In Hellenic Shipping News 16/04/2015
They say that old habits die hard. When it comes to the shipping industry, one of the most common old – and bad for that matter – habbit, has been the surge of newbuilding orders each time a shipping market is enjoying an upward cycle. As such, when the said market reaches its peak and starts its inevitable downward path, the consequences are usually aggrevated by the glut of vessels out in the water.
Many analysts and ship brokers were worried that this trend would reemerge once again, as the tanker market has been witnessing a sort of renaissance, with the strong tide of cargo volumes over the past six months, having proved enough to pull the market out of its difficult past. According to the latest weekly report from shipbroker Allied Shipbroking, “rates have resurrected to levels that have not been seen for any longer period of time since 2008. Yet through all this, something out of the ordinary habits seen in shipping, investors have kept their cool, not rushing not pill on an over exaggeration of new contract-ing or a rapid asset price hike for secondhand units driven by buyers competition”.
However, as noted, “the paradox in all this is that earnings have reached way beyond a positive surplus for owners for well over 6 months now. This is all the more evident when you look at the trend in spot rates for VLCCs which have held an average time charter equivalent of US$ 30,000 per day during this period. Thus far however, secondhand asset prices have barely budged, managing to gain only in a few cases a 5 percent increase. At the same time the volume of transactions in the sale and purchase has also been limited. This, one may argue, has likely been as a consequence of the lack of units on offer by sellers who have held back their selling appetite in favour of the improved earnings, while they try to make up any losses made in the past. Yet this can only explain half of the story”, said Mr. George Lazaridis, Allied’s Head of Market Research & Asset Valuations.
He added that “the truth is that despite typical market reactions, investors have been more hesitant to take any bullish view, having been deeply “burnt” over the past five years by the sub-par performance of the freight market. This over cautiousness might not be misplaced either, as the fundamentals are still fairly “shaky” for this segment. The basic market mechanisms that lead to this remarkable rise had been quick to establish by an all-powerful oil cartel. The choice to flood the market with crude oil, which inevitably would lead to the drastic decline in the price of the commodity inevitably and inadvert-ently created a strong boost for seaborne trade demand and while the volatility still held, it also heralded a comeback in short term storage with traders finding an oppor-tunity to take on some speculative actions gaining from the quick fluctuations in price. All this could be easily turned on its head however, once and if oil producers decide to eventually cut back production and once again bring up prices close to their pre-summer 2014 levels. In such a case the demand/supply imbalance for crude oil tankers would probably be back to where it was a year ago, leaving their prospects no better than where they were. So all this caution amongst buyers might just be very well placed”.
According to the shipbroker’s analyst, “it is worth pointing out that during similar, but not as long, upturns in the dry bulk mar-ket investors had flocked in the hundreds out bidding in each other while eagerly trying to secure one of the “lucrative” sales candidates in the market. Tanker buyers in this case seem to have a more short term view towards the current highs, with many not sure of the market trends for beyond 2015. This is all fair and reasonable, but as a clos-ing, it is worth noting that the recent freight rally should surely be worth more than a US$ 5 million hike in the price of a 5 year old vessel especially as the spot rate average TCE for 2015 is looking likely to have a difference which is somewhat higher”, Lazaridis concluded.
