Archives for posts with tag: tanker owners

With tanker owners “on top of the world” and their dry bulk counterparts often feeling like they are “staring into the abyss”, 2015 was a year of contrasting fortunes across bulk shipping. However with global seaborne trade growth slowing to 2% (to reach 10.7bn tonnes) and the world fleet growing at 3% (to reach 1.8bn dwt), for many sectors it has been a case of the fundamentals working against them.

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Onwards And Upwards

The good news or the bad? Well let’s start with the good! There is no doubt who stole the show in 2015, with average tanker earnings up 73% y-o-y and VLCCs leading the way, up 120% with earnings spiking over $100,000/day. Low oil prices drove demand (total seaborne oil trade grew 4.8% to 2.9bn tonnes), supporting the best tanker market since 2008. Indeed, with a tanker fleet around 30% bigger than during the last market spike, the approximate earnings flow into the sector topped $42bn, the second highest year on record after 2008 ($46bn).

Sitting Pretty

Although tankers had a sparkling year, VLGCs managed to outdo even their stellar performance of 2014, with average earnings increasing to over $85,000/day! LPG was also the top performing trade, with an estimated 8% increase (with US exports up over 30% to around 16mt). The specialised products market made steady gains, as did the ro-ro, ferry and cruise markets. Elsewhere however, it was difficult to avoid a sinking feeling.

That Sinking Feeling!

Having spent the years since the financial crisis worrying about supply, dry bulk owners seemed to “get the message” with an 87% increase in demolition and an 74% drop in ordering. 93 demolished Capesizes represented an all time record, and bulkcarrier fleet growth of 2.7% was the slowest since 2003. However the reality of the “new economic normal” in China (where coal imports dropped 28% and iron ore imports managed just 1% growth) meant that seaborne dry bulk trade stalled at 4.7bn tonnes. Average earnings fell 28%, but in the final months of the year, earnings sat at OPEX levels and reached well publicised all time lows.

Buyers & Sellers…

Despite the rush to beat NOx Tier III regulations, newbuilding orders across tankers and bulkers totalled 65m dwt, down 32% year-on-year. Overall yard orders totalled 96m dwt ($70bn), down 21%, with busy ordering of large containerships in the first six months of the year. The average lead time for orders however dropped to 22 months and the immediate outlook is quiet. We reported 67m dwt of tanker and bulker sales in 2015, down on 2014, especially for tankers (-34%). Asset prices were relatively steady in tankers but unsurprisingly down 30-40% in dry, with buyers increasingly selective towards good spec tonnage. Greek owners again topped the asset play charts, involved in nearly 50% of all reported tanker and bulker deals either as buyers or sellers. Meanwhile, scrap prices nearly halved, as global steel prices fell.

Poles Apart?

So, it was a year of contrasting fortunes across wet and dry (we estimate the largest earnings differential on record!), but a tough year for most across shipping (look out for our review of the container market next week and our offshore review in Offshore Intelligence Monthly for more depressing numbers!). Perhaps 2016 may be a case of “opposites attract”, with those tanker owners sitting on the top of the world eyeing up a bottoming out dry cycle. Have a nice New Year!

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We may be in a recession, but some segments of the shipping market are doing better than others. In the last few months the dry bulk market has been plumbing the depths of despair, whilst large tanker owners appear to have hit the jackpot, with rates surging to over $60,000/day. Why is it that tankers are doing so well this year?

It’s All About Dynamics

Back in September VLCC tankers were earning less than $15,000/day, but over the winter the tanker market “slot machine” lined itself up with the four cherries needed to hit the jackpot. The first cherry was the seasonal cycle. Oil demand is generally higher in the final quarter of the year and in 2014 major importer demand was 2.2m bpd higher in Q4 than in Q2. The second cherry was the oil price, which collapsed just as the seasonal cycle got started. By the year end Brent at $50/bbl encouraged traders punting on physical oil, and where better place to put it than in a tanker? Cherry number three was slow steaming which meant that ships were at sea, not hanging around the loading zone. In December 2014 there was only one VLCC sitting spot in the Gulf on average, down from 12 in September 2014.

Fruity Number Four?

The fourth cherry was more subtle, but equally important; tanker owners seem to be better at “finding the floor” when the market tightens. In weaker periods, the theory runs, tanker owners are less likely to counter strongly in a tight market, for fear that charterers would turn the tables when the market slackens. When the supply-demand balance is more robust, as it appears to be today, they manage things more confidently. This sounds plausible, but is it true? To check, we analysed VLCC spot earnings since 1991, using the monthly average of VLCCs spot in the Gulf to indicate available supply. Splitting the data at 2000, we calculated the average earnings for each number of VLCCs sitting spot in the Gulf.

From A Position Of Strength

The results are shown in the graph. The blue line shows the spot/earnings relationship 1991-99 and the red line shows the same 2000-15. The lines suggest that with 7-20 VLCCs sitting spot in the Gulf, earnings were much the same in both the ‘weaker’ period (average earnings of $26,000/day 1991-99) and the ‘stronger’ period (average earnings post-2000 of $46,000/day). But with 6 or fewer spot ships, the earnings since 2000 have been 68% higher, suggesting that owners can  take greater advantage of a tight supply situation when the overall supply-demand balance is more positive.

How To Win The Jackpot

So there you have it – two conclusions. Firstly the number of ships in the loading zone is what matters, not any “theoretical surplus”. If ships are slow steaming, such a surplus only matters if they speed up. Secondly the analysis suggests that when the supply of spot ships is tight, the wider ‘strength’ of the market impacts how owners negotiate matters a great deal. Relative to spot supply, VLCC earnings in the stronger post-2000 period increased significantly compared with the weaker 1990s. As a result, the conclusion for owners could be “stay slow and be brave”. Have a nice day.

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