Shipping firms fail to encash fourfold rise in freight index

Hostile tanker indices could make debt servicing difficult

The fourfold rise in the global index for dry bulk freight shipping, the Baltic Dry Index (BDI), is a missed opportunity for domestic shipping companies.
 
The BDI stood at 1,162 on Wednesday, from a record low of 290 in February. While scrapping of several dry bulk vessels across the globe is given as reason behind the index’s rise, a conscious decision to use indigenously mined coal and low iron ore export from India is keeping domestic shipping firms away amid this rally.
 
“The government is encouraging use of indigenous coal. Due to this, the coal import business has come down by 25-30 per cent in the past year. Also, India was among the top exporters of iron ore at one point, at more than 50 million tonnes (mt) a year. Today, we have a cap of 20 mt. This change in the bulk trade structure has put the shipping sector into depression,” said Kiran Kamat, managing director at Link Shipping & Management.
 
According to the Indian Ports Association, the country’s major ports during April-October (first seven months of this financial year) imported 56 mt of thermal coal, down six per cent from the same period last year. Import of coking coal was down one per cent in this period. Iron ore traffic in April-October by major ports stood at 20 mt.
 
Alongside, the Baltic Dirty Tanker Index (for crude oil) and Baltic Clean Tanker Index (for petroleum), saving grace for shipping companies last year, show an adverse trend. “Falling oil prices had triggered increased trade in crude and refined petroleum. Vessels were also being used for storage. Due to this, tanker indices had moved up last year. This year, however, there is surplus storage and a fall in these indices,” said Hitesh Avchaat, analyst with CARE Ratings.
 
Since several shipping companies had renewed their oil contracts, now to a lower rate, their earnings will also come down subsequently, said sector officials.
 
Shipping Corporation of India, Great Eastern Shipping, Essar Shipping, Apeejay Shipping and Varun Shipping have had a tough business climate for some time. Though stress in this sector is not new, falling freight rates could make debt servicing more difficult for these companies, said banking officials.
 
They add that, in addition to lower shipping rates, many of these companies took loans at the peak of the industry cycle in 2007. “Companies were able to service debt comfortably for a few years, backed by contracts, which gave good income. Now, in the downturn, freight rates are weak and since repayment obligations remain, some companies are finding it tough,” said an official at a government-owned bank.

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