Weak rates to affect shipping cos' profits

The outlook for the shipping industry in India does not look upbeat, with sales expected to fall by three per cent and freight rates likely to remain weak this financial year.

“Our top line will be impacted due to weak freight rates. The rise in crude oil also has a direct effect in terms of bunker. Since crude is high, people postpone their transport requirements, hoping the rates may go down,” said Ajit Khot, regional director, Indian National Shippers Association. Khot is the general manager at Great Eastern Shipping Company.

A substantial addition to the fleet during the past two years will also add to the shipping firms’ expenses. From 867 ships in 2007-08, the fleet size increased by 16 per cent to 1,003 in 2009-10. “We had a boom in 2008. A lot of new building ships were added, which would be due for delivery even though the markets don’t look very good,” Khot added.

According to the Economic Survey released yesterday, the industry’s profit after tax is expected to decline by 3.3 per cent in 2011-12, with sharp growth in depreciation charges and interest expenses, which is likely to eat into a major portion of the industry’s operating profits.

Essar Shipping’s profit after tax fell by 26 per cent in the first half of this financial year to Rs 41.67 crore, as against Rs 56.19 crore in the year-ago period. In a presentation to investors, the company recently said the tanker markets were choppy and spot rates were not picking up despite the approaching winters.

“In the shipping industry, our strategy of long-term charter of vessels played as a natural hedge against the cyclical nature of the industry,” said Rajiv Agarwal, managing director & CEO, Essar Shipping Ports and Logistics.