Analysts are busy updating their models for the new US budget year. If the big picture for tankers and bulkcarriers is what interests you, it’s not enormously complicated. Everyone uses roughly the same information, and data for running supply-demand balances is readily available. Of course it’s a complex world, but one conclusion is recurrent – overall, there’s still plenty of surplus shipping capacity.
Same Surplus, Different Rates
The fundamentals have not changed much over the summer. Comparing ‘raw’ supply and demand figures, both the tanker and bulker sectors appear to have a surplus of around 25%. These are the same numbers that have been cropping up for a while. But earnings statistics tell a different story. Over the last year tanker earnings averaged $29,000/day (VLCCs $50,000, Suezmaxes $43,000 and Aframaxes $35,000). But bulkers only managed $8,000/day (Capesizes $11,000, Panamaxes $8,000 and Supramaxes about $7,600). If both markets have 20-30% surplus capacity, what’s going on?
Could the statistics be wrong? It’s possible but it’s hard to see how. In tankers, for example, 2015 seaborne oil imports are only 6% higher than in 2008 but the tanker fleet is 33% bigger. These statistics are fairly easily verified. Bulk trade is up 38% since 2008, but the fleet has grown 93%. There may be some extra tonne-miles, but not enough to change the conclusion that both markets are carrying a lot of surplus ships.
A Slow Moving Mystery
Another possibility is our old friend ‘slow steaming’. Maybe tanker owners are getting smarter. The tanker fleet trading at 15 knots carries around 25-30% more cargo than at 11-12 knots. Supply-demand calculations are usually based on a ‘design’ speed, say 15 knots. So if the fleet trades at 11 knots, the ‘surplus’ disappears because the fleet is strung out around the world, with no surplus ships at the loading zones. Freight negotiations are based on prompt ships, so it’s the backlog that does the damage. If ships speed up, surplus capacity is released to undermine the boom. But if owners do not speed up, and are sufficiently aggressive, they can benefit from the supply curve kink until someone breaks ranks, and create market spikes.
Bulkers operate in a more complex market, with different charterers. Capesizes trading at around 11.5 knots have squeezed out a few short spikes in recent years, but the smaller ships haven’t. A market moving from demand growth to apparent stagnation does not help either. Owners have a better chance of pushing rates up when cargo volumes are rising.
Does It Matter?
So there you have it. Tankers are doing well today, but are they now a better investment? The red line on the graph shows the trend in the difference in earnings over 25 years. Tankers on average earned about $7,300/day more with a slight trend in bulkers’ favour. But what the graph really demonstrates is that it basically averages out in the end. Like poker, it’s not about the hand, it’s about the players. Have a nice day.