It hasn’t been a good run for the shipping companies since last year. Continuing with the trend, the market leader Shipping Corporation of India (SCI) has recorded a massive first quarter loss of Rs 55 crore. For shipping companies, the current year, too, looks bleak.
The Indian shipping companies are facing the oversupply issues as the demand for vessels are failing to match. Shipping companies and analysts do not expect the situation to improve before the next financial year.
This means the freight rates will continue to be under pressure for the current financial year. This, combined with higher fuel costs, known as bunker oil, is adding to the woes of shippers. Niket Shah and Manoj Bahety of Edelweiss Research in a report dated July, said, “Oil demand is likely to grow at one per cent in the year 2012 while seaborne trade is likely to grow at three per cent.
|IN THE BLUES
- Freight charges continue to stay under pressure as shipping companies face oversupply issues
- Price for Bunker Oil, fuel used aboard ships, is up 40 per cent
- Meaningful rise in the freight rates looks uncertain due to massive growth in new fleet
However, supply is at a record high with order books in the tanker segment at eight per cent and six per cent of the fleet size in 2012 and 2013, respectively and 16 per cent and seven per cent of the fleet size in dry bulk segment in 2012 and 2013, respectively, thereby keeping freight rates under check.” The cost of the bunker oil is up 40 per cent on an year-on-year basis and is showing no signs of retreating. During its quarter one results earlier this month, SCI said the company hopes to tide over the current issues earliest by the middle of 2013.
S C Hajara, managing director, SCI said even though the shipping business grew sufficiently during 2010 and 2011 to keep businesses afloat, the glut in capacity saw ship supplies outstrip demand.
The company reported a net loss of Rs 55 crore in the quarter ended June 2012 as against a net loss of Rs 5.8 crore in the same quarter last year. GE Shipping has a fleet of 32 ships and reported a 11.32 per cent jump in its net profit for the June quarter.
The company, in a statement, said, “Even though scrapping has witnessed significant improvement, the prospects of any meaningful rise in the freight rates looks uncertain because of the massive new fleet growth. Adding to this are various factors like sluggish Chinese demand, rising inventories, etc, which are further putting pressure on the existing weak market.”
The company, in a statement, said, “Even though scrapping has witnessed significant improvement, the prospects of any meaningful rise in the freight rates looks uncertain because of the massive new fleet growth.
Adding to this are various factors like sluggish Chinese demand, rising inventories, etc, which are further putting pressure on the existing weak market.”
Niket Shah and Manoj Bahety of Edelweiss Research in a report dated July, prior to GE Shipping’s quarter one results, said, “Firm crude prices, higher E&P spending and strong demand, especially from East Africa and Southern America, is creating better demand-supply scenario for offshore vessels.” GE Shipping expects utilisation to remain at higher level as most vessels are on long-term charter and estimates day rates to remain stable and moving forward, thereby driving growth.
Also, SCI is looking at teaming up with ONGC to haul the equipment requirements of the latter. The offshore segment and hauling of LNG has been growing steadily for the sector and SCI hopes to piggyback this demand rise to improve its numbers. Essar Shipping, which posted a rise in net profit from Rs 18.83 crore in the June quarter last year to Rs 53.90 crore, said this was possible mainly due to the oilfields business.
The revenues in this business grew by 91 per cent for the company. A R Ramakrishnan, managing director, Essar Shipping also stressed the dry bulk and tanker segments are expected to remain under pressure over the next few months as the economic situation continues to be challenging.
Essar managed to grow revenues from its sea transportation business by 53 per cent in the quarter ended June because of the cargo from group companies like Essar Steel and Essar Power. The shipping boom in 2004 caused a huge built-up of orders which is now leading to the supply outstripping the demand of vessels. Combined with the slowing down of global economy and China, the freight rates are under check with no signs of moving north at least till the next financial. Till then, its a rough sea for shippers.