Tanker rates rise over 100 per cent

NetScribes/Janaki Krishnan

The shipping industry is in for good times. A hike in crude throughput, a shortage of tonnage in the tanker market and fears of environmental pollution in the Mediterranean have caused tanker rates to rise by over 100 per cent in the last one year.

"Yes, tanker rates have gone up," averred Captain Bhatia of Essar Shipping. He added that this was the case across all routes.

Narendran, head of chartering at Great Eastern Shipping, said that it would certainly boost the bottomlines of the domestic shipping companies. He added that this was because the shipping market was a cyclical one. Expenses were more or less fixed and a rise in freight rates could only increase earnings.

Narendran pointed out that the rates had gone up globally. Many domestic companies have been plying their tankers on the international circuit rather than on the domestic circuit. This means that the foreign exchange earnings of these companies will rise. Shipping rates are traditionally around 5 per cent of crude prices.

Bhatia said that apart from the increase in crude throughput, there has also been a build-up in inventory, which has been resulting in an overall increase in traffic.

The rise in the crude throughput has not been the only reason for the increase in tanker freight rates, explained Narendran. "Over the last year, there has been very little addition to tanker tonnage, in the domestic market as well as overseas," he said. There is a premium on new tonnage. With the phase-out norms for older vessels (15 years and above) being put into effect, some tankers have been pulled out of the market. "Old tankers are not accepted," he said.

Further, threats of eco-pollution (oil spills) especially in the Mediterranean region have restricted traffic. All these factors have resulted in the current scenario.

But the industry does not envisage a demand-supply gap right now, ie too much traffic and not enough tonnage to cater to it. "We don't see that happening right now," said Bhatia. Such a scenario could come sometime later in the year if the current situation persisted.

Incidentally, G E Shipping is planning to add more tonnage during the current year - couple of Panamaxes (around 110,000 dead weight tonnage). Suezmaxes are the largest tankers and have tonnages upwards of 150,000 DWT but there are very few ports in India which are capable of handling vessels of such large sizes.

The good prospects of the industry have been reflected in G E Shipping's stock price. It rose from Rs 17 in the last week of July to around Rs 23 now. It has a 52-week high of Rs 28.

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