Shipping Corp's Fortunes Can Surge Amid High Freight Rates
This pickup in freight rates is a key positive for the company as it could lead to higher income per unit of cargo transported
Shipping Corp. might see a turnaround in its future trajectory after weak performance in the last financial year. The company's revenues as well as profitability took a hit on account of lower freight rates in the fiscal ended March.
Ocean freight rates are rising in 2024 on the back of Red Sea Crisis, port congestion, capacity imbalance and strong demand. The company's stock price has gained over 27% in the last month on renewed hope of no further delays in its divestment.
FY24: Poor Performance Across Segments
Shipping Corp.'s revenue and net profit fell 13% and 22% in annual terms respectively during the last fiscal. The company revenue in its tanker as well as bulk-carrier segments—which contribute around 60% and 15% to the company's overall revenue respectively—decline during the period.
Ocean Freight Rates Rebounding
According to DHL Global Forwarding, a pickup in demand has taken the freight market by surprise, leading to a shortage of containers and capacity. This has led to ocean freight rates heading to record highs, according to Prabhudas Lilladher.
This surge comes after rates fell to near pre-pandemic levels in 2023, after witnessing a three to five times growth in 2021 and 2022.
This pickup in freight rates is a key positive for Shipping Corp. as it directly impacts the company's revenue. Higher freight rates translate to more income per unit of cargo transported. Since demand is not an issue currently, the company's performance depends on its ocean freight rates and capacity.
The factors responsible for the volatility are:
Global events like the Red Sea crisis.
Port congestion, especially in the Middle East.
Container repositioning imbalance: There are a higher number of empty containers in Colombo and the Gulf region, instead of China
Strong container demand.
Container, Freight Indexes Rise
Drewry World Container Index: The benchmark, which tracks spot and short-term contract freight rates for 40-foot containers across eight major east–west shipping routes, has doubled so far this year.
Shanghai Containerized Freight: The benchmark index, which tracks spot ocean freight rates for containerized exports from major Chinese ports, has also surpassed the rate level that was previously affected by the Red Sea crisis.
The spot freight rates in June have already crossed levels by three–four times and stands at the $6,000–10,000 per 40-foot-container mark, according to some estimates by Freightos, Xeneta, Container xChange.
As a result, global shipping majors like Maersk have also raised its Ebitda guidance for 2024 by 50–75%.
Shipping Corp Fleet Details
Shipping Corp. has 59 fleets with a total deadweight tonnage of 53.1 lakh tonnes, according to the company's website. Deadweight tonnage represents the carrying capacity of the company.
The company has the highest number of bulk carrier fleets at 15, while its crude oil and gas tankers are 13.
In terms of capacity, the company's crude oil tankers account for 30.9% of its total deadweight tonnage, while its very large crude carriers account for 29.95%.
Based on the year of build, the average life of the company's fleet stands at 15 years, with an average of 9.7 years of useful life left.
Assuming the 25-year useful life of the company's vessel, as mentioned by the company in its fiscal 2023 annual report, 10 out of the 59 fleets' useful life ends by 2030, 14 fleets are due to end their useful life in 2037.
Long Overdue Divestment Accelerated
Shipping Corp.'s share has been gaining over the past few days amid reignited optimism for its divestment.
According to media reports, the Union's government's stake sale is poised to proceed without delays, with the Maharashtra cabinet reportedly granting a stamp duty waiver worth around Rs 300 crore to the company.
Spinoff
Moreover, a critical part of the divestment plan involved spinning off Shipping Corp.'s non-core assets, overseen by the Ministry of Ports, Shipping and Waterways.
In order to meet this requirement, the company established Shipping Corp. of India Land and Assets Ltd. in 2021, transferring all identified non-core assets like real estate properties, buildings and non-shipping-related assets to the newly formed entity.
The listing of SCILAL has now enabled the initiation of financial bids for the strategic sale of Shipping Corp.
Quantum of Stake
The Union government currently holds 29.69 crore equity shares or a 63.75% stake in Shipping Corp. On the basis of the closing stock price on June 12, the total stake of the government is valued at Rs 7,713.1 crore.