Baltic index for Dry Bulk

The cost of shipping commodities fell to a record, amid signs that Chinese demand growth for iron ore and coal is slowing, hurting the industry’s biggest source of cargoes. The Baltic Dry Index, a measure of shipping rates for everything from coal to ore to grains, fell to under 300 points in the second week of Feb. It has been hitting historical lows almost every day from Jan 2016 however it has had a very marginal rise to about 300 points over the last few days. This is as per the data from the London-based Baltic Exchange going back to 1985. Among the principal causes of ship owners’ pain is slowing economic growth in China, which is translating into weakening demand for overall commodities in China imported iron ore that is used to make the steel.

In fact the Baltic dry index is down about 98 percent from its peak of 11,793 points in May 2008.

Last week the overall index, which gauges the cost of shipping resources including iron ore, cement, grain, coal and fertiliser, fell to a historical low to 290 points before it rose to 300 points in the last couple of days. The dry bulk market is expected to remain under pressure for long because of weak demand for commodities, particularly from top global importer China.

The capesize index fell to almost 208 points. Average daily earnings for capesizes, which typically transport 150,000-tonne cargoes such as iron ore and coal, is presently $2,776 per day.

The panamax index was at 301 points. Average daily earnings for panamaxes are now $2,417 per day. The supramax index was down around 250 points, while the handysize index slipped to 186 points.

Admittedly, tracking this index is a dry subject for many people (the clue is in the title). Maybe that’s why it receives so little attention in the mainstream press. Either way, it’s a very important measuring stick as the BDI tracks the rise or fall of freight rates of dry bulk. Since freight will rise with increased volumes it can be argued that essentially this is a measure of the fluctuation of worldwide trade in commodities. It hence gives a very good idea of whether world trade is expanding or contracting which helps economists take a macro view. 

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A P Maritime Board – a promising development…

India has a coastline spanning 7517 kilometres, forming one of the biggest peninsulas in the world. It is serviced by 12 major ports and about 187 non-major ports. In order to develop and modernize ports the Govt, has an on-going project called ‘Sagarmala’.

The afore-said ports are located in the coastal states and island groups. Major ports are autonomous bodies, managed by Board of Directors under the overall control of the Central Government through the Ministry of Shipping. The Coastal states administer the non-major ports either through State Maritime

Board (Gujrat, Maharashtra, Tamil Nadu and West Bengal) or through State Government departments.

The new state of Andhra Pradesh is naturally endowed with a coastline of 974 km, the second longest in the country, and strategically located to enable it to become a natural gateway to the Eastern hemisphere.

Besides one major port, administered under the Major Port Trusts Act, i.e. Visakhapatnam port, the State has so far declared 14 non-major ports for development, administered by the Director of Ports, Government of Andhra Pradesh (GoAP). The 14 ports are – Bhavanapadu, Meghavaram, Kalingapatnam, Bheemunipatnam, Gangavaram, Nakkapalli, Kakinada SEZ, Kakinada Port (Kakinada Deep Water Port and Kakinada Anchorage Port), S.Yanam/Rawa,Narsapur,Machilipatnam,Nizampatnam, Vodarevu and Krishnapatnam.

Of the 14 ports, 3 are already operating under PPP concessions by private investors, namely Gangavaram Port, Kakinada Deep Water Port and Krishnapatnam Port. As of March 2015, these ports handled approximately 80million tonnes of cargo. Added to approximately 60 million tonnes of cargo handled by Vishakhapatnam Major Port, the state’s coastline contributes to approximately 12% of India’s cargo throughput.

The Government of India plans to establish a major port at Dugarajapatnam. One more port (Machilipatnam Port) has been awarded on PPP basis by GoAP to a developer and is proposed to be developed as an all-weather commercial port.

The coastline of Andhra Pradesh has several advantages, some of which are enumerated below:

v  Availability of favorable sea-side features, including deep draughts and protected shore-fronts at many of the identified port locations.

v  The natural alignment of the coastline that makes it poised for greater competitiveness in handling cargo arriving from/destined to the Eastern hemisphere.

v  Availability of shore-front and land-side advantages in several Greenfield locations which are relatively unobstructed by urban sprawl, and with ability to expand as large ports.

v  Connectivity backbone along the coastline in the form of the South-Eastern leg of the Golden Quadrilateral network (i.e. NH5), and the Kolkata-Chennai railway route which is already operated as an electrified double line trunk route.

