Tankship Market Analysts Say Timing Essential for Success

MarineLink.com
Sunday, February 16, 2014
Figure 2 ABC scenarios: Image courtesy of McQuilling Services

Marine transport advisors McQuilling Services explain in a tanker industry note that timing is everything in a volatile tanker market.

McQuilling explain that on the outset, one might not directly see a similarity between Valentine’s Day and the tanker market; however, both can sometimes require serendipitous timing in order for desired outcomes to transpire.  Furthermore, just like the dating world, the tanker market is full of volatility.  Industry participants have been reminded of these market swings thus far in 2014 as the market witnessed its biggest spike in the last five years before losing steam at the beginning of this month.  This volatility has been particularly prevalent in the VLCC and Suezmax tanker classes, but also visible in the Aframax and Panamax segments (Figure 1, below).


The upward momentum was supported by the usual combination of elevated regional demand against a tighter supply of vessels.  Some additional support might have come from vetting restrictions imposed by certain charterers as well as weather related delays in several ports around the globe, that limited tonnage supply.
 
Regardless of the factors that helped tighten tonnage availability, the timing that an owner fixed their vessel in the trajectory of the uptick will have a significant impact on their bottom line. While this might seem relatively obvious, it sets the stage for some owners to feel a long awaited respite from the pressured market of previous years, while missing the upturn could even force some players to throw in the towel.
 
In an effort to highlight these market conditions, we examined three different Suezmax tankers and their timing related to the recently ended market cycle.  Naturally, the breakdown of the voyages varied for each vessel but ultimately they all sailed from the Atlantic Basin to a discharge port in the East.  All vessels eventually repositioned to Diego Garcia in the Indian Ocean.  This is a common destination for Suezmax owners to reposition following voyages to the East, as it provides for a relatively centralized point to assess rates in both West Africa and the Middle East.  In each of the three examples we examined their return over a period of 90 days which entailed ballast and laden legs, port time, waiting time and weather delays.
 
The three scenarios are as follows.  Vessel A entered the market at the start of the cycle earning US $19,500/day, Vessel B entered it halfway bringing in US $43,000/day and Vessel C was fixed at the peak at US $68,000/day (see Figure 2 to the right).
 
Although there were significant earnings variations for each of these Suezmax owners, they were all able to outperform the market actuals of 2013, which averaged about US $12,000/day (Figure 2).  In addition to the upswing in spot rates, owners were able to further maximize earnings through optimal vessel utilization that minimized ballast legs. To illustrate how these voyages might impact the annual earnings of these vessels, we assume that for the balance of the year, earnings will be around US $8,900/day (see Figure 2 on the right).  This is based on the weighted average of Suezmax (WAF/USAC & BSea/Med) earnings in our 2014-2018 Tanker Market Outlook.  This figure is based on round trip voyages, with a sailing speed of 13.5 knots, and has been adjusted to reflect current bunker prices.
 
Based on these assumptions, Vessels A, B and C will outperform the market forecast by US $10,500/day, $34,000/day and $59,000/day, respectively.  This provides an example of how timing can have such a positive impact on earnings, and illustrates how savvy (or lucky) owners can capitalize on unbalanced market fundamentals.
 
Although McQuilling Services anticipates that 2014 is unlikely to see a drastic improvement in rates due to the continued abundance of tonnage, several factors point to increased volatility in the markets.  A recovering world economy should result in more demand to transport oil.  The North American shale story is still developing, meaning that traditional trading patterns are far from certain.  Segmented supply due to charterers vetting requirements/age restrictions may also introduce short-term tonnage supply disruptions.
 
At present, the potential for another super spike seems unlikely, but admittedly it is hard to accurately predict weather delays, end of year inventory clear-outs and supply disruptions all transpiring in unison.  However, we could still see spikes that will drastically improve the results of a few owners throughout the year.
 
Furthermore, given the recent uptick in VLCC rates compared to the downward spiral in Suezmax earnings, substitutions will likely to be the order of the day in the near future, especially on large vessels, and that will keep earnings in check.
 
The take-away from these observations is for both owners and charterers alike to keep a weathered eye on the market, perhaps more so than last year as rate volatility may be returning.  In closing, on this Valentine’s Day, remember that in shipping, as in matters of the heart, timing can be everything.

