Graphically Speaking

Sailing through a storm

The shipping industry is in trouble, but there is a glimmer of hope in the deep sea 

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Published 22 days ago on Oct 07, 2020 Read

With the automobile sector struggling to find its path, airlines unable to take off and the shipping industry in murky waters, the virus has spared no mode of transport – land, air or water. But, all is not gloom in the deep seas. While global trade has been brought to its knees due to the pandemic and charter rates of dry bulk and container carriers have borne the brunt, Crisil has found that oil tankers have managed to brave the COVID-19 storm.

The reason, Crisil explains, is a situation called as ‘Oil Contango’ which has come into play due to the crash in crude oil prices earlier this year. Contango means the price of an oil futures contract exceeds the spot price. “This has sparked a rush for booking vessels to be used as floating storage. Thus, even as dry bulk and container rates wallowed, tanker charter rates were ~44% higher on-year in the first half of 2020,” mentions Crisil in its report Contango buoy.

The surge in rates in the tanker segment, which constitutes 63% of the Indian fleet, is expected to provide some cushion to the drop in revenue. Crisil expects Indian shipping players’ revenue to decline 9-11% due to reduced trade globally. In the meantime, as demand-supply dynamics of global trade change, the heightened rates are expected to correct soon.

However, the outlook remains negative for dry bulk and container trade. Due to weak industrial demand, which has hit coal and oil procurement, Crisil expects dry bulk trade to fall by 4-6% in 2020. Similarly, container charter rates are expected to fall 20-23% on the back of lower consumption demand from western economies such as the US and the EU.

While improvement is likely as economies start opening up, Crisil leaves us with a word of caution: crude oil trade is expected to end 2020 lower by 3-5% compared to that of previous year due to weak consumer demand.