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Indian Shipping Industry: Navigating Choppy Seas

The global shipping industry has recorded a feeble recovery since the global economic slowdown in 2008 and 2009. While trade has improved on the back of emerging economies, such as China and India, rising crude oil prices may act as a deterrent. ICRA believes that recovery of the shipping market is unlikely before 2013. 

Excerpts of Analysis

 Also, over and above the existing surplus vessel capacity, large scheduled deliveries in 2011 and 2012 are likely to result in lower fleet utilisation levels and limit any sustainable improvement in freight rates in the near-to-medium term.

The sharp fall in charter rates has resulted in a decline in revenues and profitability across shipping companies. Some of the domestic companies, which had their fleet operating on long-term charter rates, had to renegotiate the freight rates; after completion of the contract period, the new charter rates were signed at significantly low rates.

The vessels on spot charters were more affected by the lower freight rates compared with time charter rates and lesser vessel utilisation.

Additionally, the vessels ordered during the period of high valuation, have led to increase in capital servicing charges, thus putting pressure on net profits.

The high cash accruals generated during the strong freight rate environment — starting from 2003 and lasting till September 2008 — had led to companies placing aggressive orders for new bottoms to expand its fleet. This has led to building of a significantly high order book, which was scheduled to be delivered during 2010-12. Due to high capital costs involved, the debt burden of the shipping companies is substantially high. And given the hardening interest rate scenario and weak operational cash flows, companies may need to refinance or restructure their debt. Hence, the industry is unlikely to record any meaningful improvement before calendar year 2013.

 

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