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

People & Company News

Carnival Sails to Profit

The world's largest cruise company Miami-based Carnival Corp reported a net profit of $49 million, or 6 cents per share in the first quarter ended Feb. 28.   That

Ukraine Arrests Turkish Ship for Visiting Crimean Port

Turkey owned merchant ship flying the flag of Tuvalu was arrested by Ukrainian authorities over a visit it made to a port in Crimea, reports Reuters. The ship's captain detained.

USCG Flush Ice down River Systems to Facilitate Shipping

The Coast Guard cutter fleet is flushing ice through the Great Lakes river systems to prevent ice jams and facilitate commercial shipping as the shipping season

Contracts

JV Wins $2bln Freeport LNG Contract in US

A joint venture (JV) between CB&I, Chiyoda International and Zachry Industrial has won a contract worth over $2bn from FLNG Liquefaction 3 for a liquefied natural

Viking Bags Charter Deal for AHTS Brage Viking

Viking Supply Ships has entered into a contract with an Oil major for the charter of “Brage Viking” commencing 1stof April 2015. The duration is for 2 years and 8 months firm,

UK North Sea Workers Give "Overwhelming" Support for Strike

Trade unions Unite and GMB said members working offshore in Britain's North Sea oil and gas industry had shown overwhelming support for industrial action in a consultative

Tanker Trends

NORDEN CEO: Bulk Market Challenges to Continue

Klaus Nyborg, interim CEO at Denmark-based dry bulk and product tanker shipping company Dampskibsselskabet NORDEN A/S, expects difficult dry cargo market conditions

Helios LPG Pool to Start Operating

Dorian LPG Ltd. today announced the commencement of operations of Helios LPG Pool LLC on April 1st, 2015.  Helios LPG is jointly run by Dorian LPG and Phoenix Tankers Pte.

Stolt-Nielsen Completes Bond Issues

Stolt-Nielsen Limited announced the placement of senior unsecured bonds in a total amount of NOK 1,100 million in a new five-year bond issue carrying a coupon of 3M NIBOR plus 4.

Finance

JV Wins $2bln Freeport LNG Contract in US

A joint venture (JV) between CB&I, Chiyoda International and Zachry Industrial has won a contract worth over $2bn from FLNG Liquefaction 3 for a liquefied natural

Puerto Rico Readies for Largest Cruise Ships

Thanks to a pier expansion and enhancement, Puerto Rico will welcome the two largest cruise ships in the world, Royal Caribbean International’s Oasis of the Seas and Allure of the Seas, in 2016.

Carnival Sails to Profit

The world's largest cruise company Miami-based Carnival Corp reported a net profit of $49 million, or 6 cents per share in the first quarter ended Feb. 28.   That

Consulting

Holland America Line Ships Score 100

On recent routine United States Public Health inspections (USPHI) conducted by the U.S. Centers for Disease Control and Prevention, Holland America Line’s ms Statendam,

Princess Astrid visits DP World

Antwerp Gateway, managed by DP World (one of the largest container terminal operators in the world) is a significant contributor to the success of the Port of Antwerp.

LOC Group Announces Two Appointments

Global marine engineering consultancy LOC Group (London Offshore Consultants) announced appointments in two new positions; John Quarrington has joined the company

 
 
Maritime Careers / Shipboard Positions Maritime Contracts Maritime Security Naval Architecture Navigation Offshore Oil Pod Propulsion Port Authority Ship Repair Shipbuilding / Vessel Construction
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: 0.4064 sec (2 req/sec)