Shipping rates sail south, hit bottom lines

Shipping companies are once again headed for a tough time, as the freight rates for dry bulk carriers fall. The Baltic Dry Index, the global benchmark for the freight rates of such carriers, fell 40 per cent to 2,501 on Friday against 4,209 a month earlier, as China takes steps to cool its inflation by bringing down production.

“We are certainly hurt, as too many vessels are chasing less cargo,” said K S Nair, director of the bulk carrier and tanker segment of government-owned Shipping Corporation of India (SCI). The largest shipping company in the country, it has 18 dry bulk carriers of its fleet of 76 vessels.

The SCI stock gained two per cent to Rs 160.6 a share on the Bombay Stock Exchange in the past month against the rise of 7.2 per cent in the Sensex, the benchmark index of the exchange.
 

SOME SAIL THROUGH
BSE price in Rs	May 26, ‘10	Jun 25, ‘10	% chg
Essar Shipping	79.05	87.65	10.88
Mercator Lines	44.40	46.55	4.84
GE Shipping	283.80	295.89	4.26
Shipping Corp	156.90	160.65	2.39
Sensex	16387.84	17574.53	7.24
Baltic Dry Index	4209.00	2501.00	40.50
Data compiled by BS Research Bureau

“We have our ships on two to three months contracts and such a sharp fall in freight rates directly impacts our business,” said Nair.

“China is currently utilising its inventory and importing less of iron ore and that has impacted the demand for dry bulk carriers,” said Param Desai, an analyst with Mumbai-based Angel Broking.

Private companies like Mercator Lines, GE Shipping and Essar Shipping are insulated from this drop in freight rates to a large extent, as their ships are largely on long-term contracts.

Mercator, with 16 bulk carriers, has about 80 per cent of it on long-term contracts of over a year. That largely insulates it from the current fall in rates. Its stock was up by 4.8 per cent to Rs 46.5 in the past month. Similarly, GE Shipping, with six dry bulk carriers out of 35 vessels, has the impact limited to only four of the former. The stock of the company rose 4.2 per cent to Rs 295.8 a share in the past month.

Essar Shipping has its seven dry bulk carriers on a long-term contract of over three years and that has protected it against the sharp fall.