Thinking Outside the MR Tankship Rate Triangle

Posted by George Backwell
Tuesday, April 22, 2014
MR Tankship: File photo

Although US refined products exports largely underpin medium-range (MR) product tanker demand in the Atlantic Basin, there is little evidence of similar stability in US Gulf – UK Continent (TC14) freight rates, find shipping industry advisors Poten & Partners in a recent study. Excerpts as follows:

In many of the crude oil trades, high demand for crude oil in a particular market leads to high demand for ships and, often, robust freight rates. Because the Atlantic Basin refined product market is short-haul in nature and driven by traders’ arbitrage activities, it is far more fickle.

Teasing out trends in the to and fro trades between the US and Europe can be quite challenging, as product prices, freight rates and where the cargo ultimately ends up are highly interdependent. For shipowners, the ability to secure cargoes and get paid roundtrip freight in both directions is an attractive proposition, yet one that is without guarantee. Furthermore, the seemingly inverse relationship in freight rates between the two benchmark transatlantic trades may highlight just how savvy charterers have become.

On an annualized basis, the number of cargoes moving from Europe to the United States appears to be on the rise. There have already been 105 fixtures reported this year, suggesting that 2014 volumes could more in line with previous years.

With incremental cargoes moving from the US Gulf to the Caribbean and Latin America, the near-perfect vessel utilization opportunity historically achieved on the transatlantic trade begins to break down.

Instead of ships becoming available in Europe and the US Gulf, the dislocation of supply to places farther south, reduces overall asset utilization on a ship-by-ship basis. If this trend continues, each MR would be capable of carrying fewer cargoes per year. This is a double-edged sword for shipowners in the MR space, however. Although a vessel may have less of an opportunity to increase days for which it is paid double hire, the general increase in trade length is positive for ton-mile demand.

Again, say Poten & Partners all positive demand indications should be taken with extreme caution; the 300+ MR orderbook is still a scary prospect.

Source: Poten & Partners
www.poten.com

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