Bangalore: Indian shipping firms engaged in carrying dry bulk cargo such as coal or steel have started laying up vessels and even selling older ones as freight rates plunge to record lows amid the global economic downturn and credit crunch. A lay-up happens when a ship is withdrawn from trading operations.

“The market for dry bulk shipping is very bad. These are not the best of times for shipping companies having dry bulk ships," said R. Srinivasan, executive director at Chennai-based West Asia Maritime Ltd.

Slackening pace: A file photo of a capesize bulk carrier in China. The market for dry bulk shipping is very bad, says an industry player. Kevin Lee / Bloomberg

State-run Shipping Corp. of India Ltd (SCI), India’s biggest ocean carrier, has since last week laid up one of its dry bulk carriers that was due for dry-docking and special survey.

Frozen credit lines have paralysed the shipping trade since mid-September, drastically cutting down shipments and, in turn, the use of dry bulk carriers on traditional routes.

A lack of access to letters of credit, in which banks guarantee payment for merchandise, has added to the woes of the shipping industry.

The London-based Baltic Dry Index, a measure of cost for shipping dry bulk commodities such as coal, iron ore, steel and grains, has fallen about 93% to 663 points, a 22-year low since December 1986, after notching a record 11,793 points on 20 May this year. Great Eastern Shipping Co. Ltd, the country’s largest private shipping firm, has in the past two weeks signed contracts to sell three dry bulk ships. The firm is said to be in talks for selling at least two more, said ship brokers, who did not want to be identified.

Firms that until a few months ago ran their old dry bulk carriers after undertaking dry docking, surveys and renewals in a booming market, are now having to reconsider investing Rs5-6 crore for such an exercise because falling rentals will not cover operating expenses. In some cases, the rentals are so low that they are even below the standing charges that a company has to pay on crew wages, interest, depreciation, lubricating oil, diesel oil for power and management expenses ashore when the ship is at anchor.

SCI has decided to anchor one of its dry bulk carriers, the 23-year-old Lok Maheshwari, at a port in Gujarat. The ship was due for dry-docking and special survey this month.

“We have postponed that exercise. The ship will now wait at anchorage till we finalize what to do with it," said an official at SCI, who didn’t want to be identified because of the company’s policy on speaking to the media.

A spokesperson for the company declined to comment.

Apart from the 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.

Great Eastern has signed contracts to sell three of its dry bulk ships rather than spend money on dry-docking and survey and run them for some more time. “It’s a call on the market," said Anjali Kumar, spokesperson for Great Eastern. “Given the record low rentals, it is the most practical thing to do."

Great Eastern, unlike SCI, is an active asset player and through 2007-08 sold ageing tanker ships and bulk carriers as part of the firm’s strategy to exit from single-bottom ships that have to be phased out by 2010 under rules framed by International Maritime Organization, the global maritime regulator.

Dry bulk ships were sold to capitalize on the high premiums in the second-hand dry bulk asset market prevailing at the time, Kumar said.

This year, though, the firm has sold three dry bulk ships aged 31 years for $1.65 million (Rs8.12 crore), aged 24 years for $3.85 million, and five years for $24.5 million, the ship broker mentioned earlier said. “If you are getting even some value for a 31-year-old ship, due for a survey, it makes sense. Clearly, in this market, cash is king," Kumar of Great Eastern said. “Rather than spend Rs5-6 crore on a ship that doesn’t make any money or enough money to recover that cost, it makes sense to clean the fleet of such old ships."