McQuilling Services, LLC. T a n k e r s Marine Transport ... · PDF fileIndustry Note...
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Page 1 \ T a n k e r s Industry Note McQuilling Services, LLC. Marine Transport Advisors Ocean House ▪ 1035 Stewart Avenue ▪ Garden City, NY T: +1.516.227.5700 ▪ F: +1.516.745.6198 ▪ [email protected] www.mcquilling.com While McQuilling Services has used reasonable efforts to include accurate and up-to-date information in this report, McQuilling Services makes no warranties or representations as to the accuracy of any information contained herein or accuracy or reasonableness of conclusions drawn there from. McQuilling Services assumes no liability or responsibility for any errors or omissions in the content of this report. This report is copyrighted by McQuilling Services and no part may be copied or reproduced for commercial purposes without the express written permission of McQuilling Services No. 8 – Plenty of Suitors for these Older Ladies June 17, 2016 The recent weakness in VLCC spot rates has revealed an increasing amount of fixture activity carried out by “disadvantaged” tankers. Chartering older tonnage is nothing new to the tanker industry, despite increasingly stringent vetting requirements by terminal operators and charterers. While the majority of charterers implement a maximum age restriction of 15 years old for tankers, we note that this requirement becomes somewhat more flexible when freight rates firm, which can be seen from the significant increase in disadvantaged fixtures this year, following a favorable 2015 freight rate environment for owners (Figure 1). Figure 1 – Fixture Activity of Disadvantaged VLCCs January 2012 – June 2016 Source: McQuilling Services Through the middle of June, we count a total of 1,019 VLCC fixtures for the year, in-line with fixture activity from 2015 over the same period. Of these 2016 fixtures, 157 were conducted by vessels over the age of 15, representing 15.2% of the activity which is a 110% from 2015 levels where disadvantaged fixture activity accounted for 7.2% of all volumes. This significant uptick in disadvantaged fixtures recorded this year is likely caused by the firm freight rate environment experienced generally in 2015, with particular emphasis on the fourth quarter. During the last three months of the year, WS rates on the TD3 Baltic route averaged WS 105, the highest quarterly level since 2008. As a result, January fixing activity of disadvantaged tankers rose to 18.6% of the total, the highest on record. Correspondingly, WS rates trended lower by 45 points and a continuation of older tonnage utilization has maintained pressure on rates for most of the year (Figure 1). When analyzing the trading patterns of older VLCC tankers, we note that the majority of the volumes for these tankers take place in East of Suez markets. Primary discharge regions accepting disadvantaged tonnage are China, India, Singapore and other Southeast Asian destinations like Thailand (Figure 2). Figure 2 – VLCC Disadvantaged Fixtures (Discharge Zone) Q1 2012 – Q2 2016 Source: McQuilling Services Terminals in the West are not major contributors to demand of older tankers with the US accounting for less than 3% of disadvantaged VLCC fixtures from the first three months of 2013. Inversely, India has ranged pretty consistently between 30% and 50% of all demand and has seen VLCC fixtures on older tonnage rise from 30 to 53 year-on-year, which may be partially explained by the country’s increasing refinery capacity and heightened demand for Arabian Gulf crude. The short-haul voyage between the AG and India is the most common voyage transited by disadvantaged tankers due to its proximity features and lack of interest from modern tanker owners. Older tonnage fixtures discharging in China have stabilized near 20%, after reaching a multi- year low of 9% in 2014. In 2016, we have seen notable increases in over 15 year old tonnage discharging in 0 20 40 60 80 100 120 140 160 180 200 0% 2% 4% 6% 8% 10% 12% 14% 16% 18% 20% Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 TD3 WS (2016 Basis) - R. Axis Disadv % Annual Average WS Rate % 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 0 10 20 30 40 50 60 70 80 90 100 Q1 12 Q2 12 Q3 12 Q4 12 Q1 13 Q2 13 Q3 13 Q4 13 Q1 14 Q2 14 Q3 14 Q4 14 Q1 15 Q2 15 Q3 15 Q4 15 Q1 16 Q2 16 China India Korea Singapore Taiwan Thailand USG/USWC Other 16 Year % - RA No. of Fixtures
Transcript of McQuilling Services, LLC. T a n k e r s Marine Transport ... · PDF fileIndustry Note...
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T a n k e r s Industry Note
McQuilling Services, LLC.
