers in the next one-two years, it wants to sell its older bulk vessels to avoid spending large sums of money for dry docking, repairs and renewals when rock-bottom rates cannot recover even the ship operating expenses.
GE Shipping’s average day rate earnings from its dry bulk ships declined by 32% in the third quarter from a year earlier, as the Baltic Dry Index—a measure of costs for shipping dry bulk commodities—plunged 92% to 663 points in December, from a record of 11,793 points in May.
The company has sold nine ships since April—three tankers and six dry bulk ships. In the third quarter alone, it sold four dry bulk carriers for Rs27 crore.
GE Shipping has also been selling older single-bottom tankers over the recent past to comply with a global regulation to phase out such ships by January 2010. The company still has seven single-hull tankers in its fleet.
The sale of ships in both the segments has also been hit by falling asset prices, which, in the case of bulk carriers, have plummeted by as much as 70% in the past four-five months.
Sheth, however, admits that finding a buyer could be difficult. “Due to lack of financing globally, it is not easy to identify buyers,” he said.
The company had a taste of the liquidity squeeze when its planned sale of a five-year-old, mid-sized dry bulk carrier failed this month after the buyer defaulted. GE Shipping kept the advance paid by the buyer.
As a buyer itself, the company had to cancel orders for two new mid-sized dry bulk carriers it had placed with China’s Cosco Shipyard Group Co. Ltd “with a view to reduce risk in the current highly uncertain business environment”.
“We are not contemplating any more cancellations at the moment, though this is something that we would keep evaluating over the next several months depending on the global financial conditions,” Sheth said.
GE Shipping, meanwhile, is building 10 ships at a cost of Rs2,910 crore. Some of these vessels would be inducted into its fleet this year and the remaining over the next two years.
Rates for shipping dry bulk commodities showed signs of recovery in January, but continue to be “pretty poor” as they had plunged to record depths in December.
“The shipping rates will remain under pressure until we see economic growth pick up in OECD (Organisation for Economic Co-operation and Development) and non-OECD countries,” Sheth said. “According to various economic forecasts, this is unlikely in 2009.”
In the offshore segment, the firm has “pushed back certain payment terms and deliveries” of shipping assets worth Rs3,719 crore on order at various global yards, he said.