Shipping rates see reverse trend for crude, bulk carriers

Freight rates for shipping tankers and bulk carriers have seen a reverse trend in the last three weeks, as the approaching winter increases the demand for crude carriers while the rising inventory of iron ore in China dampens the requirement for the vessels it is carried by.

The Baltic Dirty Tanker Index, a benchmark for the freight rate of crude carriers, rose 20 per cent in three weeks to 565 on Friday. The Baltic Dry Index, a benchmark for the freight rate of dry bulk carriers, dropped by 10 per cent to 2,183 in the same period.

“It is only the winter effect that has helped the tanker rates move up,” said K S Nair, director (bulk carrier and tanker segment) at the Shipping Corporation of India, the country’s largest shipping company, which has a fleet of over 80 ships. “Freight rates are not expected to have surprises in the next one year,” he said.

The company’s stock has dropped 2.5 per cent to 138 a share on the Bombay Stock Exchange in the past three weeks. Sensex, the benchmark index of the exchange, gained 4.2 per cent to 16.693 in that period.

Bulk carriers can handle their operational cost at the 4,000-4,500 index level and running at the current freight rate is tough. According to Nair, it is the high inventory of iron ore in China that has affected the freight rate for the bulk carriers.

“For tankers, depending on the routes, some players are able to recover the operational cost even at these levels,” said Yudhishthir Khatau, managing director, Varun Shipping. “But it is too early to say whether it is cyclical effect of approaching winter or it is headed for a long-term recovery,” he said. Stock of the company gained 1.6 per cent to Rs 60.15 a share on the Bombay Stock Exchange in three weeks.

Consumption of oil in western countries increases in winter on account of the heating requirements and usually this period sees an uptake in demand for tankers. However, Jehangir Adi Master, a shipping industry analyst with ICICI Securities, says: “Freight rates are set for gradual recovery.”

He estimates the Baltic Dry Index to rise by 20 per cent by the end of the current year as economies have been recovering globally and demand picking up. “Tanker rates may also rise by 20 to 25 per cent by the end of the year,” he said.