Charter rates down on low crude offtake

Kailash Rajwadkar

Mumbai, Nov 20: The low offtake of crude due to the dismal economic scenario globally has softened the tanker charter rates in the Suezmax and Aframax tanker segment. The low offtake comes even as crude prices have declined to as low as $19 per barrel before recovering to around $22 per barrel.

As a result of low offtake, tanker charter rates both in the Suzemax and Aframax segment are now hovering around $18,000 and $20,000 respectively. The charter rates in the Suezmax tanker segment hovered around $20-21,000 while in the Aframax segment it was around $24-26,000 between April-June this year. For the year ended March 2001, the charter rates were in the region of $30,000 in both the segments, industry sources said.

With Russia threatening to increase its production capacity due to pressure from US, Opec has been unable to implement a production cut and increase crude prices following hostilities in Afghanistan, industry sources said.

The domestic shipping industry is hopeful that the falling crude prices coupled with the fast approaching winter will create more demand for tonnage and thereby boost the charter rates.

Shipping Corporation of India (SCI) director (bulk carriers & tankers division) KM Joseph said: “The US decision last week to enhance its strategic storage reserves to 700 million barrels is likely to boost the crude transportation business, thereby improving the charter rates.”

The declining freight rates in the tanker segment will no doubt affect the profitability of shipping companies. However, companies like GE Shipping and Essar Shipping may be able to sustain their bottomline in the medium term on account of hedging by entering into long-term forward contracts when the market was good in the early part of the year, analysts said.

Essar Shipping, in anticipation of the global slowdown, had already mitigated its risks by entering into various time charters with a committed earnings of Rs 122 crore for the third and fourth quarter of the current fiscal, while GE Shipping too has 68 per cent of its fleet under long term charters. GE Shipping had entered into long term contract, when the market was at its peak in March 2001.