Considering that there was a debate over closing down the container business of Shipping Corp. of India Ltd (SCI) just a few months ago, the hike in container freight rates brings good tidings for the company.
Reports say that SCI has since 1 March hiked the freight rate of a 20ft container by around $300 (Rs13,740) on cargo from India to North Europe, the UK, the Mediterranean and Black Sea ports. Likewise, the rate of a 40ft container was hiked by $300-600. At present, shipping lines charge an average rate of $1,500 and $2,000 for a 20ft and 40ft container, respectively.
SCI was hit badly by falling trade due to the crisis. Its container rates for the India to Europe Service (ISES) dropped steadily from a high of around $1,800 during April-June 2008 to $250-400 during the October-December 2009 period. The liner and passenger segment, which is the retail arm of SCI accounting for around 22% of revenue, posted losses of Rs170 crore, Rs62 crore and Rs45 crore for the June, September and December 2009 quarters, respectively.
According to box shipping consultants, the hike in rates for India to northern Europe is the effect of the growing traffic and increasing container freight rates between China and Europe. When trade between China and Europe was on the ebb about six months ago and freight rates at an all-time low of barely $250 per container, global players also plied through Indian ports to cash in on any opportunity.
Graphic: Yogesh Kumar / Mint
The situation has now reversed.
“Capacity reductions as a fallout of recession, coupled with growing trade between China and Europe led to an upswing in rates from $250 to around $4,500 per container, which in turn forced global players to bypass less remunerative Indian ports,” explains an industry observer. Hence, Indian shipping lines such as SCI have got the opportunity to increase rates, as they are almost the only liners for India’s exports and imports.
Yet the hike in rates by SCI is barely enough to cover operational costs in the face of mounting losses of the liner division. Besides, the bulk carrier division whose revenues were cross-subsidising this division is also under pressure, with freight rates only gradually inching up.
SCI reported a net profit of around Rs241 crore for the nine months ended December 2009, around 67% lower than the year-ago period. Analysts’ opinion is that the container division could post a cumulative loss of around Rs250 crore during fiscal 2010. The silver lining is that Drewry, the global maritime consultant, has forecast that average container freight rates, including fuel surcharges, will be around 15% higher in 2010 than in 2009.
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