Ship freight rates fall by 40%

The recent drop in crude oil prices has again brought down the freight rates by another 30-40 per cent for the cargoes exported from India through containers to the US and Europe.

For the second time in the last two months, shipping companies have passed on the benefits due to drop in the crude oil price, which touched $43 a barrel on Wednesday, to the their customers. It may be recalled that the companies had reduced freight rates by 25-30 per cent in October.

According to industry representatives, freight rates on the India-Europe route have come down to $600 from $800 for a twenty-foot equivalent unit (TEU), while for a forty-foot equivalent unit (FEU) rates have dropped to $1,400 from $1,600 two months back.

Similarly, rates for the US ports have come down to $600 from $900 a TEU, a drop of 33 per cent.

According to representatives of shipping lines, crude prices dropped almost 70 per cent over the past five months, from a record high of $147 a barrel in July to a 17-month low of a little below $43 a barrel on Wednesday.

This, in turn, brought down the bunker adjustment factor (BAF) to 8-10 per cent (on the freight) from 17 per cent.

Industry representatives said the current global economic downturn had also brought down the exports of goods by 8-9 per cent.

S Saravanan, who represents a European shipping company that operates on the India-Europe route, said the global economic slowdown had also resulted in a drop in the freight. During this time every year, cargoes wait for ships. This year, the ships are waiting for cargoes. “The current capacity utilisation is around 55-60 per cent only,” he said.

Freight rates on this sector would fall another $100 due to over-capacity, said a Delhi-based shipping consultant. He said currently over 45 ships were operating in this sector and another six were expected to be added by the year-end. This would increase the capacity and bring down the rates further, he added.

A senior representative from a US-based shipping line said that crude oil prices had come down to $43 a barrel from $147 in the middle of this year. When the crude oil prices increased, the shipping lines were left with no choice but to increase the freight rate.