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A perspective on Dry bulk and tanker segment

May 23, 2000

The demand for tonnage transportation in the shipping sector depends on the world economic outlook, the trend in industrial production and the trade scenario. A look at the composition of Indian fleet size indicates that the dry bulk and the tanker segment constitute nearly 40% and 28% respectively of the total fleet proportion. What influences the freight rates and the demand for these carriers? The dry bulk market:
The steel industry is the biggest user of the dry bulk shipping, as it requires large tonnage of iron ore, coking coal and finished steel products. The agriculture sector is the second biggest user requiring tonnage for carriage of grains, fertilisers and the steam coal for power generation is the third main provider of cargo. A mixture of economic, political, climatic and seasonal factors influences each of these sectors, which determines the demand scenario for the transportation of the raw material as well as finished commodities. The proportion of dry bulk carriers among the total fleet is the highest at 40%.

The Baltic freight index, which is the general indicator of the dry bulk freight rates, now stands at 1,620 level, a far better level than what it was in FY99, when index below the level of 1,000.

The recent positive development is Asia, higher activity in the steel sector, good flow of grain and coal should help the dry bulk carriers to have better realisations.

Composition of Indian fleet

Segment Total fleet size
Dry Bulk containers 40%
Crude Tankers 28%
Product Tankers 14%
Total 82%

The tanker market:
The tanker market prices are influenced by the seasonal fluctuations in the market generally firming up during the winter period when global demand for oil increases.

The crude oil production limitation imposed by the OPEC countries in 1999 increased the prices of the crude to a considerable extent. This along with the Asian crises shrunk the demand for crude oil. Crude tankers constitute 28% of the composition of the Indian fleet after the dry bulk segment.

The expected demand upturn in oil in coming years, should increase the crude oil tanker rates, which were affected adversely during the crisis. The freight rates had then declined from $30,000 - 35,000 per day to $10,000 - 15,000 per day.

However, the Indian shipping sector has constraints on the fiscal and the financial front. Further, the declining share of national ships in the share of countrys overseas trade is the other matter of concern. This year, the outlook on the trade front is positive since the export-import scenario is better as compared to the previous year. But, how these companies capitalise on these favorable circumstances has yet to be seen.

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