Indian refiners seek long-term contracts with tanker operators

Commitment of five years or more in effort to boost domestic operators badly affected by sinking rates

Two of India’s state-owned oil refiners have issued tenders seeking to charter tankers for at least five years while giving preference to Indian companies, tender documents reviewed by Reuters showed, which would boost domestic shipping firms battered by slumping tanker rates.

India’s ministry of shipping asked the refiners to issue long-term crude import tenders on a pilot basis and include a right of first refusal for Indian shipping lines, a government source familiar with the matter told Reuters on Monday.

The shift to the five-year contracts would give millions of dollars in tanker contracts to the Indian carriers, the source said.

This would help companies such as Shipping Corp of India (SCI) , Mercator, Great Eastern Shipping and Essar Shipping. The global tanker industry is grappling with an oversupply of ships that has depressed rates, with the benchmark Middle East to Japan route for Very Large Crude Carriers (VLLCs) dropping 43 per cent since the start of the year.

According to the tender documents sent out by Bharat Petroleum, they are only seeking bids from Indian-flagged Suezmax tankers capable of carrying up to 1 million barrels of oil for a five-year period.

Indian Oil Corp’s (IOC) tender document includes similar language but is seeking global bids for VLCCs capable of carrying Iraqi Basra Light crude for five years and grants Indian shippers the right of first refusal.

The prices for the charters will be linked to the average of the oneyear time charter rate published in Clarkson Research’s Shipping Intelligence Weekly, the documents showed.

An IOC spokesman confirmed this is the first long-term VLCC tender the company has issued. There was no immediate response from BPCL.

India has in the past two years overtaken Japan to become the world’s third biggest oil consumer.

India’s international trade has surged since the turn of the century but Indian-owned vessels carried only 7 percent of that trade in the 2015-16 fiscal year, government reports showed.

The country’s shippers are pleased with the move.

“Granting five year shipping tenders to Indian companies will help the growth of India’s fleet. It will help us in arranging funds for acquisition of new vessels,” said Captain Anoop Kumar Sharma, the chairman of SCI, India’s top shipper.

However, the companies may struggle to meet the tender requirements which stipulate that the vessels be no more than 10 years old at the time of charter.

SCI only has two VLCCs that are less than a decade old, the Desh

Viraat and Desh Vishal, which were built in 2008 and 2009, respectively, according to data on its website.

Away from oil, it is becoming more expensive to transport commodities around the world, threatening to squeeze profits for global traders and raise food prices.

The Baltic Dry Index, a benchmark of shipping rates, surged 73 per cent this year to a four-year high because of a slowdown in new bulk freight capacity, according to Bloomberg. More than 85 per cent of global trade in grains and oilseeds is transported by dry-bulk carriers, according to Rabobank International.

Higher shipping costs will make agriculture goods from farther away less competitive and could push up food prices, the bank said in a report on Monday.

The United Nations’ Food & Agriculture Organisation expects the world food bill to be the second-highest on record this year, driven by more expensive freight and rising demand for foodstuffs.

“Higher global freight rates are expected to have an increasing influence on grains and oilseed trade dynamics and trade flows in 2018 as the cost of dry-bulk sea freight increases,” Rabobank said.

Asia, a major grain importer, will be especially affected because of long distances and reliance on dry-bulk carriers to bring in food staples.

Australia’s close position will boost competitiveness in Asian markets, while other suppliers in South America, the US and countries in the Black Sea region face pressure, Rabobank said.

Growth in demand for dry-bulk shippers is likely to surpass supply in the next two years, leading charter rates to rise 10 to 20 per cent. Higher oil prices are also making bunker fuel more expensive.

“Importers may also opt to pass the rising freight costs to customers,” Rabobank said.

“Consumers should be ready to face increasing food prices.”