shipping industry sectors shipping companies

Shipping stocks are expected to post good Q4 results (updated - 07 April 2009)
The latest data on spot tanker freight rates, a key segment for Indian shipping players, show signs of a recovery in global demand during the March 2010 quarter. A significant sequential rise in these rates also signals a rebound in the quarterly financial performance of shipping companies, which had suffered a setback in the previous three quarters.

According to industry data, for tanker segments such as very large crude carriers (VLCC), mainly used to transport petroleum from the Gulf to global markets, the average spot freight was $34,836 in the March 2010 quarter, nearly double compared with the previous quarter. In other tanker segments like Suezmax, the average spot freight rate showed a sequential jump of nearly 57% in the fourth quarter.

For the dry bulk segment of the shipping industry, the Baltic Dry Index averaged 3018 in the March ’10 quarter, a year-on-year jump of 93.6%.
The Baltic dry index is the barometer to know the shipping freight rates.

According to a recent report by a foreign broking house, the current revival in the tanker segment is due to increased crude demand from countries in the East. The demand is expected to remain firm in the remaining period of the calendar year 2010 as well. The International Energy Association (IEA) has recently upgraded its world crude consumption forecast for the year. It expects consumption to grow 1.6% fuelled, mainly by increased demand from emerging markets such as China.

This augurs well for Indian shipping companies, which tend to own a majority of their fleet capacity in the tanker segment. For instance, the government-controlled Shipping Corporation of India (SCI) owned fleet capacity of 5.35-million dead weight tonne as of August 2009, and a large portion of this was in the tanker segment.

The current situation in the tanker market is in contrast with the nine-month period ended December 2009, when the spot freight rates had sharply plummeted due to a sluggish global demand for crude oil. The freight rates in the tanker segment had touched a low of $3,212 per day in the VLCC segment in September 2009.

Indian shipping companies employ a range of short-, and long-term contracts with their customers in a bid to maximize their freight earnings. SCI is estimated to have nearly 65% of its fleet engaged in long-term contracts. GE Shipping, the largest private sector player, had nearly 43% of its fleet capacity on the spot market in the third quarter of FY10.

Analysts expect Indian shipping companies to report an improved performance in the March 2010 quarter on the back of improved spot freight rates. Going forward, while global oil demand is expected to remain firm, there is little unanimity on the direction of spot freight rates in the tanker segment. The stocks of top shipping companies, including SCI and GE Shipping, have gained 14-20% in the past one month. At the Tuesday’s close of Rs 162.4, SCI trades at a trailing twelve month P/E of 15.6. At Rs 316, GE Shipping is available at a P/E of 8.8.
Source -Economic Times

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