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Shipping: Order book concerns - Views on News from Equitymaster
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  • Mar 13, 2001

    Shipping: Order book concerns

    After touching historically high levels of earnings (US$ 50,000 per day) in September 2000, tanker rates have softened in the current year. The decline in freight rates is sharper for very large crude carriers (VLCCs) and Suezmax carriers. But, Aframax rates are on the rise

    VLCC rates, which touched above World Scale rate 110 during mid 2000, have come off from its high levels in the current year. Higher crude throughput by the OPEC coupled with subdued demand in pacific region for these large carriers are the primary reason for this decline in earnings.

    But one of the major segments of the tanker market i.e. the Aframax have benefited immensely due to a sharp rise in demand for mid-range crude vessels. Another crucial factor was the ban by the European Union of single hull carriers from plying into the European waters.

    Rising tanker deliveries…
    Clean fuel First half Second half Total dwt
    FY00 34 23 57 3,274
    FY01E 21 15 36 1,845
    FY02E 15 9 24 1,255
    FY03E 6 2 8 315
    Total 76 49 125 6,689
    % of existing fleet 8.0% 5.2% 13.2% 15.1%

    Dirty fuel First half Second half Total dwt
    FY00 49 36 85 17,299
    FY01E 32 25 57 12,797
    FY02E 40 30 70 14,659
    FY03E 26 4 30 6,201
    Total 147 95 242 50,956
    % of existing fleet 6.1% 3.9% 10.0% 18.9%

    Though global demand for crude is expected to rise sharply, concerns of oversupply continue to loom on freight rates. More than 15% and 19% of the existing tonnage has been ordered already in the clean fuel and dirty fuel segment respectively. Therefore, growth in earnings might not be commensurate with volumes in FY02.

    However, Indian companies have lot to cheer about. The sharp rise in domestic refining capacity will lead to higher demand for crude (estimated to be around 77 MT by fiscal year 2002). Realizing the potential, both The Great Eastern Shipping Company (Gesco) as well Shipping Corporation of India (SCI) have plans to increase the number of crude and Aframax carriers. SCI and Gesco reportedly have already placed orders for three Aframax carriers, the delivery of which is expected towards the later half of FY02. This would enable these companies to reposition their fleet to cater the international market, which should in turn significantly boost revenues.



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