A bleak future is staring India’s shipping industry in the face. Depleting demand growth and lower charter rates have made the sector too turbulent to operate in. The third quarter turned out to be one of the worst for industry players who have either incurred losses or seen profits fall steeply due to supply glut and higher bunker cost. The fourth quarter may turn out to be much worse, say industry officials, as well as analysts.
Companies such state-owned Shipping Corporation of India (SCI), Mercator, Great Eastern Shipping Company (GE Shipping), Essar Shipping and Varun Shipping Company are all going through a rough patch. The outlook of their counterparts abroad is similar.
G Shivakumar, chief financial officer of GE Shipping, said in a post-result analyst conference call, “The freight rates had been challenging and Baltic dry index had fallen more than 60 per cent year-on-year. The outlook did not look very bright either. There was oversupply of vessels and, still, up to 15 per cent of the vessels were to be delivered in the crude, product and dry bulk segments.”
However, the 33 million dead weight tonnage, which got scrapped during the year, constitutes roughly 5 per cent of the existing fleet. Therefore, there is still a 10 per cent growth in the fleet-size, while cargo growth is only 6-7 per cent, he added.
Globally, companies are seeking protection or have filed for bankruptcy. China Ocean Shipping Company (Cosco) has suffered a $1.3 billion loss in the last quarter, while companies such as US-based Overseas Shipholding Group (OSG) and Norway’s Sanco Shipping have filed for bankruptcy. In India, three vessels of Varun Shipping have been confiscated and Mercator has entered into early termination and settlement of in-charters of two vessels and has entered into an MoU to sell off a very large ore carrier. The company has recorded a loss of Rs 232 crore.
Sunil Thapar, director -- bulk and tanker, SCI, told Financial Chronicle that the trade imbalance in terms of demand-supply mismatch was creating the biggest pain. There may be some improvement in the bulk trade growth, which was growing at 5 per cent - 5.5 per cent, while the fleet growth was at around 4.9 per cent. “The gap has narrowed down and things may see some improvement by the beginning of the next financial year,” said Thapar.
However, the tanker division would still be under pressure till the end of financial year 2013-14 or the beginning of financial year 2014-15. At present, the Baltic Dry Index is only 100 points above its all-time low of November 2011. Hence, the situation was very similar to the worse that the sector had seen since the economic turmoil began in 2008-09, Thapar added.
Essar Shipping, which reported a Rs 17.85 crore year-on-year standalone profit in the third quarter, plans to enter into long-term charters as a strategy to help hedge the cyclical nature of the industry. A R Ramakrishnan, managing director of Essar Shipping, told FC that the pressure on trade would continue till the supply of tonnage drops.
“We believe that by the beginning of 2014-15, things would start to ease out for companies as the overall demand growth and the economic metrics would change for the better,” said Ramakrishnan.
According to Thapar of SCI, shipping companies, globally, may have some problems in the coming quarters with the stated policies of China, where it would continue to source its crude through the Burma pipeline and get at least 50 per cent of its global crude through their own ships. Also, the decision of the US to drop its crude imports, as its dependence on shale oil has increased substantially, would create problems.
Source: My Digital Fc