Higher rates a relief for shipping lines3 min read . Updated: 23 Oct 2007, 12:49 AM IST
Higher rates a relief for shipping lines
Higher rates a relief for shipping lines
A global shortage of ships to haul dry bulk commodities such as coal, iron ore and steel has affected Indian coal importers and iron ore exporters. But the steep rise in freight rates for moving these commodities has come to the rescue of local shipping firms that had been hit by a sharp drop in tanker freight rates, a market that fetched a big chunk of their revenues so far.
“The freight rates for moving dry bulk commodities have risen by almost three-four times in the last one year across all routes," says Umesh C. Grover, director, technical and offshore, at India’s largest shipping firm, the state-run Shipping Corp. of India (SCI).
Public sector steel makers such as Steel Authority of India Ltd (SAIL) and Vizag Steel have been hit by this boom in the dry bulk freight rates. SAIL imports about 10 million tonnes (mt) of coking coal a year, mostly from Australia, to fire its steel plants. The firm was paying $25-26 a tonne on freight till last year for moving the commodity from Australia. “This has now jumped to about $70 a tonne," said a company official who did not want to be named.
The rise in shipping rates has increased SAIL’s annual freight bill from about $250 million a year to nearly $500 million annually.
Vizag Steel also had to contend with a similar hike. While it spent $25-29 a tonne as ocean freight a year ago for importing 3-4mt of coal a year from Australia, this has jumped to $65-68 a tonne now, a company official said.
“Everybody is suffering because of the surge in dry bulk freight rates," said the official, who did not want to be named because he is not authorized to speak to the media.
The freight hike has made coal imports costlier for Indian buyers and the increased cost could be passed on to consumers, he added.
The rise in dry bulk rates has pushed up the price of iron ore exported from India to China and other countries. India exports about 80mt of ore a year to buyers in China, mostly on a spot basis, while an additional 25mt or so is sold annually to customers in Korea and Japan on yearly contracts.
“The freight rate for moving iron ore from India to China has risen by almost 100% in the last six-seven months," says Arun D. Rozario, deputy general manager at state-run commodity trader MMTC Ltd. The freight rate for shipping ore to China, which was $18-20 per tonne about six months ago, is now ruling at $35-40 a tonne, he said.
The higher freight costs have to be borne by the Chinese buyers because most of the cargo is sold on freight-on-board (f.o.b) basis, wherein the buyer has to make the shipping arrangements.
The higher earnings from operating dry bulk ships have helped local shipping firms post good results for the second quarter ended September despite a downturn in the tanker freight market.
Great Eastern Shipping Co. Ltd, India’s largest private shipping firm by fleet size and revenues, earned Rs806.16 crore during the July-September quarter, about one-fourth of which came from operating 12 dry bulk carriers.
The company expects its dry bulk carriers to contribute 30-35% to its income in the coming quarters and is buying three more bulk carriers to cash in on the boom in shipping dry bulk commodities, according to a company official, who did not want to be named.
Other firms such as SCI, which operates 20 dry bulk ships, and Mercator Lines Ltd, with a fleet of eight owned dry bulk carriers, are expected to post similar results on the back of strong dry bulk earnings when they announce their second quarter financial results in the next few days.
On 5 December, Tata Steel Ltd had signed an agreement with Japan’s NYK Line to float a 50-50 joint venture shipping company for operating dry bulk and break bulk cargoes.
“In future, Tata Steel would require to transport large quantities of raw materials and finished steel which necessitates strategic control over logistics.
“Besides, we see a huge potential for this company in India," B. Muthuraman, managing director, Tata Steel, had then said in a statement.