Tag: Freight rates

Why the Strait of Hormuz is crucial for India

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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The Iran-Israel conflict has heightened concerns within the global maritime industry, leading to significant supply chain disruptions and a 40-50% surge in shipping container rates compared to last year.

India’s heavy reliance on oil imports makes it especially susceptible to disruptions in the Strait of Hormuz.

This critical waterway, situated between the Persian Gulf and the Gulf of Oman and controlled by Iran, is vital for global oil shipments.

India imported around 232 million metric tonnes (MMT) crude oil during April to March 2023-24, per a Reuters report that quoted provisional government data released on April 18.

The world’s third biggest oil importer and consumer spent $132 billion importing oil during the period.

Ajay Sahai, Director General & CEO at FIEO, highlighted the potential impact on global oil and gas prices, especially LNG prices, if Iran were to halt traffic through the Strait of Hormuz.

“As of now, the Strait of Hormuz deals with around 20% of the oil and gas cargo. Whether another route will be able to accommodate that is also an issue. So, in the given situation, we are looking at a northward movement in the price of oil and gas. It may not impact India to that extent because we have the option of increasing our imports from Russia, but I think the global oil and gas prices are all set to move up,” he said.

Sahai also noted the expected disruptions in logistics, pointing out that many exporters had already delayed shipments initially scheduled for March to April and May.

The situation, he said, is worrying, and needs careful monitoring.

Shipping industry experts also anticipate a further increase in freight rates led by spike in insurance costs.

“For the last one year or so, we are seeing huge challenges in logistics, particularly after the Red Sea crisis. We were hoping that Red Sea crisis may diffuse. But with the Iran attack on Israel and the counter attack, which has been reported by Israel, the situation has definitely aggravated and it has resulted in some disruption of the shipping also,” he noted.

According to Sunil K Vaswani, Executive Director of the Container Shipping Lines Association, the insurance costs for shipping lines have risen, with the war risk premium soaring from 0.05% to 1% of a vessel’s value.

For a vessel valued at around $100 million, this translates to an additional $1 million in war risk premium costs, he noted.

Meanwhile, crude prices remained in check, slipping over a percent on April 22, as market focus shifted back to fundamentals. Brent futures fell $1.21, or 1.4%, to $86.08 a barrel by 0655 GMT.

Also Read | Bottomline: Investors must look beyond the conflicts

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Vinati Organics MD expects minimal benefits from anti-dumping duty on butylphenol

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Vinati Saraf Mutreja, Managing Director of Vinati Organics says the anti-dumping duty imposed by the government on imports of a key chemical compound is not likely to lead to any significant gains for the company.

The Ministry of Finance imposed an anti-dumping duty on imports of para-tertiary butyl-phenol (PTBP) last month.

“The impact of this duty is not very significant because PTBP product as a whole is not a very large product (less than 10% of overall revenue) in our portfolio,” she said.

The potential benefit of the duty would be around ₹4 crore, she said.

Mutreja said that the fourth quarter of the last financial year has been particularly strong.

The new financial year (FY25) is expected to outpace FY24 by 20-25% as the trend of destocking seems to be nearing its conclusion, she stated.

“We are seeing good recovery for most of the products, customers are sitting on very little or zero inventory and hence the reordering has picked up,” she said.

Most of the demand is coming from the export market and in “Domestic as well, we are seeing demand shaping up quite strongly.”

She believes that because of the Red Sea issue and bridge collapse in Baltimore, freight rates to the US and Europe have doubled from all-time lows.

“But we have seen many highs during COVID, so it has still not gone up to those levels, it is still 30% of that. It is being transferred and most customers are obeying that cost,” she said.

Also Read | Baltimore brige collapse: The Indian crew may take months to return home

The company is expanding and adding a new line for 2-Acrylamido 2 Methylpropane Sulfonic Acid (ATBS), which is about ₹300 crore investment and is expected to be completed by December 2024.

On March 11 this year, the company subscribed to an additional ₹499 crore fully paid-up equity shares of its wholly-owned subsidiary, Veeral Organics Private Limited (VOPL).

“We have almost commercialised and started trial production in VOPL, which is our subsidiary where we have new niche products like MEHQ, Guaiacol and a few others,” she explained.

The current market capitalisation of the company is ₹15,674.26 crore.

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Transport Corp trims growth guidance for FY24

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Transport Corporation of India (TCI), a logistics and supply chain management company, has revised its revenue and profit growth guidance for the current financial year due to weakness in some of the core sectors.