The state shall constitute a dedicated Andhra Pradesh Maritime Board (“Board”) which shall be responsible for integrated planning, development and monitoring of all ports including concessions. Until the constitution of the Andhra Pradesh Maritime Board, the various functions proposed to be discharged by the Maritime Board shall, in the interim, be discharged by the Director of Ports of the State Government.

In the recent, ‘Make in India’ event, the Coastal State of Andhra Pradesh had highlighted its abundant coastline, existing port capacity, planned infrastructure and port development, and pitched hard as an investment destination.

Earlier experience has shown that Coastal States having maritime boards have performed better with regard to development and administering of non-major ports. Hence, AP Maritime Board is a promising development for the long term benefit of the trade, port and shipping industry.

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Places of Refuge – A relook warranted!

When a ship gets into difficulties, one of the main options of an owner or master is to seek to put into sheltered waters where the difficulties can be remedied or minimized before proceeding on the voyage. This place is referred to as a ‘Place of Refuge’.

The concept of what is now called a place of refuge for ships in distress has existed for over 2000 years. It has been described as ‘firmly entrenched and time hallowed'.

There have been three major incidents involving ships, laden with crude oil and other hazardous cargoes, requesting and being refused access to places of refuge. In two of these cases, involving the Erika and the Prestige, the ships subsequently sank and caused severe pollution damage. In the third, involving the Castor, a disaster was narrowly avoided.

The problem of places of refuge clearly flows from a substantial change being made to what was considered to be an unwritten custom of the sea that ships in distress were always granted a place of refuge. The rights that flowed from the granting of a place of refuge were significant and reflected the needs of distressed ships both of the crew and the ship owner and cargo owners.

The extent of the custom of granting refuge to ships in distress has been called into question over the last sixty years for various reasons including changes to shipping and salvage industry practices, the growing concern over protection and preservation of the marine environment and the changes in international law both in the environmental and maritime fields. The result is that the custom of granting access, if it still exists, in practice only covers humanitarian aspects and any rights the ship and cargo interests may have had are under serious challenge. The main factor in this change is the growing awareness of the need and obligation to protect the marine and coastal environment from pollution by dangerous cargoes carried by substandard shipping.

This change in attitude to the environment and the standard of shipping has resulted in a conflict between those interests concerned with the successful completion of the voyage and those interests concerned with the preservation of the marine and coastal environment. A solution to this conflict has proved elusive particularly since the shipping industry safety net that should have to a large degree prevented the cause of the problem has failed. 

Generally and historically, the first place in which a ship in distress would want to take refuge is a port. Therefore, before examining what has been put in place internationally and nationally to address the problem with places of refuge, it is necessary to begin the analysis by examining to what extent international law deals with access to ports by ships in general and ships in distress in particular.

The IMO Resolution which gives the guidelines for giving refuge to ships in distress needs to be implemented at the earliest if we want to avoid a potentially greater environmental disaster than experienced so far.  Member nations especially those with large coastlines are susceptible and hence should have an implicit interest to expedite the implementation of these guidelines.  There is an urgent need to move forward and not wait for the next disaster to take place.

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Sweden continues support for WMU – a tremendous contribution

The World Maritime University (WMU) in Malmö, Sweden is a postgraduate maritime university founded by IMO, a specialized agency of the United Nations. Established by IMO in 1983, the aim of WMU is to further enhance the objectives and goals of IMO by providing higher education for the IMO member states around the world. Its mission is to “be the World Centre of excellence in postgraduate maritime education, training, and research, while building global capacity and sustainable development”. With more than 4,100 graduates from 166 countries WMU is truly an organization by and for the international maritime community.

Since inception, the Govt. of Sweden and the municipality of Malmo have provided tremendous support, both financial and in-kind. Late Dr. C.P. Srivastava, Secretary- General Emeritus, IMO and Founder Chancellor Emeritus WMU, had mentioned in his several speeches that, “never have so few done so much for so many”.

The Government of Sweden is one of the top financial contributors to the annual financial contribution which Sweden makes, since the establishment of the University, towards its operation. In addition to the financial support provided by the Government of Sweden, the University benefits from significant in-kind support provided, since its establishment, by the Municipality of Malmö. 

