Companies at sea with oceangoing ships
The shipping lines, which invested heavily in the fleet of ocean-going vessels to profit from skyrocketing shipping costs during the pandemic years, are now feeling nervous as both freight charges and imports have declined sharply in the recovery period.
Officials of several ship-owning companies such as KSRM Group, Meghna Group and Karnaphuli Group said freight charges on both bulk carriers and container ships dropped globally by about 50% over the course of a year as an aftermath of the Russia-Ukraine war.
Also, container ships are carrying goods at less than half their capacity as imports have shrunk due to the dollar crisis, making it difficult for investors to meet their operating expenses, they said, adding that they are cutting back on further investments as the price of newly built ships or old ones is also rising.
Keep updated, follow The Business Standard's Google news channel
The Bangladesh Flag Vessels (Protection) Act 2019 and favourable policy support lured a number of corporate groups into ocean-going shipping business, and a sudden surge in global freight costs prompted them to buy more ships at lower prices to expand their fleets.
Of the total 97 ships registered so far, 44 were bought during the three years of the pandemic.
But their profit margin soon started to evaporate as freight charges dropped to less than pre-pandemic levels.
The scenario is not far from the global shipping business which saw a significant drop in profitability in 2023 following seven straight quarters of record income during the Covid-19 pandemic.
Shahed Sarwar, former director of the Bangladesh Shipping Agents Association and deputy managing director of Crown Navigation, told The Business Standard, "Before the pandemic, the cost of sending each container to Europe was $2,500, which soared to $12,500 during the pandemic. But freight charges on this route are now $1,000-1,500 depending on the shipping lines, as imports have slowed and product demand fell due to the Russia-Ukraine war."
Global shipping data shows freight rates have slumped to the lowest level since the first wave of the pandemic in 2020, with volumes shrivelling and capacity expanding. Charge of a 40-foot equivalent unit container from China to the US West Coast dropped to $1,000 down from $16,000 a year ago and to $1,400 from $14,000 for a North European port.
Local shipping companies said the sliding freight charges have put shipping agents, feeder operators, and mainline operators in the shipping sector in turmoil.
According to the data of the Mercantile Marine Office (MMO), since 2019, some 65 sea-going vessels have been added to the fleet of national flag carriers. Investment and registration of Bangladeshi chartered vessels have increased significantly till 2022 but have decreased in 2023.
The number of sea-going Bangladeshi vessels in the country till July 2023 is 97. Among them, nine ships were registered in 2018, 13 in 2019, 15 in 2020, 12 in 2021, 17 in 2022 and eight as of July 2023.
A number of industrial groups became interested in purchasing oceangoing vessels following the enactment of the Bangladesh Flag Vessels (Protection) Act 2019 which includes VAT exemption, preferential berthing of ships at the country's sea ports, an obligation to transport 50% of goods in import-export trade by local vessels and hassle-free ship registration.
No scope for fresh investments now
Currently, the KSRM Group owns 24 ships, the largest number of ocean-going vessels. It invested around $355 million in these vessels. In 2023, the company registered only one ship though it registered a good few in the previous years.
When asked about the group's lack of interest in fresh investments, Mehrul Karim, chief executive officer of KSRM Group, told The Business Standard, "The price of old ships decreased during the pandemic period. As a result, new investment in this sector had increased. But the price of old ships is now rising."
Meghna Group is in the second position in terms of the number of ships. The company has an investment of $550 million in 22 ships in its fleet. Each of the small and large ships has an average price of $25 million.
In 2022, Meghna built four new bulk carrier vessels, of which, the capacity of the "Meghna Victory" carrier is 66,000 tonnes. It costs about $35 million. The group's total investment in the four ships was $105 million.
Three of these four vessels were registered in 2023.
Mohammad Abu Taher, general manager (Technical) Meghna ocean-going fleet, told TBS, "The daily fare for bulk carrier ships in the Asian region was $20-25,000, which has now come down to $10,000. The daily fare of ships in Europe and America has decreased from $40-45,000 to $20,000."
"Fresh investment in this sector has decreased due to the reduction in freight charges. We are carefully assessing the situation. But we currently have no plans to add new vessels to the Meghna Group fleet," he added.
The Karnaphuli Group started business in this sector in 2020 by buying two old container ships. Currently, it owns eight Bangladeshi-flagged feeder vessels with capacities ranging from 1,100 twenty-foot equivalent units (TEU) to a maximum of 1,700 TEUs.
The company registered two of these vessels in 2020, four in 2021 and two in 2022, but none this year. So far, the group invested about $55 million, all in old vessels.
A senior official of the Karnaphuli Group, who did not want to be named, said, "An old ship cost about $10 million during the pandemic period. The price has now increased to $17 million. During covid, the carrying fare per container from Chattogram to transhipment ports was $750-1000. Now this rent has come down to $250-300."
"Only 400 to 700 TEUs are being transported on ships with a capacity of 1,500 TEUs. In other words, the ships are transporting goods at almost half of their capacity. Due to lower cargo volumes and freight charges, vessel owners are earning less and even incurring losses on some trips," the official said.
The official also said the current law mandates that Bangladeshi flag vessels must carry at least 50% of seaborne cargo in the country's foreign trade but the law has not been fully implemented. "If this law is fully implemented, we could launch 10 more vessels on the transhipment routes."
Bangladeshi companies typically purchase 20-year-old 50,000-60,000 deadweight tonnage (DWT) ships. The prices of these ships dropped by half during the pandemic but prices rebound to pre-pandemic state, he said.
Due to the high dollar prices and the impact of the Russia-Ukraine war, businessmen have to invest more while purchasing ships, the Karnaphuli official added.
Great potentials, still
Bangladesh pays $900 million in freight charges every year for the import and export of goods. Earlier, only 8-10% of this freight trade could be handled by local ocean-going vessels, which now increased to 20%. A possibility of $200 million annual income has been created, said businessmen and officials of the Mercantile Marine Office.
Azam J Chowdhury, chairman of the Bangladesh Ocean-going Ship Owners' Association (BOGSOA), told TBS that this sector can be the second largest foreign exchange earner after the garment industry.
"The government is providing tax incentives in this sector. There has been a lot of investment in this sector in the last few years. There is potential for further investment," he added.
