Tanking freight rates on the back of the coronavirus epidemic in China are likely to hurt the earnings of Indian shipping companies in the March quarter. “Freight rates have tumbled significantly and are impacting SCI (Shipping Corporation of India) across segments. We have seen the damage in January already. Our Q4 earnings are most likely to be affected due to this,” said Harjeet K. Joshi, chairman of state-owned SCI on Friday. She was speaking on the sidelines of an ASSOCHAM event held here.
SCI reported consolidated net sales of Rs 1,25,761 crore in December quarter, up 17 per cent over the same period last year with strong contribution from the tanker segment.
“We had robust performance in the third quarter, mainly from tankers. Now, tanker freights have softened. So, we are in a wait-and-watch mode. There is impact on every segment for us but it is varying,” said Joshi, without detailing the quantum of impact on each of its businesses. Liners, offshore, bulk carriers, tankers and containers are the business segments of the SCI.
Coronavirus was first detected on December 8, 2019, and by January 1, 2020, Chinese authorities pinpointed the source to a seafood market in Wuhan, said reports. By the end of January, about 9,700 cases were detected and 213 deaths reported. By February 3, there were 17,000 confirmed cases and, as on date, the number stands at 28,000, informed industry officials.
“The coronavirus impact is much bigger than what the market had predicted. We are helpless and simply watching the market at present. Nothing can be done,” said Anil Devli, chief executive officer (CEO) of Indian National Shipowners’ Association (INSA)
The Chinese New Year (January 25, 2020) is the time when most native Chinese workers travel to their hometown for the festival. On this day, Wuhan was cordoned off and transportation restrictions imposed in most parts of the country because of the corona epidemic. On February 1, all international flights to China were cancelled and this brought down the country’s fuel consumption drastically.
China consumes 16 per cent of the total global oil production. Lower consumption led to a drop of about 4 per cent in crude oil import by China. This, in turn, has heavily impacted the transportation of oil by sea.
“The very large crude carriers (VLCCs) that were trading at over $100,000 per day in December have dropped to $15,000 per day as on February 7,” Captain Rahul Bhargava, director of commercial & operations at Essar Shipping told Business Standard via email. Similar impact has been felt on dry bulk cargo movement, he added.
The Baltic Dry Composite Index (BDI), which was trading at about 1,500 on December 10, dropped to 976 on January 3. It was trading at 431 as on February 6. Baltic Cape index, for the first time in the history of the Baltic Index, dipped to negative digits on January 31 and is now trading at a negative 187. For on-time charter yield of equivalent Cape-sized vessels, freight rate has come down to $3,000 per day from $22,000 per day. Similarly, Panamax vessel freight has come down to $3,400 per day from $12,000.
“All the sections of the dry bulk trade have lost about 75 per cent to 85 per cent of earnings in the last one month,” said Bhargava. Supramax and Handysize vessels are part of the dry bulk trade section along with Cape and Panamax, among others. However, Great Eastern Shipping, India’s largest private sector shipping company, is of the view that the epidemic alone is not responsible for the drastic fall in freight rates.
“Economic slowdown and lifting of Cosco sanctions by the US, which brought vessel supply into the market, have also led to the fall in freight rates,” said a company source. “The next one month will be crucial and we are watching,” source added. On September 25, the US laid sanctions on Cosco Shipping Tanker (Dalian) and Cosco Shipping Tanker (Dalian) Seaman and Ship Management for trading oil with Iran. Those sanctions were lifted by the US last week. Cosco Shipping controls more than 5 per cent of the global VLCC fleet.