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2008 November 6   07:29

Plunge in rates forces shipping companies to idle fleets

A sharp fall in shipping rates has made vessels operations of Indian companies unviable. Unable to earn even the operating costs, Indian dry bulk owners are planning to keep their vessels idle. Some are weighing the option of sending the older vessels to scrap yards. A top source in a listed shipping company said daily earnings have fallen below the operating costs of $6,000-7,000. The sudden fall is also reflected in the Baltic dry index, which is an indicator of shipping costs for commodities. The index has fallen sharply from 11,000 in May to 827 now. “This has made our operations unviable. Moreover, prices of dry bulk ships have fallen more than 50%. In fact, there is hardly any buyer for vessels. We are left with no other options but to keep vessels idle,” he said.
The shipping companies earn around one-third of their revenues from the dry bulk operations. The list of companies owning such vessels include GE Shipping (11), Mercator Lines (12) and Shipping Corporation of India (20).
Shipping Corporation of India (SCI) chairman S Hazara said: “The fall in the index indicated that the financial crisis has affected international trades. This has negative implications for the developing countries, specially those dependent on commodities. But, the possibility of shipping companies stopping operations immediately is low.”
Industry analysts said the downturn in the shipping operations could be attributed to the global slowdown in the demand for commodities. For example, demand for iron ore, which contributes one-fourth of the dry bulk shipments, has come down drastically in the recent past. Moreover, the crisis in the global financial market has dried up the supply of credit, aggravating the problems of the shipping companies.

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