Published Date:
27-Jan-2012
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shipping-exchangeThe benchmark Baltic Dry Index (BDI) dropped to a two-year low of 784 as oversupply of vessels and reduced demand for dry bulk across continents are expected to put companies under pressure in the coming quarters.


For the year, the index has fallen around 39 per cent and for the year to date, the index is down around 59.82 per cent, according to Bloomberg data.


Industry experts and company officials that Financial Chronicle spoke to said the biggest issue that the industry is facing is oversupply of vessels, with many of them lying idle.


Demand has not been rising in proportion with the rise in supply of new vessels that were ordered when the market was at its peak before 2008. The major impact on the index has been over the past four months, when the index fell more than 69 per cent from the high of 2,173 recorded in October 2011, to 784 on January 25.


A senior official of Shipping Corporation of India said: “All the ships that were ordered prior to the recession are coming up for delivery now. And the problem with shipping companies is that there is no exit clause. One has to bear the cost or the price of its slump sale once the order has been placed to shipyards. Globally, the shipping industry is under severe pressure and it has not been able to come out of it due to weak economy and falling demand of important bulk material such as iron ore, crude and coal.”


“Bulk vessels constitute around 40 per cent of our total fleet size and are definitely under pressure. I expect the condition to be bad for the industry as a whole in the year ahead,” the official said.


Hemant Bhattbhatt, senior director at Deloitte India, said, “We do not expect a clear signal to emerge till the end of 2013. Many buyers are forced to renege on contracts for new ships since there is not enough demand in foreign markets, especially Europe and the US. However, there is some bit of optimism in areas like India, part of Asia and Africa, where companies can look at opportunities for mutual trade in times of global meltdown.”


He says 60 per cent of India’s trade is dependent on energy. “There is a forecast that out of the overall throughput required in future, 52 per cent of the capacity would be driven by import of coal, petroleum, oil and lubricants, while 15-18 per cent would be for containers. While there are issues on the iron ore front due to environment and export-related concerns in India, this together adds up to 80 per cent of our import requirement,” he said.


“We expect the demand to improve in the coming years and shipping companies in India would like to encash the opportunity it presents,” Bhattbhatt said.


Essar Shipping chief executive officer Anup Sharma, told Financial Chronicle that while there are issues of lower charter rates within the industry, his company has not faced any problem due to lower Baltic index.


“Around 95 per cent of our vessels are on long-term charters and we have in-house cargoes to take care of our cargo requirement from steel, iron ore and coal for the power plants,” he said.


Shares of Meercator Lines, Shipping Corporation of India, Essar Shipping and Great Eastern Shipping rose last week while some touched their 52-week highs, largely driven by the overall good performance of the broader market.