Coronavirus outbreak: Freights Crashing to hit India's shipping business

Posted by B2B on February 10th, 2020

The increasing freight rates because of the current coronavirus epidemic in China will most likely impact the earnings of the Indian shipping companies in the quarter of March.

Ms. Harjeet K. Joshi, the chairman of state-owned SCI said in a statement on Friday, “The Freight rates have significantly dropped and are impacting the SCI (Shipping Corporation of India) across the segments. We have witnessed the damage already in the month of January. Our Q4 earnings may likely get affected because of this.” She made this statement at the ASSOCHAM event held here.

The Shipping Corporation Of India has reported that their consolidated net sales in the December quarter worth Rs 1,25,761 crore were up 17 percent over the same time in previous years which had received a major contribution from the tanker segment. 

 Ms. Joshi said, “We have had an amazing performance in the third quarter significantly because of the tankers. But as of now, the tanker freights have softened. Hence, currently, we are waiting and will make a decision soon. She further added, "There has been an impact on each and every segment for us but it varies. It has still not been known how much of impact it has made on all of their businesses. 

 The other business segments of the SCI apart from the tankers include the Liners, offshore, bulk carriers, and containers.

As per the reports, the coronavirus had been detected on 8th December 2019 and by 1st January 2020, it had been identified by the Chinese authorities that the source of the virus was a seafood market in the city of Wuhan.

Approximately 9700 cases had been detected by the end of January 2020 and the total number of deaths reported is 213. By 3rd February 2020, a total of 17000 cases were detected and currently, around 28,000 cases have been confirmed as per the officials.

“The impact of the coronavirus epidemic is way bigger than what has been predicted by the market. We can't do anything at this moment and are just keeping a watch on the market at present. There is nothing we can do,” Mr Anil Devli, chief executive officer (CEO) of Indian National Shipowners’ Association (INSA) said in a statement.

The Chinese New Year was held on 25th January 2020 and was celebrated by the Chinese people by visiting their hometowns for the festival. But, on 25th January this year access to the city of Wuhan was completely prevented and several transportation restrictions had also been imposed in all the major parts of the country so that the Chinese authorities can ensure that the Coronavirus does not spread. On 1st February 2020, all of the major international flights to China were canceled because of which the country's fuel consumption was drastically reduced.

As per estimates, China makes use of 16 percent of the total global oil production. This reduced consumption of oil has led to a reduction of 4 percent in the importing of crude oil by China. As a result, there has been a major impact on oil transportation by sea.

Captain Rahul Bhargava, the director of commercial & operations at Essar Shipping said in a statement,  “The very large crude carriers (VLCCs) that had been trading at more than 0,000 per day in the month of December last year have lowered to ,000 per day when checked on 7th February.” He further added, "A similar kind of impact has been seen on the movement of dry bulk cargo.

The Baltic Dry Composite Index (BDI) had been trading at around 1,500 on 10th December 2019. It had dropped to 976 on 3rd January 2020. And lately, It was found trading at 431 on 6th February 2020. For the very first time in the history of the Baltic Index, the Baltic Cape Index had dropped and became negative as on 31st January 2020. Now, it is trading at a negative (-) 187. The freight rate has dropped down to ,000 each day from ,000 each day for the on-time charter yield of the equivalent Cape-sized vessels. Just like that, the Panamax vessel freight rate has also dropped down to ,400 each day from ,000 each day.

According to Bhargava, “All the sections of the dry bulk trade have ended up losing around 75 percent to 85 percent of their earnings during the last month.” The Supramax and Handysize vessels are a part of the dry bulk trade section as well as the Cape and Panamax, among the others. But, the largest shipping company of the private sector of India, the Great Eastern Shipping has said that it is not due to the coronavirus epidemic alone that has let to the major drop in the freight rates.

As per a company source, “The Economic slowdown as well as the lifting of the Cosco sanctions by the United States, which brought the supply of vessels into the market, is another reason that has led to the reduction in the freight rates.” It further said, “The next month is going to be crucial for us and we are keeping a watch.”

On 25th September 2020, the US had laid the sanctions on Cosco Shipping Tanker (Dalian), Cosco Shipping Tanker (Dalian) Seaman and Ship Management for the trading of oil with Iran. However, all of those sanctions had been lifted by the US in the previous week. Cosco Shipping controls over 5 percent of the global VLCC fleet.

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