Vineet Agarwal, the Managing Director of TCI, said the revenues might grow at 8-10% instead of the 10-15% projected earlier. For the first nine months of the year (9MFY24), the revenue grew 5.1% to ₹2,954 crore year-on-year (YoY) from ₹2,803 crore.

The third quarter revenue of the Gurugram-based company grew around 4% YoY to ₹1,002 crore, while its profit declined a little over 7% YoY to ₹80 crore. The earnings before interest, tax, depreciation, and amortisation (EBITDA) margin was contracted to 10% from 12% in the same quarter last year.  

While EBITDA margin for 9MFY24 was at 10% versus 11% last year, Agarwal is confident that margins of around 11-12% are sustainable.

Agarwal highlighted the robust performance of the supply chain business, particularly in automotive cargo movement for finished goods and raw materials. In the third quarter, the supply chain business grew the strongest of all segments with an over 16%YoY growth to ₹388 crore.  Freight segment were almost flat YoY at ₹485 crore, while seaways (shipping) segment revenue declined over 16% YoY to ₹143 crore.

Also Read | Red Sea woes will trigger surge in freight costs and export delays: Centrum

The company is eyeing revenue of ₹90 crore in cold chain logistics for FY24. To bolster this initiative, the company has expanded its fleet by adding 75 more trucks, enhancing capacity and efficiency in the critical cold chain segment, Agarwal noted.

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TCI’s current market capitalisation is ₹7,603.98 crore. The stock has gained 60% over the past year.

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Larsen and Toubro foresees no financial impact from Red Sea tensions

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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While there may be some delays, Larsen and Toubro expects no monetary impact from the ongoing tension in the Red Sea, said Whole-Time Director and Senior Executive VP (Energy), Subramanian Sarma. 

In a conversation with CNBC-TV18, Sarma pointed out that L&T’s business primarily lies in the eastern province, away from the Red Sea conflict zone, with the majority of projects being undertaken for Saudi Aramco. “At this point, we see absolutely no signs of any concerns. Business is running very normal, and more projects are getting awarded,” he added.

Analysts have been apprehensive about the Red Sea conflict affecting various businesses, with a BNP Paribas report highlighting the potential rise in ocean freight costs and its impact on near-term margins for companies.

The conflict in the Red Sea is forcing ships to avoid the Suez Canal and opt for longer routes triggering a spike in freight and insurance costs for shipments, more than doubling the rates in some cases.

Sarma also discussed upcoming projects. The company submitted a bid for Safaniya last year. He said updates on the bid are expected within the next 3-4 weeks.

Also Read | Oil prices gain after strikes on Houthis, US yields fall following PPI

On January 17, Larsen & Toubro announced that L&T Construction’s buildings and factories business received ‘significant’ orders in India and Oman. L&T classifies orders in the ₹1,000 crore to ₹2,000 crore range as ‘significant’ ones.

Of these, the one in India, won by the company’s residential business, is a repeat order from the Maharashrra government’s planning and development authority. The company will construct EWS Housing, 14 towers and related infrastructure in Navi Mumbai, it informed the stock exchanges.

The company also bagged an order in the ₹10,000 crore to ₹15,000 crore range, also known as a ‘mega’ order, on January 16, for the railway electrification of the Mumbai-Ahmedabad bullet train project.

Earlier this month, it had bagged another ‘significant’ order to build a new AIIMs at Rewari in Haryana.

The market capitalisation of the company stands at ₹4,90,947 crore. The stock has gained over 45% in the last six months and close to 59% in the past year.

For more, watch the accompanying video

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Red Sea tensions: Shipping rates from Mundra to US, Europe skyrocket

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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The Container Shipping Lines Association, a significant group of foreign container shipping lines in India, currently comprising 24 members, has raised an alarm about a substantial increase in freight rates on various routes.

Shipping container rates from ports such as Mundra to the US have spiked by nearly 70% and have almost doubled, or even tripled, for certain region in Europe.

Speaking to CNBC-TV18, Sunil K Vaswani, Executive Director of Container Shipping Lines Association (India) said shipping lines are worried about the Red Sea attacks. The persistent attacks has compelled the diversion of cargo through the alternate route via Cape of Good Hope.

“Although Maersk had announced getting back into the Red Sea, there was unfortunately an attack on the vessel, after which they suspended their services over the Red Sea for quite some time. And it’s indefinite till things improve,” he noted.

On January 5, Maersk said it will suspend all shipping through the Red Sea for the “foreseeable future” because of the threat of attacks on its vessels.

Also Read | Cost of freight, insurance rises for shipments due to Red Sea conflict; imports currently cushioned by inventory

Stocks of major shipping companies were trading lower on January 8.