In addition, video from McQuilling
McQuilling TV, Senior Shipping/Energy Advisor, Chris Neumiller, discusses some of the highlights from the tanker market in 2013 as well as McQuilling Services' view of tanker market fundamentals for 2014-2018.

Watch here:
http://www.youtube.com/watch?v=88_SwXppf1A
https://www.mcquilling.com/blog/tv/latest.html

Source: McQuilling Services LLC

 

 

 

Maritime Reporter January 2015 Digital Edition
FREE Maritime Reporter Subscription
Latest Maritime News    rss feeds

People & Company News

Kongsberg Expands Louisiana Office, Training Facility

Kongsberg Maritime has purchased approximately 5.2 acres for new construction on an 82,980 sq ft office and training facility. Construction on the James Business

HII Acquires Engineering Solutions Division

Huntington Ingalls Industries (HII) has acquired the Engineering Solutions Division of The Columbia Group, a designer and builder of unmanned underwater vehicles

Sjo Resigns from Polarcus Board of Directors

Polarcus Limited announced that Hege Sjo will resign from its board of directors effective February 2, 2015.   Sjo has accepted an appointment as Deputy Director

Contracts

Imabari to Build 20,000TEU Containerships

Imabari Shipbuilding Co., Ltd. announced it has secured newbuild orders with the cooperation of Marubeni Corporation for 11 units of 20,000TEU Ultra-Large Container Carriers,

New Survey Vessel Ordered for the Port of London

The Port of London Authority (PLA) has ordered a new purpose-built survey catamaran, a CTruk MPC19, due to enter service on the river Thames later this year.   The

NAO Secures PSV Contracts with Oil Major

Nordic American Offshore Ltd. (NAO) informs that it has secured platform supply vessel (PSV) contracts with a major oil company.   NAO’s two new contracts with are for four months firm periods,

Tanker Trends

Tohoku Electric's LNG Buy Sets Asian Spot Level

Japanese utility Tohoku Electric has purchased an LNG cargo for delivery in the third week of March at a price in the low $7 per million British thermal unit (mmBtu) range,

Yemen Lifts Force Majeure on LNG Deliveries

Yemen on Friday lifted force majeure on liquefied natural gas (LNG) deliveries from its Balhaf plant, trading sources with knowledge of the matter said. Reuters reported last week that the 6.

German Shipowner Worst Global Dumper -NSP

German shipowner Ernst Komrowski topped the list of the worst global dumpers with 14 end-of-life vessels sold to the beaches, according to a press release from NGO Ship-breaking Platform (NSP).

Finance

Shippers Must Monitor Greek Government Changes

Moore Stephens says shipping must monitor developments in wake of Greek government change   International accountant and shipping adviser Moore Stephens says

Chevron Scraps 2015 Share Repurchase Program

Chevron Corp halted its 2015 share repurchase program on Friday, a move to conserve cash amid tumbling oil prices.   The company's shares extended loses on the news,

Marquette Transportation Reportedly for Sale

Marquette Transportation Company LLC, a U.S. towboat operator, is exploring a sale that could value it at more than $1 billion and has attracted the interest of

Consulting

SECNAV Completes Visit to Paraguay

Secretary of the Navy (SECNAV) Ray Mabus completed a visit to Paraguay Jan. 29 during which he met with Republic of Paraguay President Horacio Cartes to discuss

AAL Launches New Operation in Japan

AAL has announced the launch of a new operation in Japan AAL said the move aims to provide services and on-ground operational support directly to customers in the country,

ClassNK Releases Improved "e-Application"

ClassNK announced the release of an improved "e-Application" system. This improvement was planned based on requests from the users. Therefore, firstly we would

 
 
Maritime Careers / Shipboard Positions Maritime Security Naval Architecture Navigation Pod Propulsion Ship Repair Ship Simulators Shipbuilding / Vessel Construction Sonar Winch
rss | archive | history | articles | privacy | terms and conditions | contributors | top maritime news | about us | copyright | maritime magazines
maritime security news | shipbuilding news | maritime industry | shipping news | maritime reporting | workboats news | ship design | maritime business

Time taken: 0.3792 sec (3 req/sec)