Shipping firms sail in rough seas

NEW DELHI: Faced with declining freight rates and under-utilisation of capacities, shipping firms are sailing in troubled waters.
While freight rates of goods exported from India to US and Europe have come down by more than 40% between July and November, capacity utilisation of the ships has slipped below 60%.
The leading shipping lines operating between India and Europe and the US say that the freight rates have dropped to $700 from $1,000 and $1,600 from $1,900, respectively, for every 20-foot equivalent unit (TEU).
Erosion in earnings and operating profit margins are also taking toll on the stock prices of the shipping companies, with their scrips losing between 15% to 37% between June and October. Varun Shipping has fallen 15%, while GE Shipping has slumped 20% and Shipping Corporation of India (SCI) 30%. Essar Shipping has been the biggest loser, slipping about 36%.
The freight rate has fallen primarily due to global slowdown, which has impacted demand. V Kumar, MD, Bharti Shipyards Ltd said reduction in world trade has affected freight rates.
Rajeev Gupta, joint secretary in the ministry of shipping, road transport and highways says, freight rates are also tumbling because of the general correction in global commodity prices.
Kumar adds that shipbuilders have been working on capacity expansions over the last 18 months to encash the boom in global trade.
So a large number of new ships are expected to hit the maritime traffic lanes in 2009. But if demand doesn't pick up soon, the shipping lines will not be able to recover their costs.
Anil Devli, executive director with Shreyas Shipping and Logistics, says that there are a lot of uncertainties regarding where the global trade and commerce is heading. The rates will stabilise once some clarity emerges.
Most of the companies, however, say the fall is temporary and freight rates will bounce back soon. State-owned SCI is in a slightly advantageous position as it is diversified in tanker, container and offshore businesses. However, most of the companies expect the dry bulk rates to remain low for three to six months.