According to a January 5 note by Centrum Broking, while higher freight rates could translate to increased revenue, it’s crucial to discern whether this surge is a result of elevated operational costs or merely a reflection of heightened freight rates due to the prevailing tensions.

The brokerage firm expects persistent tensions in the Red Sea to also start impacting the ancillary expenses such as insurance.

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Cost of freight, insurance rises for shipments due to Red Sea conflict; imports currently cushioned by inventory

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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The cost of freight and insurance for shipments has risen in the last one month owing to the ongoing conflict in the Red Sea, which has forced ships to avoid the Suez Canal and take a longer route around the African peninsula, sources in the government told CNBC-TV18.

Government officials met shipping companies and exporters on Thursday, January 4, to take stock of the financial impact of the Red Sea conflict, where it was informed that, though the cushion of a month’s inventory is currently available for imported items, disruptions may arise in the near future if the conflict prolongs.

A government official has said that there’s no shortage of shipping containers, but the turnaround time has increased by 14 days.

With the containers taking a longer route across Africa, trade of goods with the US, Europe, and Latin America isn’t just taking longer but also costing more.

ALSO READ | Red Sea woes will trigger surge in freight costs and export delays: Centrum

The official also said that the Ministry of Defence is helping to escort many ships with consignments in the course of their travel on the high seas.

On December 21, 2023, CNBC-TV18 reported that basmati rice exports from India to Western countries may become 15% to 20% more expensive if the conflict in the Red Sea doesn’t subside soon.

Basmati rice exports from India had grown by 20% year-on-year in the period between April 1 to December 8, 2023.

However, the government remains hopeful that the increased prices of basmati rice won’t impact its overall global demand.

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Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Red Sea woes will trigger surge in freight costs and export delays: Centrum

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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The ongoing problems in the Red Sea continue to haunt the shipping sector, resulting in a considerable spike in freight rates globally. A note issued by Centrum Broking note emphasises the potential consequences, foreseeing higher freight rates, elevated transportation expenses, rising insurance costs, and extended voyage times.

To illustrate the impact, let’s consider specific examples. The freight rates from Shanghai to Los Angeles have risen sharply, jumping from approximately $2,000 in December to nearly $2,700 in just one week into January.

Similarly, the freight from Shanghai to Rotterdam has more than doubled from around $1,700 to nearly $3,600 between December and January. Shanghai to New York has experienced a significant increase as well, climbing from $3,000 to about $3,800 during the same period, marking a 25-30% surge.

Centrum suggests that if tensions in the Red Sea persist, businesses will likely face higher freight costs, leading to increased ancillary expenses such as insurance.

Read Here | Red Sea attacks disrupt global trade, experts weigh in on potential impact on freight costs

So, what does this mean for companies like GE Shipping and All Cargo operating in the sea freight business? While higher freight rates could translate to increased revenue, it’s crucial to discern whether this surge is a result of elevated operational costs or merely a reflection of heightened freight rates due to the prevailing tensions.

If the increase is due to higher operational costs, the expanded revenues may be offset by increased expenses, resulting in no positive impact on EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortisation). On the other hand, if the rise is primarily due to heightened freight rates related to the ongoing tensions, it could potentially lead to an improvement in EBITDA.

The prevailing opinion is that the situation may result in higher expenses, given the longer travel and transit times redirected away from the Red Sea to the Cape of Good Hope. As the industry navigates these challenges, businesses must carefully evaluate the dynamics of higher freight rates to make informed decisions in this complex environment.

Also Read | Suez Canal crisis: GE Shipping says tanker rates stable so far but may spike if situation worsens

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Red Sea attacks disrupt global trade, experts weigh in on potential impact on freight costs

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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In the aftermath of attacks by Houthi rebels in the Red Sea, global trade is grappling with heightened freight costs. The situation escalated when Houthi rebels targeted a Singapore-flagged Maersk container, prompting the US military to sink three Houthi boats. However, the major concern for global trade arises from Maersk’s decision to withdraw its ships from the Red Sea for at least the next 48 hours.

Speaking with CNBC-TV18, Jayanta Kumar Seal, Professor at the Indian Institute of Foreign Trade (IIFT), Kolkata Campus, and Ajay Sahai, Director General & CEO of the Federation of Indian Export Organisations (FIEO), delved into the potential short-term and long-term-impacts-on-Indian exports in 2024.

Sahai highlighted that exporters are holding back consignments due to fears of theft or destruction. Buyers are advising companies to withhold shipments, particularly in contracts on the Free on-board (FoB) basis, where buyers bear freight costs. With freight rates already on the rise and expected to increase by 50%, exporters are exercising caution.

