India: Shipping Companies expect 20% rise in operational costs

Shipping companies face the prospect of a 20% increase in cost of operations as the price of bunker oil touched a record high of $650 per barrel on Thursday, said senior industry

officials. Bunker oil, which is used to fuel vessels, accounts for 40% of the total cost of shipping companies.
"These are tough times for the industry. Added to the woes is the anticipated slowdown in the market due to crisis in Europe and other macro economic factors.
We will definitely see more than 20% increase in cost of operation as we go ahead, but the key is to deploy better strategy, which includes effective chartering of vessels," said AR Ramakrishnan, managing director, Essar Shipping.
While crude oil prices have been hovering in the $90-100 range, analysts are expecting bunker fuel rates to remain in the $650 range in the next few months.
"We expect crude prices to remain at more than $90 and this means for the next six months at least, we will not see a dip in bunker fuel rates," said Nikhil Jain, analyst at New Delhi-based Drewry Shipping Consultants. Bunker fuel rates have seen a growth of 50% in the past one year.
Plagued with rising cost of operations, shipping companies are now looking at chartering their vessels on short-term time-bound basis to help tide over the crisis. A short-term time-bound charter is often for a period extending up to six months when vessels are chartered to others who bear the necessary expenses, including fuel. Shipping companies often bear the rising input costs when the vessels are hired on a point-to-point voyage.
"This is one industry where, as the input costs increase the output prices do not rise proportionally. At the moment the freight rates are low, and costs are escalating. Short-term time-bound chartering of vessels would be effective in combating the bunker price hike," said Capt Sunil Thapar, director of bulk carrier and tanker division, Shipping Corporation of India (SCI). Earlier this month, SCI reported a 15% rise in bunker fuel costs at Rs243 crore in the current quarter.
Baltic Dry index, which measures the daily international shipping prices of various dry bulk cargo, has declined 40% in the past one year, while bunker fuel rose more than 44%. A falling Baltic index is an indicator of excess supply of vessels in the market and low levels of income for shipowners. "The biggest impact of the fuel price hike is reluctance on the part of shipowners to indulge in long-term contracts as the existing freight rates do not guarantee good returns," said Anjan Brahmi, principal consultant at Mumbai-based i-maritime Consultancy.
Source: The Economic Times