Container rates are all set to go up as the west enters into the winter season, believes S Hajra, CMD, Shipping Corporation of India. In an interview to CNBC-TV18, Hajra said rates had bottomed out. “We are all hoping that with the winter about to set in, particularly in the west, there should be a northbound movement of freight rates for all the different segments of tankers in the coming three or four months,” he said.

Here is a verbatim transcript of SS Hajra’s exclusive interview on CNBC-TV18. Also watch the accompanying video.

Q: Could you shed some light on what kind of rates you are seeing across the categories, perhaps starting with very large crude carriers (VLCCs) and down to bulk carriers? Just in terms of these rates, do you find them sustainable in the next one or two months?

A: Yes, the rates that are prevailing today are definitely sustainable because they are pretty low. As far as VLCCs are concerned, we are all hoping that with the winter about to set in, particularly in the west, there should be a northbound movement of freight rates for all the different segments of tankers in the coming three or four months. As far as dry bulk is concerned, we have seen a slight improvement because of the supply pressure since still a lot of dry bulk areas are supposed to be delivered over the period of the next one-and-a-half to two years. There will be some pressure on the freight rates and charter hire for dry bulk.

But as it is, the dry bulk rates are pretty low. So, I do not expect them to go any lower. When it comes to containers, of course container shipping lines are suffering so badly that everyone is trying to rationalise selling, everyone is trying to gain some expenditure cut through slow steaming. So, all these will definitely help in reducing the supply pressure. I am quite sure that in the next few months, we will only see an upward movement of container rates all over the world.

Q: Talk is that a number of shipyards now don’t have the kind of orders that they kind of got used to in the past 36-48 months. Are you in a position that to renegotiate your contracts downwards since shipyards need your business and obviously you have a big pipeline to give out; have you seen that, have you been able to cut the cost and if so, by how much?

A: To the best of my knowledge, no established shipyard has renegotiated price with a single ship owner across the globe. You must appreciate that today order book of shipyards is at an all-time high; more than 40% of the total capacity in existence is also on order.

So, once one shipyard starts renegotiating with one ship owner, it will just simply open the floodgates for the shipyards. Obviously, everything will collapse. You have to also appreciate that for many of this new building deliveries, which are on at least in the coming maybe six months to one year, the steel, the engine, the spares all had been ordered some time back and they were all ordered at reasonably high prices. That is why I don’t think the shipyards can afford to renegotiate price. But what is happening is that because of the very dismal position in the shipping market, many ship owners are trying to delay delivery of their ships just to keep the supply pressure to some extent under check. This is happening mostly with the container ships.

So, I don’t think there is any scope for any ship owner to really renegotiate the price because obviously at least none of the established shipyards is interested and we all have legally binding contracts. So, obviously we cannot fault on that.

Q: Even postponement can mean a lot of pressure on cash and that could lead to some kind of informal discounting. Do you see that happening? More importantly, for the rest of the year, what kind of rates would you factor in? Would you say that you would expect a 5% rise in your freight rates, be it dry or VLCC? What will you factor in realistically at this point in time looking at the trade activity?

A: As far as delaying deliveries is concerned, in case the vessel gets delivered one year hence, in case our projection is that even one year hence the market will not substantially improve, it can definitely cut down on the cash loss for a shipping company. But you have to also take into account that for all these ships that are to be delivered one year hence, obviously quite a bit of the stage payments have already been made to the shipyard. Plus the loan agreement, if that has been finalised, obviously there again for delays, the lenders, the banks are going to charge you more. So, obviously all these factors go into consideration for a shipping company to actually decide in delaying their deliveries.

As far as rates are concerned, as I’ve already mentioned, as far as the tanker segment is concerned, yes, anywhere up to 10% of improved rates for the rest of the year, I consider is a fair estimate. As far as dry bulk is concerned, I don’t think it will really improve much. But at the same time, I do hope that it will remain at the present level. There is some worry because China is having, we are told, quite a large inventory of iron ore. So, that could have some disturbing effect on the dry bulk market. As far as container is concerned, definitely at least a 10% improvement should be there for the rest of the year.