Shipping companies sense an opportunity in crisis

Last Updated: Sun, Jan 01, 2012 11:56 hrs

The shipping industry may be going through a tough period, but some companies are sensing an opportunity in it. With ship prices declining by over 65 per cent, they are seeing it as a great chance of acquiring assets at a cheaper price. For instance, a 10-year-old very large crude carrier (VLCC), which was earlier sold for $75-80 million, is now available for $23-25 million.

"We are keeping our eyes and ears open for any opportunity that may arise. Globally, there are distress sales happening since the fall in trade has taken a toll on shipping companies," said A R Ramakrishnan, managing director of Essar Shipping.

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Though companies bleeding like the Shipping Corporation of India have put on hold their expansion plans, it's the best time for those with deep pockets to expand. According to experts, the best time to expand is when prices are down and one can see some light at the end of the tunnel in terms of trade picking up.

"The general sense is markets can go down further and one does not want to be stuck with an asset. But it's an opportunity one has to keep a close watch on," said a senior member of the Indian National Shipowners' Association.

Apart from VLCC, prices in other categories like product carriers and dry bulk carriers have also nosedived.

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"Due to the steady oversupply and prolonged weakness in freight rates, asset prices across all segments have fallen substantially, more due to resale than new buildings. Resale values fell from the peak levels of 2008 to 40-60 per cent, depending on the asset size and age, while new building prices fell 30-50 per cent from the highs of 2008," a Great Eastern Shipping spokesperson said.

With the current glut situation in markets, experts say this is the best time to consolidate and put the best practices in place. "Shipping companies have space to focus on things like safety issues, which they don't have in boom time. There is an opportunity in every crisis. Also, India's Exim trade won't be impacted in a bad way," said Satish B Agnihotri, director general of shipping.

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He said the time was ripe for companies to look for acquisitions. "India is better placed compared to other countries in this crisis. We have added more than one million tonne capacity this year," Agnihotri said.

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