Sailing On A New Trajectory

<?xml version="1.0" encoding="UTF-8"?><root available-locales="en_US," default-locale="en_US"><static-content language-id="en_US"><![CDATA[<p><p align="justify"><span class='dropthecap'>A</span>s the March 2010 deadline for phasing out single-hull ships approaches, Indian shipping companies are scurrying to replace their single-hull ships with double-hull ones. Time is running out, and shipping firms are looking for used double-hull ships rather than new ones. The catch: lower price and reduced delivery time of about two-to-three months, as against two years for new orders. <br /><br />Indian shipping companies are in for some serious bargain hunting. With recessionary trends in the world economy continuing, <br />ship prices have come down drastically. And sniffing an opportunity, major players such as the Shipping Corporation of India (SCI) and Great Eastern Shipping Co. (GE Shipping) are actively scouting for used double-hull ships.<br /><br />"We are especially scouting for oil tankers and offshore vessels that are up to five years old," says K.S. Nair, director (bulk carriers and tankers) at SCI. "We are tracking the developments and will buy at right prices," says a GE Shipping spokesperson. Interestingly, while GE Shipping and Essar Shipping have historically traded in ships, for the first time, SCI is entering the secondary market.<br /><br />According to industry data, all the three major categories of oil tankers — VLCC (very large crude carriers), Suezmax and Aframax — have corrected by at least 50 per cent from their peak values that existed last year (see ‘Price Correction'). While the price of a five-year-old VLCC has corrected from $160 million to $77.5 million, that of a five-year-old Suezmax has gone down from $105 million to $50 million. During the same period, the price of a five-year-old Aframax plunged from its peak of $80 million to $37.7 million. Recently, SCI invited bids for two medium-sized bulk carriers, two oil tankers and two offshore support vessels.<br /><br />Supply pressure and lower freight rates will mean that the weak trend in asset prices will continue till early 2010. The ship-building orders are at their peak with more than 40 per cent of the total existing capacity on order.<br /><br /><img style="width: 350px; height: 197px" src="http://www.businessworld.in/bw/image/Business/Infrastructure/price_correction_350x197.jpg" alt=" " width="350" height="197" align="right" />To some extent, those orders are for replacement to comply with new maritime rules that will bar single-hull tankers and dry bulk ships that are more than 25 years old from early 2010 (see ‘Battling The Spill Effect', BW, 8 May 2009). According to London-based Clarkson Research Services, a shipping research and consultancy, 15 per cent of the world tanker fleet is the single hull and 19 per cent of the world dry bulk fleet is more than 25 years old, requiring replacement by early 2010. <br /><br />Among various categories, cape-size ships are expected to see a lot of supply — putting pressure on its prices, according to industry sources.<br /><br />Freight rates — as measured by Baltic Dirty Tanker Index, a benchmark for crude tanker freight rates — while improving from lows seen in April of this year, is nowhere near the highs of 2,300 index levels seen last year. Now, it is at 650 levels, unresponsive to the recent surge in oil prices. "Freight rates follow the trends seen in the world economy," says V. Ashok, director and CFO of Essar Shipping and Logistics. He adds that with demand for oil falling in 2008 and strategic oil inventories in the US, which is the largest oil importer, remaining at all-time highs, freight rates would remain subdued over the medium term. This is likely to keep a check on ship prices.</p> <script type="text/javascript"> var intro = jQuery.trim(jQuery('#commenth4').text()) var page = jQuery.trim(jQuery('#storyPage').text()) if (page.indexOf(intro) < 0) { jQuery('#commenth4').attr('style', 'display:block;') } </script> (This story was published in Businessworld Issue Dated 21-12-2009)