Shipping companies are likely to report lower earnings for the second quarter of the current fiscal, with the global freight markets remaining lacklustre during the period.
The freight market, both in the tanker and the dry bulk segments, fell
steadily during the three months in the spot market and plummeted to
levels far below those that prevailed during the year-ago period.
Bleak outlook
There were no definite signs of recovery even by October first week and
analysts expect the market to stay weak in the coming months.
Shipping companies do not appear to be bullish on their earnings in the
coming quarters, with most betting on the long-term to duck
uncertainties in the spot market.
"Earnings from shipping remains uncertain, as global economies are
still recovering. It is not going to be easy to judge how long this
will take - it is going to be a long process. No one can really put a
number to earnings.
Outlook for the next 12 to 18 months is not very bullish. Over supplies
will further hit freight rates in the coming months," says Mr V. Ashok,
Director of Essar Shipping Ports and Logistics Ltd.
In the tanker segment, the earnings a day for a very large crude
carrier (VLCC) fell from an average $17,247 in June to $5,128 in July,
$5031 in August and $3212 in September.
Ship owners got an average $4514/day for a VLCC during the second
quarter against $11,209 in the first quarter of the current fiscal.
This is way below the average earnings of $94,335 and $67,208 during
the first and second quarters of the last fiscal.
Suezmax segment
Similarly in the Suezmax segment, the average earnings a day during the
second quarter of this fiscal were $3362 against $10,482 in the first
quarter. Last fiscal, shipping companies received about $63,312 and
$51,143 a day during the first two quarters respectively.
In the dry bulk side, things were no better. The Baltic Dry Index
(BDI), an indicator of the cost of shipping key commodities such as
grains, iron ore and coal across major sea routes, flagged from 3,823
in June to 3,362 in July, 2,685 in August and 2,351 in September.
During the entire second quarter of the fiscal, the BDI hovered around
an average of 2,811 compared with 7,104 in the corresponding quarter of
last fiscal.
"Overall, freight rates for tankers have fallen about 40-60 per cent
over last year, while dry bulk carriers earn about 70 per cent less
than last year," an analyst said. He added that India and China are the
key growth drivers and the freight market movement will largely hinge
on how these two countries rev up their economies.
To hedge themselves from the risk of the uncertainties in the freight
market, shipping companies are increasingly deploying their ships in
the long-term market on a fixed rate basis, although the spot market is
usually known to yield better returns. Says Mr Ashok of Essar Shipping:
"To insulate our company from the cyclicality of day rates
acrosssegments, ESPLL has put most of its vessels on long-term
contracts. Some of these vessels will come up for renewals in April
2010."
Source: The Hindu Business Line
