Freight rates surge on commodity boom

Shipping freight rates are rising on the back of the commodity boom. The Baltic dry bulk, tanker segment, and other freight indices are rising fast for the past few months, following good demand in India, China, the Atlantic market, and the Gulf coast. The Baltic dry bulk index is up 45.3 per cent this year even after a small correction in the past few weeks, and has achieved more than a three-year-high level.
 
The Baltic dirty tanker index, reflecting movements in crude oil, in the past three months went up 33 per cent after a surge in Brent oil on expectations of production cuts by the Organisation of Petroleum Exporting Countries (OPECs), and geopolitical uncertainties in the region.
 
Similar movements have been seen in the S&P Platts shipping freight indices, which hold good for routes on which Indian ports fall. The past two weeks have seen some correction from higher levels but the consensus of freight agents, analysts, and shipping companies is that that trends in the shipping freight market are expected to remain firm.
 

Compiled by BS Research Bureau; Source:S&P Global Platts

Will it help shipping companies to revive their fortunes? That depends upon how many companies are in a position to cash in on high freights.
 
An executive of Shipping Corporation of India said, “Many companies have seen margins improving but it’s not significant and shipping companies are still not breaking even.” He said there was a lot of instability and volatility in the market. The past two weeks’ small correction shows while overall trends will remain firm in the case of freight, movements will not be one-sided.
 
Pradeep Rajan, senior managing editor, Asia Pacific Shipping & Freight, S&P Global Platts, said: “The dry bulk freight rates had registered a spike during September and October after steadily rising since the beginning of the second half of 2017 in the Asia-Pacific mainly due to the demand for coal in China and India.”
 
A CARE Ratings report on power plants says: “Rajasthan, Maharashtra, Karnataka and Andhra Pradesh have been highly affected by the coal-shortage.”
 
The tanker market, another important segment, has also seen demand despite the production cuts by OPEC and reports of the cuts being extended. “The rates from the start of the second half of the year have found support mainly due to the increase in the movement of crude oil from the Atlantic basin to Asia,” said Rajan.
 
Due to a wide gap in prices of Brent and WTI oil, some imports coming from Gulf nations have been replaced by US shale oil because prices of WTI oil are lower by 10-12 per cent. Rising imports from the US are keeping very large crude carriers employed for longer durations.
 
Internationally, even a strong Atlantic market, mainly due to a very robust grain market on the east coast of South America and the US Gulf Coast, drew vessels from the Asia-Pacific into the Western hemisphere, which tightened ship availability in the Asia-Pacific region. So while on the one hand vessels in the dry bulk segment were in demand, the slow entry of newly-built vessels into the market is curtailing the addition of more tonnage. The past two weeks’ correction from the peak has been attributed to a slow grain market in the Atlantic.
 
Apart from the coal demand in India, Rajan said, “The burgeoning Indian exports of steel, iron ore, pellets etc have provided ample demand for the Supramax class vessels.”  A Shipping Corporation official said, “China is under watch as coal and ore import demand is expected to go up.”