Bangalore: Indian shipowners are laying up more vessels that carry dry bulk commodities such as coal, iron ore, steel and grains, and even cancelling orders for new ships despite a rebound in the London-based Baltic Dry Index (BDI), a key measure of the health of global trade.
Last week, Great Eastern Shipping Co. Ltd, India’s biggest private ocean carrier, cancelled orders for two new mid-sized dry bulk carriers it had placed with China’s Cosco Shipyard Group.
The firm said it had cancelled the orders “with a view to reducing risk in the current highly uncertain business environment”.
Testing times: A file photo of a dry bulk vessel owned by China’s Sinotrans Shipping Ltd. / Bloomberg
State-run Shipping Corp. of India Ltd (SCI), India’s biggest shipping firm, has most recently laid up one more of its dry bulk carriers—the 12-year-old Maharashtra—that was due for dry docking and special survey. In December, SCI had laid up the 23-year-old dry bulk ship Lok Maheshwari, which was also due for dry docking and special survey.
Lay-up is a shipping term that means temporary cessation of trading of a vessel by the shipowner.
Apart from routine annual maintenance, a ship has to undergo dry-docking twice in five years and a special survey every four years to be allowed to operate under global maritime regulations.
Firms that until a few months ago ran their old dry bulk carriers after undertaking dry docking, surveys and renewals are now reconsidering investing Rs5-6 crore for such an exercise because falling rentals no longer can cover operating expenses. The latest lay-ups and order cancellations come in spite of the BDI bouncing back.
On Wednesday, the index climbed 9 points to 920 points from 911 points on Tuesday.
The index, which measures costs for shipping dry bulk commodities such as coal, iron ore, steel and grains, had plunged to to 663 points in December from a record level on 20 May, pushed down by a credit squeeze and waning demand for global trade.
Frozen credit lines have paralyzed the shipping trade since mid-September, drastically reducing shipments and, in turn, the use of dry bulk carriers.
A lack of access to letters of credit, in which banks guarantee payment for merchandise, added to the problem.
As for the recent rally in the BDI, experts are hesitant to read it as an indicator that the market has turned.
“It is not a sustained rally as of now,” said T.V. Shanbhag, group adviser to India’s biggest ship-broking firm, Mumbai-based Trans Ocean Agency Pvt. Ltd. “It is momentary. The problems with letters of credit persist.”
He added that given the extent of the fall over the past few months, a minor improvement of even 5% or 10% will not make a difference.
Others, however, suggest the sharp fall was inevitable because the index had been heavily oversold.
“As a result, even some positive development could lead to some kind of a recovery in the sector,” K. Ramachandran, chief investment officer at Barclays Wealth, the wealth management business of Barclays Bank Plc., said by phone from Mumbai. “It could be a technical bounce-back.”
Conditions should become clearer when China, the world’s biggest importer of iron ore, completes price negotiations with suppliers for its new annual contract beginning February, said Ramachandran.