Charter rates for container ships are set for a course correction after hitting a historic high in 2021, and have remained high so far this year, according to reports.
Indian shipper margins are also expected to keep this tax down, but higher than pre-Covid levels.
Charter rates have risen 156% year-on-year in the first seven months of this year, according to Crisil Research.
However, while rates are expected to fall in the rest of the month, they said they would still be 40-70% higher at the end of the year.
These rates could drop another 30-50% in 2023 as recession is expected in most consuming countries, resulting in lower demand for consumer goods, according to the report. Also noteworthy is the widely anticipated recessionary environment, which is expected to weigh on demand in major Western consumer countries towards the end of the year, and the expected further decline in interest rates, among other factors.
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(adsbygoogle = window.adsbygoogle || []).push({});Much of the demand recovery in 2021, along with the accompanying rise in charter prices, is now likely to be reversed due to surges in demand for consumer goods in major Western consuming countries, the report notes.
Tankers make up a large portion of the Indian shipping industry’s total fleet at 57%, followed by the container segment at 22%.
The dry bulk sector accounts for 17% and other sectors for her 4%.
Therefore, according to Crisil’s research, the profitability of Indian shipping companies is heavily influenced by the tanker segment. However, according to the report, the industry’s high profit margins in 2021 and 2022 were due to historically high charter rates for the container and bulk segments, while charter rates for the tanker segment declined slightly in 2022.
The outsize impact of the low share container segment will also impact fiscal year 2023. This is likely due to a possible slowdown in trade, which has restricted the movement of ships, leading to a slight drop in overall industry profit margins of 25-30% to an estimated 33-38% in 2023. This is because it is slightly lower than Last year, it said.
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(adsbygoogle = window.adsbygoogle || []).push({});However, margins are still above pre-pandemic levels due to favorable dynamics with lower variable costs for shippers.
Many ship owners are choosing to decommission or scrap parts of their fleets due to low utilization post Covid-19, according to the report. This has resulted in higher charter rates for the second half of 2021. This was due to a drop in fleet supply as demand surged due to Christmas pick-ups.
It has been noted that container trade growth is also expected to slow slightly in 2022.
Crisil Research said improving consumer spending in the U.S. has underpinned high charter rates since 2020, and although shipowners have begun deploying fleets to meet rising demand, it has been very slow to meet rising demand. He pointed out that there was a disproportionate amount, which led to increased demand.
China’s container production slowed as the country’s firms shifted production to infrastructure activities amid government infrastructure incentives, it said. All of this, while deals have held up so far, we expect 2022 growth to be lower than last year as inflationary pressures dampen demand for consumer goods in the second half of the year.
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(adsbygoogle = window.adsbygoogle || []).push({});Source: PTI
