Baltic indices double but shipping companies not enthused

Shipping indices have recovered in the last few months with the Baltic Dry index doubling to over 1,100 from its all-time low of 509 in February. The Baltic Dirty Tanker and Baltic Clean Tanker indices are also rising because of declining crude oil prices.

Despite the buoyancy, which indicates higher cargo rates and better earnings, domestic shipping companies are downcast. “For the Baltic Dry index, the recovery is 100 per cent, but in absolute terms the rise is not big. There is some support from the marginal recovery the index, but it does not put the dry bulk segment in a healthy situation,” an executive with the bulk and tanker division of Shipping Corporation told Business Standard.

“There is a gain of just about 5-10 per cent in our earnings through this spurt in the index,” he added. The government-owned company, which turned profitable in 2014-15 after a gap of three years, has a diversified fleet of 69 vessels, including 17 bulk carriers.

The Baltic Dry index measures the change in transportation cost of raw materials like metals, grain and fertilisers by sea. The Baltic Dirty Tanker index is used for crude oil, while the Baltic Clean Tanker index is used for petroleum products.

“With the Baltic Dry index at a record low in February, the market was dead. A recovery from that level is some support for shipping companies, but one cannot say there is good money coming in . Companies will start to earn once the index moves above 2,000,” said an analyst with a local brokerage firm.

The main reason for the rise in the Baltic Dry index was capacity shortage because the shipping industry was scrapping ageing vessels, said executives. The bulk segment provides only 20 per cent of the total earnings of Shipping Corporation and Great Eastern Shipping.

The tanker business was benefiting from low crude oil prices and high fuel prices, industry sources said. Companies in spot contracts were gaining more than those on time charter, they added.

“We are not deriving benefits of rising tanker indices because our vessels are on time charter and contracts will be renewed only on October,” said an executive with Mercator. “We have locked in our contracts at slightly lower than the prevailing rates, so we are losing out,” he added.

Mercator has seven tankers, one very large crude carrier and 13 bulk vessels. Its bulk business is handled by its Singapore subsidiary, Mercator Lines (Singapore). Whatever the tanker business was bringing in for shipping companies, the dry bulk division was taking away, said the executive with Shipping Corporation. “The overall gains are not much. There is no major change in earnings for us,” he added.

Going ahead, the outlook for both, dry bulk as well as tanker segment is not too strong.  

“Until recently, China and Japan were filling up their strategic reserves, so freight moved up. Now this activity is slowing. US shale oil is also not operating at the optimum. In the short term a fall in tanker freight is likely,” said the executive with Mercator. The industry reckons the current grain season in the Atlantic is supporting dry bulk freight and it is a seasonal demand.

The stock market remains in wait-and-watch mode as some shipping companies like Great Eastern Shipping have seen their share prices decline 3 per cent while Shipping Corporation has moved up 17 per cent in the last six months.

Period February to July
Baltic Dry Index (Feb) 509 to 1018 (Jul 31)
Baltic Dirty Tanker Index  (Feb) 922 1073 (high) 765 (Jul 31)
Baltic Clean Tanker Index (Feb) 577 850 (high)  731 (Jul 31)

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