International Maritime Organization (IMO) Secretary-General Kitack Lim has welcomed Sweden’s ongoing support to the World Maritime University (WMU) in Malmö following a meeting with Ms. Anna Johansson, Sweden’s Minister for Infrastructure, (on 27 January) during a visit to the renowned postgraduate maritime institute.

Mr. Lim, a former WMU graduate himself who is now also WMU Chancellor said Sweden had been a strong and loyal supporter of the World Maritime University since it was founded in 1983. Mr. Lim stated his intention to support the important capacity-building mission of the University and to promote the financial sustainability of WMU. He addressed the M.Sc. students in the class of 2016 as well as many of the full-time Ph.D. students, highlighting the value of his WMU education to his ultimate career path and noting a sense of responsibility as the first WMU graduate to hold the office of IMO Secretary-General, stating that he was the first of many to come.

 Mr. Lim encouraged the students to have a dream for their future, and to take a step-by-step approach to make that dream come true. He highlighted the World Maritime Day theme for 2016, “Shipping: Indispensable to the World” and encouraged students to remain humble as they assume the top management roles in the vitally important maritime industry.

India has also benefited from WMU as there are over 60 post graduates trained at WMU and serving in senior positions in India and abroad so we too are grateful for Sweden’s continued support.

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Maritime Industry on Alert amid – Zika Outbreak!

Due to the outbreak of the Zika virus, the maritime industry is on standby for any evidence of any symtoms of the virus that vessel crewmembers or passengers might be experiencing, according to GAC

As the World Health Organization designated the Zika virus as a global public health emergency, all vessel and facility representatives were urged to report any signs of hazardous conditions and illnesses within the last 15 days to the Center for Disease Control (CDC).

 Cruise line companies have already started informing their passengers about the virus and, because of a possible link between birth defects and Zika infection during pregnancy, the lines are allowing pregnant women to change itineraries or cancel their trips.

The virus has spread throughout America since it was first detected in May 2015 in Brazil.

Zika is a virus that is spread by mosquitoes, and in rare cases it may be spread via blood transfusions, sexual contact, and from mother to child in the womb.

 Most people who get Zika will not have any symptoms, however, those who do get symptoms could experience a fever, rash, joint pain, conjunctivitis, and muscle pain or a headache.

It is uncommon for people infected with the Zika virus to require hospitalization, and deaths are rare.

GAC called on the seafarers to take preventive measures to avoid mosquito bites including avoiding/limiting outdoor activities one hour before and after dusk and dawn, when mosquitoes are most active; covering exposed skin; and using insect repellents.

Prior to 2015, Zika virus outbreaks occurred in areas of Africa, Southeast Asia, and the Pacific Islands. In May 2015, the Pan American Health Organization (PAHO) issued an alert regarding the first confirmed Zika virus infections in Brazil. Currently, outbreaks are occurring in many countries. The virus will continue to spread and it will be difficult to determine how and where the virus will spread over time.

 The irony of the matter is that, while India has no reported cases of the dreaded Zika virus infection as of date, it is the first country in the world to have not one but two ready for testing vaccines against the virus.

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2016 Another Challenging Year for Shipping

The shipping industry can expect an uncertain and lower level profit as the support from China, one of the most important drivers of shipping demand growth in recent times, is re-evaluating its future growth direction.

On the other hand, Europe and Japan, in particular, look like they might provide positive surprises in 2016. The European Central Bank and Bank of Japan are continuously seeking to boost their economies to bring on the sustainable recovery that everyone needs.

 For the dry bulk sector in 2016, the supply-side growth is expected to come down from (2.6% in 2015 according to BIMCO) in view of a new record level of scrapping. On the demand side, growth is forecast to remain level. Challenging market conditions in China will be likely to affect the level of risk. What we have in today’s BDI index is the lowest from 1985 at 290 points and if compared when we had a boom in May 2008 it was as high as 11793 points. It’s a vertical nose dive and with the Chinese economy in a slump, Chinese imports have died down. Surplus tonnage still exists due to lack of cargo movement between trading countries.

With respect to the tanker market, after the perfect storm a steadier year awaits both the crude oil tanker and oil product tanker markets.

The two sectors enjoyed an extraordinarily strong freight market throughout 2015, ignited by the drop in oil prices that began in mid-2014 and supported by a relatively low supply-side growth in 2015. It was the best year for all oil tankers since the market crashed in late 2008.

