Abrupt drop in freight rates impacts the margins of shipping companies


As freight rates continue to fall, the profitability of bulk cargo carriers such as Great Eastern Shipping and the state-owned Shipping Corporation of India (SCI) may plummet in the current quarter, the sharp drop in freight that impacts shipping companies’ margins, according to Financial Express and Hellenic Shipping News.

The Baltic Dry Index, which provides a benchmark for major shipping commodities, stood at 1,560 on Friday, its lowest point since February, as demand remained weak across all ship categories in amid uncertainty about global economic growth. The index, which takes into account 23 different transport routes, has decreased by 23% in the last month and by 53% in a year.

GE Shipping CFO G Shivakumar said rates are falling as congestion at Chinese ports eases, while cargo demand declines on the back of recessionary trends across economies.

“The moderation in rates in recent times has been due to factors such as the slowdown in global iron ore and agriculture trade and subdued demand from China. The conflict between Russia and Ukraine has also affected trade, as grain transportation from Ukraine has been affected,” said Sai Krishna, vice president of Icra. China is the main driver of the dry bulk trade.

Krishna, however, said that despite the drop, current ocean freight rates are still higher than between 2018 and 2020. In 2021, rates increased significantly due to various issues, including disruptions caused by the Covid pandemic. -19, including congestion and changes in global supply chain and trade patterns.

While the moderation will result in a reduction in freight cost for dry bulk customers, the sources said that since freight forms a small part overall, it will not create much of a competitive advantage.

The movement of tariffs is closely linked to the demand in China, since it consumes and exports a large part of the dry matter.

“It all depends on what happens in China. If China recovers from Covid quickly and economic activities pick up then it can raise rates,” Shivakumar said. Krishna said several factors, including developments in the Russia-Ukraine conflict and a recovery in demand from China, will influence rates in the near term.

Due to the sanctions imposed on Russia as a result of the conflict, there will be changes in trade patterns as Europe and Japan, among others, will try to substitute Russian products such as coal, etc., from other regions, which will also have an impact on the fees. Krishna said.

Source: Hellenic Shipping News / Financial Express

Source Hellenic Shipping News

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