Mumbai: Analysts are predicting a bad year for shipping companies, with freight rates expected to remain low after a record delivery of vessels last year.
Fitch Ratings Ltd, in its latest report on Tuesday, said the 2011 outlook for India’s shipping industry is negative. The rating agency expects all shipping segments to face low freight rates because the net increase in capacity has exceeded demand.
Siddhartha Khemka, analyst at the domestic broking firm Centrum Broking Pvt. Ltd, said freight rates will remain under pressure globally this year due to oversupply.
“The shipping cycle is expected to recover only in financial year 2013, when the excess supply is absorbed,” Khemka said. “However, dry-bulk freight rates are likely to remain subdued with a negative bias, while tanker freight rates are expected to remain stable at current levels.”
At the end of last year, the global order book position for new builds as a percentage of existing capacity was around 46% for the dry bulk segment, 28% for tankers and 26% for container carriers.
With the new vessels expected to come into service over the next three years, Fitch also said the industry will witness oversupply and depressed freight rates until 2013.
Shipping being a worldwide industry, Indian companies are affected by global trends.
The debt levels of Indian shipping companies are not likely to reduce, and those with constrained cash flows are likely to face refinancing pressure, analysts said.
“Indian shipping companies are no different from global shipping companies. One cannot deny the oversupply issues as 2010 was (a) historic year for ship deliveries. Thus, rates are going to be under pressure in 2011,” said S. Hajara, chairman and managing director of the Shipping Corp. of India Ltd, or SCI, the largest shipping company of the country. Besides SCI, Great Eastern Shipping Co. Ltd, Mercator Lines Ltd and Varun Shipping Co. Ltd are leading companies that will be facing rate pressure.
Shares of Great Eastern Shipping and Mercator Lines rose 15.5% and 3.83%, respectively, in past six months while Varun Shipping lost 27.82% and SCI lost 22.77%.
But Khemka said Indian operators are better placed than global peers due to robust domestic demand, strong balance sheets and their diversified fleet, with a presence across tanker, product, dry-bulk and offshore segments.
“Companies with a greater proportion of their ships on long-term charters also cannot expect to be completely protected against the prevailing low charter rates,” Fitch said in its report.
There was a marked improvement in rates in the container segment compared with other segments in 2010. But rates continue to be lower than the peak levels of 2008.
According to the shipping ministry, average dry bulk rates peaked at $233,988 (Rs 1.06 crore) daily in July 2008 but dropped to a record low of $2,316 a day in December 2008, shedding 99% in six months in the wake of the global financial crisis. The rates have been recovering since then, but oversupply will dampen the pace of recovery, the analysts said.