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Business News/ Market / Mark-to-market/  Shipping: angry seas still
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Shipping: angry seas still

Expected capacity additions in dry bulk, tanker segments is likely to keep freight rates under pressure

The problem of oversupply of vessels continues to put pressure on freight rates, affecting the financial health of local shipping firms. Photo: Mint (Mint)Premium
The problem of oversupply of vessels continues to put pressure on freight rates, affecting the financial health of local shipping firms. Photo: Mint
(Mint)

The shipping industry has been riding choppy waters for quite a while. The problem of oversupply of vessels continues to put pressure on freight rates, affecting the financial health of local shipping firms.

In the December quarter, Shipping Corp. of India Ltd posted a net loss of 75 crore. In the September quarter, it had a profit that was driven by an extraordinary item.

Operationally, the firm continues to sail in stormy weather. December-quarter revenue from both businesses—liner and bulk— declined year-on-year by 26-28%.

The company’s operating revenue declined by as much as 22% from a year ago. The bulk goods business, its biggest revenue contributor, posted losses at the earnings before interest and tax (ebit) level for the last two quarters, in the range of 110-126 crore.

In complete contrast, Great Eastern Shipping Co. Ltd, another major company in the space, has been performing well because its offshore business is the saving grace. It is expected to continue to do well in future as well.

In the December quarter, the offshore revenue declined by 2% year-on-year, but then, at 37% of the Great Eastern’s revenue, it is still significant. Moreover, the offshore business profitability was strong and the ebit increased by as much as 44%, contributing about 55% of the total ebit. A combination of strong operating performance, higher other income and decline in finance costs helped the company’s overall financial performance in December.

While Great Eastern continues to do better than Shipping Corp, the shipping business continues to be roiled by rough seas. Expected capacity additions in both dry bulk and tanker segments is likely to keep freight rates under pressure.

When will the business get better?

Analysts expect it to show improvement in 2014. As far as the dry bulk market is concerned, “due to severe crunch of funds, ship financing too has suffered and has resulted in significant slowdown in new building orders, providing one of the few positives for the industry," Great Eastern said in a results statement.

Unfortunately, these are not enough to improve sentiments for the shipping industry for now.

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ABOUT THE AUTHOR
Pallavi Pengonda
Pallavi Pengonda is a financial journalist producing cutting edge commentary and analysis on companies, economy and market trends. Over her journalism career spanning more than 14 years, she has covered topics across sectors such as oil & gas, consumer, aviation and new age tech companies. She heads the Mark to Market team and joined Mint in June 2010. She lives in Bengaluru. She is an art enthusiast and likes to paint in her leisure time.
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Published: 17 Feb 2013, 04:29 PM IST
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