A slump in BDI directly correlates to a decline in time charter rates of shipping companies. However, this is not the lowest in the June 2011 to June 2012 period. The lowest figures were reported on February 3, at 647 units.
There is a supply glut and rates have plunged to $6000-$8000 a day from their peak in 2008, said K Ravichandran, senior vice-president & co-head, corporate ratings, Icra. Smaller shipping companies are finding it difficult to survive as with the current charter rates, they are finding it difficult to cover their operating expenses and service interest costs.
Analysts say, worldwide, shipping companies' order book totals 165 million tonne dead weight tonnage, the maximum permissible weight that a ship can carry safely. Of this, 100 million is due for delivery in 2012 and the rest in 2013.
There are more difficult times ahead. India will contribute 2-3% to the global fleet on order, said an analyst with a domestic brokerage, not wishing to be quoted. Shipping Corporation of India or SCI, the largest public sector shipping company, has taken delivery of 8 new Supramax vessels. Supramaxes are typically 50,000-60,000 dead weight tonnage.
Another four panamaxes are on order, of which one is scheduled for delivery next month, said Sunil Thapar, director bulk & tankers, SCI. Market sentiments are grim. SCI is known for its shipyard to scrapyard strategy. So, we are confident that whatever tonnage we have and will be adding, we will be able to reap benefit out of them and survive these tough market conditions.
Another reason for BDI slippage is the slowdown in iron ore exports from India and China being slow on importing due to its heavy inventory. Shipping companies are struggling to de-leverage, said a consultant with a foreign shipping consultancy. Companies must diversify their business into different segments like offshore, convert rupee loans to dollar, sell old vessels to generate cash and cancel vessel delivery orders.
Shares of listed shipping companies SCI, GE Shipping, Mercator and Essar Shipping closed higher on the BSE on Wednesday from Tuesday's close, on a day the benchmark Sensex rose 1.71% on hopes of a rate cut later this month by the RBI; SCI was up 4% to R51.75, GE Shipping was up 1.55% to R238.7, Mercator closed at R17.6, up 2.33%, and Essar Shipping at R28.4, up 6%.
However, hope floats. Global seaborne commodity movement is expected to improve as a result of increased imports into Asia, GE Shipping said in a release while announcing its fiscal 2012 results in May. But a slowdown in China or prolonged recession in Europe could possibly result in downward revision of this demand, which can have a large negative impact on freight rates.