Also Read | Maersk halts Red Sea shipping as US Navy sinks Houthi boats

Sahai said some shipping lines are opting for the longer route around the Cape of Good Hope, adding 12-14 days to voyage times. This rerouting may impact container availability in the short term. Sahai anticipating a potential increase of up to 50% in freight rates.

India’s exports in 2024 are expected to expand by 3-4% to around $800 billion. Sahai foresees a slight decline of approximately 3-4% in the merchandise sector, offset by a more optimistic projection of around 14-15% growth in the services sector.

Sunil K Vaswani, Executive Director of the Container Shipping Lines Association, pointed out that the rerouting requires extra capacities, leading to higher costs. If this situation persists, customers may have to bear the brunt of these increased expenses.

Also Read | Red Sea Crisis: Shipping industry association warns rerouting may spike costs by 80%

Seal pointed out specific challenges, stating that freight charges to Yemen have surged from $850 to $2,400 per container. This spike has created ripple effects in the domestic market, affecting basmati exports and causing price fluctuations in commodities such as sunflower oil, which is imported.

The Red Sea, a crucial maritime route, now faces heightened concerns as Houthi rebel attacks disrupt commercial ships navigating the Suez Canal, a vital sea route connecting Asia and Europe.

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Freight rates unlikely to decline further: Allcargo Logistics

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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[wealthdesk shortname=”Allcargo” isinid=”INE418H01029″ bseid=”532749″ nseid=”ALLCARGO” sector=”Transport & Logistics” exchange=”nse”]

Allcargo Logistics’ higher tax expense has hit the company’s profit in the second quarter. The company has laid out its plans till 2025 (FY26) and it expects its revenue to be at Rs 25,000-30,000 crore while the earnings before interest, taxes, and depreciation (EBITDA) – a key metric to measure a company’s financial health and ability to generate cash flow – is targeted between Rs 2,400-2,700 crore.

For the near term, the management believes that the rising freight rates have now been controlled. Reports say that the cost of shipping containers, from China to the US, has fallen by almost 83 to 85 percent from the peak.

“Freight rates have now come at a significantly lower level and we see that these levels will continue from here on and those impacts are kind of already factored in the last quarter as well. We do not see that there will be any further correction from these levels,” said Ravi Jakhar, Chief Strategy Officer at Allcargo Logistics.

Allcargo Logistics recently acquired 65 percent in the Nordicon Group and 85 percent stake in Speedy Multimodes. Talking about these acquisitions Jakhar said, “The Nordicon acquisition established us as the market leader in the Nordic region and we have significantly grown within the region our performance has more than doubled in the geography and has also added synergies to the group. So, therefore, it’s been highly valued accretive business products.”

The company doesn’t see the need for a big acquisition now but may continue to explore strategic opportunities in specific countries.

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Shipping rates continue to fall — is global recession coming?

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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In another indication of a possible economic slowdown across the globe, freight shipping rates continue to decline with a faltering demand for goods, reported S&P Global Market Intelligence. While freight rates have remained elevated since the pandemic struck due to global logistical and supply chain issues, the precipitous decline in freight rates can be attributed to both, the easing availability of containers as well as falling global trade volumes.

One of the key indicators of an economic downturn is slowing global trade. The S&P said in a note that while freight rates for containers and dry bulkers should be peaking in the next quarter, they have already peaked in the second quarter of 2022.

Due to the seasonality of the market, dry bulk freight rates would typically peak in the third quarter; however, according to S&P Global Market Intelligence’s latest dry bulk freight market outlook, the second quarter would likely be the peak of 2022.

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With rising consumer inflation across the world, many economists are concerned about a global recession due to decreased consumer spending. The firm’s Freight Rate Forecast models predict that the Baltic Dry Index, an index for measuring the cost of moving goods over sea, may fall by 20-30 percent this year alone. The firm predicts that the Baltic Dry Index will only recover by 2024.

Part of the slowdown has been blamed on the continuing Russian invasion of Ukraine and the continuing lockdowns in China as a result of COVID-19 flare-ups. Inflationary pressures and hawkish policy from central banks may also contribute further to any slowdowns.

“Although we expect some seasonal improvements in the dry bulk market in coming months, volatile path to lower rates is expected in the near term due to slower-than-expected economic growth with continued weakness in mainland China’s real estate sector as well as the absence of high congestion,” said Daejin Lee, lead shipping analyst at S&P Global Market Intelligence.

Also read: India imported six times more oil from Russia to fight inflation, says Finance Minister Nirmala Sitharaman

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow