The Baltic Dry Index (BDI), an indicator of shipping sector health, has risen almost 55% since January this year, but Indian ship-owners are not hopeful of a turnaround in their fortunes until 2015.
The index?s recent surge has been on higher coal imports by India and the increasing demand for iron-ore in China. India, the world?s third-largest coal consumer, imported 48% higher coal in June than a year ago on increased demand from power stations and steelmakers, according to shipping data. Moreover, China?s demand for iron ore is on a steady rise from last December. Iron ore accounts for 60-65% of global imports.
The rise of the index, shipping lines say, is not enough to lift rates meaningfully in the beleaguered sector.
?The worst is not yet over. Rates are still weak and sentiments are negative. The dry bulk side is not showing any improvement despite the recent surge in the BDI. I don?t see the shipping market reaching a point where ship-owners can reap any benefit until 2015. The global economic conditions are not conducive enough for shipping rates to be lifted significantly,? says Sunil Thapar, director-bulk operations, Shipping Corporation of India (SCI).
The sector?s woes are reflected in the SCI scrip, which has shed 50% of its value in the last one year. SCI, India?s largest shipping company, has been posting losses for the last two years (R114 crore in FY13 alone) on the back of higher operation costs and lower revenues. To stay afloat, it has taken up cost control measures and ship repairs.
Most shipping companies are on similar waters, with high bunker costs and low daily rates thinning their margins. The shipping industry believes the rise in rates is too little and prove transient in a troubled global economy.
Overcapacity has added to the sector?s misery. ?We are making changes to our fleet composition and even trying to sell a few vessels?, says Atul Agarwal, managing director of Mercator India, adding: ?The industry looks bleak for the whole year. This is indicative of the global economy that is not at its best.? He believes the BDI?s rise is temporary.
The company recently sold a vessel, reducing its fleet strength to 14 dry bulk vessels. It ran up a loss of R492 core in FY13.
Oversupply amidst low demand is a crippling combination. ?Some companies have sensed the market early on and managed to diversify into offshore and tanker at the right time. That is helping them offset the weakness in the dry bulk business,? observes Anand Sharma, director of Mantrana Advisory.
Companies like The Great Eastern Shipping and Essar Shipping have been focusing on increasing the exposure to offshore business as revenues from their shipping business is slumping.
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.