In Hellenic Shipping News 02/08/2016
Nikos Roussanoglou, Hellenic Shipping News Worldwide
A change is evident in the tanker market as lower charter rates are forcing a change of thought and approach, when it comes to the commercial management of the fleet. In its latest weekly report, shipbroker Charles R. Weber said that “historically, the commercial management profile of the VLCC and Suezmax size classes has been evenly split between entities characterized as charterers and those characterized as pure owners. Amid the low time charter rate environment of 2013 and the subsequent rally from late during 2014 until recently, that proportion changed with charterers increasing the share of the fleets under their management”.
As CR Weber points out, “for the most part, this strategy has proven to be highly lucrative. At the end of 3Q14, one‐year time charter rates for VLCCs, for instance, were assessed at just $25,000/day while average spot market earnings during the subsequent four quarters averaged 131% higher at ~$57,795/day. Even three‐year time charters entered into a the time will likely prove highly profitable; at end‐3Q14 the three‐year time charter rate was assessed at $30,000/day and spot market earnings between then and now have averaged ~$61,327/day. VLCC earnings are presently mired at the bottom of a seasonal low exacerbated by crude supply issues and stand at ~$22,858/day. Even if earnings were to hold at the present level (something we view as unlikely) through the remainder of a three‐year TC which commenced at the start of 4Q14, the corresponding $30,000/day rate would remain well below what the spot market earnings will have average over the same period at $45,298/day.
In its note, CR Weber said that “we recently looked at the TC coverage of the top‐five most active charterers whose activities we assesses as being largely speculative (relative to those charterers who tend to maintain a more consistent fleet of in‐chartered units or who are more likely to TC for more efficient management of consistent structural cargo movements). On this basis, we observed a lagging correlation of units TCed by these entities to movements in TC rates. Indeed, as rates have now been declining, we are observing a sharp drop‐off in forward TC coverage”.
According to the shipbroker, “this is not unexpected as the extent of recent rate losses stokes considerably less certainty as to the market’s position going forward. Simultaneously, we note that often speculation in terms of TC coverage often has as much to with managing freight market exposure as it does to pure speculation on the freight market itself. On this basis, we note the extent of TCs at the start of 2013 – when the market and its outlook was mired at its lowest post‐global financial crisis and in over a decade overall. Accordingly, as TC rates decline to reflect the spot market and souring sentiment, the market TC market could well be poised to observe stronger demand to keep TC coverage level with historical norms and take advantage of lower rates. Certainly, those participants who believe the market will rebound (at least in part) in line with stronger refinery utilization rates during Q3 and Q4 and as crude supply levels rebound from levels dragged down recently by force majeure and other short‐ term geopolitical issues will be keen to lock into TC rates presently achievable which may no longer be so come Q4”.
Meanwhile, in the VLCC market this past week, CR Weber said that “it progressed further into summer doldrums this week with rates posting further declines to observe fresh two‐year lows. By the close of the week, AG‐FEAST TCEs had dropped to under $20,000/day for the first time since October 2014. Tonnage oversupply remained a key challenge and extended this week while demand levels dropped on a w/w basis. Combined Middle East and West Africa chartering demand was at a six‐week low; Middle East demand was off by two fixtures w/w to 18 while the West Africa market was off by three fixtures w/w to just two fixtures – the lowest weekly tally in over three months. The slowing of cargoes meant that by the close of the week, at least one cargo had received nine offers. The August Middle East program has yielded 64 cargoes thus far, leaving an anticipated twenty uncovered through the second decade. Against this, there are 40 units available and draws from the West Africa market should remain modest at best amid limited recent interest in regional stems from Asian buyers and a growing list of units freeing on the USG failing to find onward trades from the Caribbean. This implies that the Middle East surplus at 20 August will stand at 18 units. Though two fewer than the number estimated uncovered at the conclusion of the first decade, it remains high relative to recent norms. Moreover, the number of “hidden” positions has likely risen amid the low rate environment, which could keep rates under negative pressure as these units reappear to compete for fixtures”, CR Weber concluded.
Nikos Roussanoglou, Hellenic Shipping News Worldwide
