Gloomy outlook for Indian shipping industry

With the shipping industry still sailing in troubled waters, Fitch Ratings has taken a negative outlook on it for the year 2010: due to excess capacity across container ships coupled with declining freight and charter rates, the shipping industry is in a daunting state, the Financial Express India reported.

"Demand for Indian shipping is going to remain subdued in 2010 and 2011 due to the decline in overall global trade volumes," said the report.

Long-term charter contracts have reduced volatility to some extent, and provide some revenue visibility. And with the fall and rise in volatility of the charter rates, shipping companies now prefer long-term contracts to hedge risk. Companies with long-term contracts have been shielded to some extent from the sharp decline. However, these contracts generally have a tenor of around one year, and it is likely that charter rates will see some reduction upon renewal.

In the year ahead, shipping industry will need to line up further capex as about half of the cargo ships under the Indian flag are to be phased out in 2010, due to the International Maritime Organisation's (IMO) directive to replace single-hull ships with double-hulls. This coupled with older age of ships is a major factor contributing to the necessity for further capex this year.

However, most of the Indian companies have limited room to purchase new vessels, due to the lack of availability of funds and the reluctance of banks to lend to this sector.

"Order cancellations and postponements, and the phasing-out of single-hull vessels, have to some extent staggered the availability of excess capacity, but the global shipping market is bound to face excess supply over the medium term," explained Fitch in its report. 
 
(source: Cargo News Asia)