News Content

Misleading signals

Last year, the shipping industry saw about 33% lower deliveries, and analysts felt that the market was finally stabilising. The lower delivery of vessels also helped soothe the oversupply situation in the industry. Ironically, the lower deliveries, and higher daily rates, last year led to another challenge—that of shippers placing more orders.

New orders placed almost trebled in 2013 from the previous year as shippers expected the market to be on the verge of a turnaround, hoping that demand will soon return. Shippers across the world went on an ordering-spree yet again, especially in the second half of the year.

The Baltic Dry Index (BDI), which tracks transport costs on international trade routes for dry bulk commodities such as coal and iron ore, went up a whopping 225% to 2,277 points at the end of December 2013 from 780 points in January. But in the new year, the index was on a downward trend—falling to 1,002 points as on Friday last.

“Some parts of the last year saw a supply crunch, which led to higher rates. Seizing this opportunity, shippers went on an ordering-spree expecting things to improve again and assuming that the market is turning around. Daily rates had peaked on some routes if compared to the last four years,” says Rahul Sharan, lead research analyst at Drewry Shipping Consultants.

On balance, 2013 had been a decent year for the shipping industry with the BDI spiking on the back of increasing demand for iron-ore by China and higher coal imports by India.

Shippers across the world ordered more than 5,000 very large ore carriers in 2013, from barely 250 orders placed in the previous year. Over the last few years, the industry has been seeing larger ships being ordered. Bigger ships are more adaptable for developing ports where dredging is not deep. “We have been noticing that now even the bigger ships are carrying grains and other items, apart from ore and coal,” says Sharan.

A recovery in the market had been expected in the second half of 2014. But with a high number of ships ordered, there seems to be another round of oversupply situation coming up soon. Overall, the growth remains slow and weak, according to Arun Gupta, chairman and managing director of the Shipping Corporation of India (SCI).

Indian shipping companies have been prudent. SCI cancelled orders for building seven ships—two container ships, four offshore vessels and one bulk carrier. SCI had reported a loss of R114 crore FY13, and a loss of R428 crore in FY12.

‘Shipowners adopted various measures to save costs and increase their margins. Since bunkers are one of the key components of operating cost, operators considered various options, including slow steaming, installation of a Mewis duct and even ordering of ecoships’, a report by Drewry Shipping states.

“Ordering newbuild ecoships is not the ultimate solution in the current market conditions since all new buildings will add to the existing supply and result in a general decline in freight rates,” the report adds.

Globally, the shipping industry saw the sharpest rise in freight rate when the index touched 11,793 in May 2008, soaring from 2,468 in January 2006. Freight rates rose as China imported record iron ore and coal prior to build infrastructure.

Excited about the high rates, shipping companies across the world placed orders for ships, anticipating firm demand ahead. However, with the US slowing down, shipping rates plummeted. By early 2009, the rates were close to 1,200 points. Starting 2010, most shipping companies started receiving the ships that they had placed orders for. The worldwide fleet of bulk carriers rose to 680 by the end of 2012, from 395 in 2007. Many are now selling their vessels to ship-breakers to recover losses and contain capacity.
Source: The Financial Express