As Freight Prices Drop Sharply, Shipping Lines Are Under Margin Pressure

The profitability of bulk cargo shipping companies like Great Eastern Shipping and the government-run Shipping Corporation of India (SCI) may decline in the current quarter, if freight prices continue to decline.

The Baltic Dry index, which serves as a benchmark for shipping important raw commodities, dropped to 1,560 points on Friday, its lowest level since February, as demand for all types of vessels remained poor amid concerns about the future of the world economy. The score, which considers 23 distinct maritime routes, has decreased by 23% over the past month and by 53% over the past year.

Although moderation may lower freight costs for dry bulk customers, sources claimed that because freight represents a relatively minor portion of total costs, it will not result in a significant competitive advantage. Due to China's use and export of the majority of the dry material, the movement of the rates is closely related to demand in China.

GE Shipping’s CFO G Shivakumar said rates are falling as congestion in Chinese ports eased while cargo demand ebbed as a fallout of the recessionary trends across economies. "Everything is dependent on what occurs in China. Rates may rise if China rebounds from Covid swiftly and economic activity picks up, he added.

According to sources, a number of factors, including the developments in the Russia-Ukraine crisis and a rebound in Chinese demand, will have an impact on the rates in the near future. As a result of the sanctions placed on Russia in the wake of the conflict, there will be changes in trade patterns as, among others, Europe and Japan attempt to replace Russian goods like coal with those from other regions, which will also have an effect on the rates,it added.