Raw material demand pushes shipping lines'' freight rate up

By Nisha Das | 30 Oct 2003

Mumbai: Huge Chinese demands for raw materials like steel, iron ore and coal and high import volumes of grain and other items by the US and the UK have pushed the freight rate for Indian shipping lines to a new high.

The scrips of the shipping companies like Shipping Corporation of India (SCI), Great Eastern (GE) Shipping, Varun Shipping, Essar Shipping and Mercator Lines have seen their prices move up over 50 per cent in the past three months. For the first time in the last five years, foreign institutional investors have also picked up minority stakes in the shipping companies.

The SCI scrip has gone up by 81 per cent to Rs 105.70 from a low of Rs 58.35 per cent, while GE Shipping has appreciated by 50 per cent from a low of Rs 52 to close at Rs 81 on Wednesday. Other shipping scrips like Varun Shipping and Essar Shipping have gained 40 and 71 per cent, respectively.

The Baltic dry index, which is the bench mark for freight rates on vessels carrying bulk goods, including coal, iron ore and grain, has quadrupled in the past year and has jumped 50 per cent in the past three weeks.

The dry bulk earnings of capsize vessels have moved up from $30,091 per day as on 5 September to $43,326 as on 3 October. The earnings of the Panamax vessels have gone up to $24,534 per day from $15,943 while the freight rate of Hamax Avg vessels has increased to $16,075 per day from $13,700.

SCI director S S Rangnekar says a record increase in Chinese imports of iron ore and steel were the key reason for the initial jump in the shipping prices. "An unexpected rise in coal imports for Europe, Japan and the US this year has also helped to lift prices. Besides, the huge distance between China and various other countries will also help the shipping lines to increase their profits. The trend in the dry bulk category is likely to continue for the next one year. In the container segment, the trend will continue till 2005-06."

A senior GE Shipping official says there has been a change in the trade pattern which is reflected in the higher-tonne mile demand. Moreover, additions to the dry bulk fleet have been minuscule and this, too, has triggered a surge in freight rates.

Officials of the Indian National Shipowners'' Association say the recent surge has been sparked by the start of the North American grain-exporting season. "The dry bulk shipping capacity is likely to rise about 2.5 per cent this year and 3 per cent next year."