Slump may ease global ocean freight

Written by Indronil Roychowdhury | Kolkata, Jun 29 | Updated: Jun 30 2008, 05:31am hrs
International ocean freight rates, now largely powered by fuel costs, are likely to move down as the growth in the Indian and Chinese economies eases, according to an official of one of the worlds largest shipping lines.

Although the rising fuel costs have become the key driver of freight rates, traditionally other factors like economic booms, port congestion, tonene mile effect and the steel industry have been other factors affecting ocean freight.

Marc Bourdon, managing director of CMA CGM Global India Pvt Ltd, told FE that fuel, which traditionally accounted for 25% of the total freight rates, currently accounts for 45% of the total freight costs.

CMA CGM Global India is a subsidiary of the French shipping line CMA CGM, one of worlds largest.

Bourdon said global crude prices had touched $141 per barrel on Saturday and freight rates were unable to keep pace with the upward movement of the crude prices.

Todays freight rate reflects the oil price one month back and therefore freight rates are always cheaper then what they should actually be, Bourdon said.

The average international sea freight rates has just doubled in one year, from $250 per tonne in January 2007 to $500 per tonne in January 2008.

However, other drivers like the economic boom in India and China, and port congestion, are on a down curve and this might ease the upward pressure on international freight rates, industry sources feel.

Economic booms contribute directly to the increase in freight rates as the demand for bulk load shoots up, while growth in the steel industry creates a huge demand for bulk freight. And both India and China have been the forerunners in terms of overall growth and growth of steel industry.

Bourdon said huge demand, which helps shipping lines to operate at large volumes, can offset the increase in fuel costs.

While operating at huge scale has been possible in China, it has not been possible in India because Indian ports do not have the infrastructure to handle ships longer than 350 meters.

Foreign shipping lines are unable to bring additional capacity to the Indian ports and productivity limits the capacity for additional growth, Bourdon said.

He said Indian ports needs much more investment than that has been planned and the opportunity for more growth has to be created.

The ports under the Kolkata Port Trust (KoPT), which is currently the second largest Indian port in terms of cargo handling, have a growth potential of 6% only, compared with 42% at Gujarats Pipapav port, 35% at Chennai port, 25% of Mundra port in Gujarat and 23% at JNPT in Maharashtra.

Without an improvement in port infrastructure, oil costs would weigh down shipping lines calling on Indian ports if they were to operate more vessels, instead of larger ones, and feeder vessels.

According to Bharat Jain, vice-chairman, Calcutta Freight Brokers Association, a deep sea port in Bengal is a necessity as the trade lanes from the Kolkata and Haldia ports are to huge market destinations line the US, Europe, Africa, Far East, South East Asia and West Asia.

Freight rates to and from the US are the highest now at $1775-1800 per tonne, followed by $ 1650- 1680 per tonne from Kolkata to Xingang in China. Freight rates to the European ports, South Africa and Eygpt range from $1350 to $1000 per tonne and to West Asia, Africa and Far East between $1000 and $700 per tonne. Freight rates from and to Kolkata and South East Asian ports range between $400 and $350 per tonne, sources said.