Weak VLCC rates attributed to sufficient supplies at refiners in Western markets.

The current spot freight rates in the key tanker segment have weakened considerably from those a year earlier and also with respect to the average spot freight rates at the end of Q4 FY07. Indian shipping companies have an overwhelming majority of their capacity in favour of the tanker segment.

For instance, in tanker segments like Very Large Crude Carriers (VLCC), the spot freight rates are currently $29,900 a day compared with $54,500 a year earlier, point out analysts.

The current weakness in VLCC freight rates is attributed to sufficient supplies of crude oil at refiners in Western markets like North America, which has curtailed demand for transporting crude oil from the Middle East to other countries on these large vessels.

The average spot rate in Q4 FY07 in the VLCC segment was $36,306 a day. In other tanker segments such as Suezmax, the current freight rates are $24,300 a day compared with $ 29,000 a year earlier. The Q4 FY07 average spot freight rate in the Suezmax segment was $34,243 a day.

Meanwhile, freight rates in the dry bulk segment continue to remain strong, thanks to surging demand from the Chinese metals industry. The Baltic Dry Index is currently at 5,400 levels compared with 2,700 a year earlier.

This may not appear to be good news for Indian shipping companies, but their long term contracts with key customers will help offset the decline in spot rates.

Even in Q4 FY07, when freight rates were down on a y-o-y basis, GE Shipping’s operating profit margin improved 380 basis points y-o-y to 55 per cent in the last quarter.