The recent cataclysmic developments in the global financial markets had pulled down freight rates
The global freight market may continue to remain choppy in the coming weeks, although the slide may not be as sharp as it was in the last few weeks.
This was the dominant view amongst the clutch of Indian ship owners, who are experiencing a squeeze on their earnings due to a sharp decline in freight rates.
The recent cataclysmic developments in the global financial markets, coupled with tamed import of raw materials like iron ore and coal by China, had pulled down freight rates, especially in the dry bulk segment, sharply in the last few weeks.
With both these factors expected to continue its impact on the freight market, shipping companies do not anticipate a quick bounce-back of the rates.
?I think the rates will remain subdued in the coming weeks, although I feel the worst is over in terms of drop in the rates. In the last couple of days we have seen a slight improvement in the dry bulk rates,? Mr. H.K. Mittal, Chairman of Mercator Lines, said.
Stocks take beating
Stocks of shipping companies had taken a harsh beating on the bourses in the last one month, their fall out-pacing the fall of the Sensex.
Mercator Lines registered a 39.78 per cent drop in stock prices in the last one month, from Rs 81.70 to Monday"s closing price of Rs 49.20.
Similarly, SCI stocks slid from Rs 213.05 a month ago to Rs 138.55 today, a drop of 34.97 per cent.
Stocks of Great Eastern Shipping and Varun Shipping also fell by 28.55 per cent and 23.87 per cent respectively.
Clearly, the fall in stock prices of these companies outpaced the fall in Sensex, which shed 18.52 per cent in the last one month.
Says Mr K.M. Sheth, Chairman of Great Eastern Shipping: ?Low Chinese off-take of raw materials and the crisis in the global financial markets were the main reasons for the fall. Companies that have more of long-term contracts and less exposure in the spot markets will be better off than the others.?
Low freight rates have even brought down asset prices. ?We have seen a dip in the prices of second-hand ships. I feel the uncertainties will continue for some more time, which will continue to impact freight rates,? Mr V. Ashok, whole-time director of Essar Shipping Ports & Logistics Ltd, said.
Essar Shipping has almost all its fleet under long-term contract, ranging from three to five years, he added.
Dry bulk earnings had dropped across all categories of assets, especially from July. For example, as of the first week of September, Panamax earnings stood at $39,750 a day, a decrease of 34 per cent since July end. Capesize earnings saw a sharper drop of 58 per cent in this period.
Reports indicate that the freight market was also impacted by lower iron ore movement, which was driven by rumours that Brazilian iron ore miner Vale had been attempting to re-negotiate its long-term contracts with Asian steel mills.
Shipping companies however are more optimistic on the tanker rates, including those for very large crude carriers, in the coming weeks. With winter approaching, the companies expect the rates in the tanker market to firm up, as there would be increased movement of oil for heating purposes.