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November 30, 2023

Domestic Shipping Industry Margins Could Drop to 25–30%

By Aakanksha Nigam

According to rating agency Crisil, domestic shipping industry margins could drop to 25–30% in the current fiscal year after fluctuating between 33–38% in the previous two fiscal years. This is because charter rates across all segments are likely to decline.

The company stated on Monday that “the correction in charter rates across segments is also expected to influence player revenues to some extent.” Tanker ships make up the majority of the fleet in the Indian maritime industry—about 57% of the total.

The container segment comes in second place with a meager 22% market share. Consequently, the tanker market has a significant impact on the profitability of the Indian maritime industry. The strong charter rates in the dry bulk and container markets during FY21 and FY22 contributed to the industry’s high profitability.
Due to the projected drop in commerce, which will likely result in a minor contraction in industry profits overall, “the outsized impact of the lower share container segment will percolate into fiscal 2023 as well, with limited ship movement. Despite this, favorable dynamics, which have reduced shippers’ variable expenses, will cause the margins to remain greater than they were before the pandemic, according to Crisil.

In 2021, container shipping charter rates reached all-time highs. For the first seven months of the current year as well, charter rates increased by 156% year over year. The rates are predicted to fall throughout the coming months, but they will still conclude the year 40–70% higher, according to the report.

In 2023, Crisil anticipates that charter rates will decline by another 30–50% as a result of the anticipated recession.
Because of the anticipated recessionary situation in the majority of consuming economies and the ensuing decline in demand for discretionary products, Crisil anticipates that charter rates will decline by a further 30 to 50% in 2023. Despite the fact that commerce has continued thus far, it is anticipated that in 2022 the growth rate will be lower year over year due to inflationary pressures that would restrain demand for discretionary items in the second half.

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