However, going forward, the significant building of oil stocks in 2015 may slow down tanker demand growth somewhat in 2016.

BIMCO expects Iran’s return to the crude oil export market in 2016 to disrupt current trade patterns.

The multi-year slide in the crude oil tanker fleet growth was reversed in 2015. The crude oil segment is expected to see a fleet growth of around 4.5% in 2016 (2.3% in 2015). As the demand-side growth is unlikely to reach the same high level, downward pressure on freight rates will follow.

With respect to container shipping, there is a need for growth on key trade lanes to restore market dynamics.

Disappointing European demand for containerized goods versus the strong growth of imports into the US slowed the demand for container ships significantly. At the same time, 900,000 TEU worth of ultra large container ship capacity was delivered. Overall, the market imbalance worsened as the supply-side rose to a four-year high (8.0% in 2015) while the demand-side growth rate hit a three-year low. The lack of head haul volume growth on the Asia to Europe trading lane was particularly worrisome as it accelerated the heavy cascade of ships clogging up other parts of the network.

 Going forward, what is needed to revive European imports of containerized goods is for the Euro to strengthen against the Rimini and for retailers to begin restocking again.

BIMCO believes that the crucial thing for the industry is to improve the fundamental market balance in 2016.

As the lower “new normal” GDP-to-trade multiplier limits the potential upside of the demand side, careful management of deployed capacity by the individual operators is still of utmost importance. Last year did not ease the imbalance as more than 1.6m TEU was delivered in 2015.

 After a record for new capacity entering the market in last year, 2016 is set for a much lower influx at around 3.5%. This is not sufficient and means the challenging market conditions for container shipping will extend for another year.

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Development of Sagar Island Port

Sagar Island is an island in the Ganges delta, lying on the continental shelf of the Bay of Bengal about 150km south of Kolkata. The island is large, with an area of about 300 km2 (length 30km * width 10km). Although the island is in the sunderban delta, it does not have any tiger habitation or mangrove forests or small river tributaries.

The island is also known as Gangasagar or Sagardwip and is a place of pilgrimage. Every year on Makar Sankranti (January 14th) day, lacs of pilgrims take a holy dip in the confluence of river Ganges and Bay of Bengal and offer prayers.

Presently, and for the last over 50 years, Sagar roads (off Sagar island in the river Hooghly) is being utilized as an anchorage port, as the draft is better (8.5 to 9.6m) when compared to Kolkata (5.2 to 7.7m) and Haldia (6.6 to 8.0m). The drafts vary on a daily basis and also according to season, depending on the height of tide above chart datum above the sand bars in the river Hooghly. (Aforesaid drafts obtained from KoPTs draft prediction for February 2016)

In order to overcome the severe draft restrictions and vessel size limitations in the ports of Kolkata and Haldia, it is planned to set up a new port on the south west bank of Sagar Island. Some of the highlights of the Sagar Island port development project are given below:

- Project cost about Rs. 12000 crores.
- Through capital dredging, draft to be enhanced to 12m in phase I which will be increased further. It is possible to enter into a draft more easily at Sagar Island, Kolkata and Haldia as they are closer to Bay of Bengal by about 75km from Eastern Channel light at Sandheads.
- Cargoes: Dry- bulk and containers Dry- Bulk: Coking coal, thermal coal, coke, iron ore, fertilizers, etc. Cargo volume in phase I, about 50 million tonnes per annum.
- Construction of a 4-lane rail-cum-road bridge between mainland and Sagar Island to provide connectivity to national rail and highways network.
- Land required for port development, about 2000acres and will be allocated by Govt. of West Bengal.
- Joint venture between KoPT (74%) and Govt. of West Bengal (26%)
- Estimated date of completion of Phase I, by 2019.

Work on the development of Sagar Port is expected to start soon and a major part of which is dredging. Boston Consulting Group has suggested a new dredging plan which is being studied by IIT Chennai. Indications are that this would bring down the dredging cost by about 50 per cent.

 On completion, the port facilities at Sagar Island, Haldia and Kolkata will function as an integrated river-port system and cargoes will be handled by three modes; river, rail and road.

 Development of Sagar Island port is indeed a very welcome development as it would benefit the eastern and north – eastern regions, trade and shipping industry as there has been a long felt need for a suitable deep water port in the region.

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