Marine Transport Advisors Ocean House ▪ 1035 Stewart Avenue ▪ Garden City, NY
T: +1.516.227.5700 ▪ F: +1.516.745.6198 ▪ [email protected]
www.mcquilling.com
While McQuilling Services has used reasonable efforts to include accurate and up-to-date information in this report, McQuilling Services makes no warranties or representations as to the accuracy of any information contained herein or accuracy or reasonableness of conclusions drawn there from. McQuilling Services assumes no liability or responsibility for any errors or omissions in the content of this report. This report is copyrighted by McQuilling Services and no part may be copied or reproduced for commercial purposes without the express written permission of McQuilling Services
No. 8 – Plenty of Suitors for these Older Ladies
June 17, 2016
The recent weakness in VLCC spot rates has revealed an increasing amount of fixture activity carried out by “disadvantaged” tankers. Chartering older tonnage is nothing new to the tanker industry, despite increasingly stringent vetting requirements by terminal operators and charterers. While the majority of charterers implement a maximum age restriction of 15 years old for tankers, we note that this requirement becomes somewhat more flexible when freight rates firm, which can be seen from the significant increase in disadvantaged fixtures this year, following a favorable 2015 freight rate environment for owners (Figure 1). Figure 1 – Fixture Activity of Disadvantaged VLCCs
January 2012 – June 2016
Source: McQuilling Services Through the middle of June, we count a total of 1,019 VLCC fixtures for the year, in-line with fixture activity from 2015 over the same period. Of these 2016 fixtures, 157 were conducted by vessels over the age of 15, representing 15.2% of the activity which is a 110% from 2015 levels where disadvantaged fixture activity accounted for 7.2% of all volumes. This significant uptick in disadvantaged fixtures recorded this year is likely caused by the firm freight rate environment experienced generally in 2015, with particular emphasis on the fourth quarter. During the last three months of the year, WS rates on the TD3 Baltic route averaged WS 105, the highest quarterly level since 2008. As a result, January fixing activity of disadvantaged tankers rose to 18.6% of the total, the highest on record. Correspondingly, WS rates trended
lower by 45 points and a continuation of older tonnage utilization has maintained pressure on rates for most of the year (Figure 1). When analyzing the trading patterns of older VLCC tankers, we note that the majority of the volumes for these tankers take place in East of Suez markets. Primary discharge regions accepting disadvantaged tonnage are China, India, Singapore and other Southeast Asian destinations like Thailand (Figure 2). Figure 2 – VLCC Disadvantaged Fixtures (Discharge Zone)
Q1 2012 – Q2 2016
Source: McQuilling Services
Terminals in the West are not major contributors to demand of older tankers with the US accounting for less than 3% of disadvantaged VLCC fixtures from the first three months of 2013. Inversely, India has ranged pretty consistently between 30% and 50% of all demand and has seen VLCC fixtures on older tonnage rise from 30 to 53 year-on-year, which may be partially explained by the country’s increasing refinery capacity and heightened demand for Arabian Gulf crude. The short-haul voyage between the AG and India is the most common voyage transited by disadvantaged tankers due to its proximity features and lack of interest from modern tanker owners. Older tonnage fixtures discharging in China have stabilized near 20%, after reaching a multi-year low of 9% in 2014. In 2016, we have seen notable increases in over 15 year old tonnage discharging in
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T a n k e r s Industry Note
McQuilling Services, LLC.
Marine Transport Advisors Ocean House ▪ 1035 Stewart Avenue ▪ Garden City, NY
T: +1.516.227.5700 ▪ F: +1.516.745.6198 ▪ [email protected]
www.mcquilling.com
While McQuilling Services has used reasonable efforts to include accurate and up-to-date information in this report, McQuilling Services makes no warranties or representations as to the accuracy of any information contained herein or accuracy or reasonableness of conclusions drawn there from. McQuilling Services assumes no liability or responsibility for any errors or omissions in the content of this report. This report is copyrighted by McQuilling Services and no part may be copied or reproduced for commercial purposes without the express written permission of McQuilling Services
No. 8 – Plenty of Suitors for these Older Ladies
June 17, 2016
Singapore as well, with 22 fixtures year-to-date, up from seven recorded over the same period in 2015. While there has been a clear demonstration of charterers fixing older tonnage this year as a response to elevated freight levels, it is also apparent that their preference has been for ships just above the 15-year threshold. In the last two quarters (Q1 and Q2 2016), 16 year old ships represented 61% of all disadvantaged VLCC fixtures, while 17 year old ships accounted for another 30% with only 9% of disadvantaged fixtures this year coming from 18+ year old vessels (Figure 3).
Figure 3 – Percentage of Fixtures by Age of Ship
Q1 2012 – Q2 2016
Source: McQuilling Services
From our analysis, we can surmise that the increasing freight rate environment has prompted charterers to consider fixing older tonnage, but decreasing utilization of tankers aged 18 and over, instead opting for vessels aged 16 and 17. A further explanation for this could be found in the age composition of the VLCC fleet. We note that 5.7% of the VLCC fleet was delivered in the year 2000, up from 3.5% built in 1999 (Figure 4).
Figure 4 – VLCC Fleet Age Profile
Source: McQuilling Services
The freight rate environment for VLCC tankers is likely to face headwinds from the older tonnage list as we move through the year. Looking ahead to 2017, the number of 16 year old tankers available to charterers will decline due to a drop in 2001 vessel deliveries, perhaps providing owners some respite. However, we caution that the orderbook for VLCC tankers (18%) is skewed toward the second half of this year and 2017 which is likely to add pressure of a different kind. For owners, not everything is looking negative. The year 2018 may be a banner year for VLCC tanker owners as the recent issues at shipyards and continued financing constraints have significantly reduced orders this year and 2018 is beginning to look very promising for freight rates from a supply perspective. According to our updated supply outlook, VLCC net fleet growth is projected to be just 1.9%, down from 7.0% and 5.8% in 2016 and 2017, respectively. However, for the time being, we are turning slightly more pessimistic about short term VLCC freight rates than the beginning of the year and are likely to revise our earnings forecasts during our upcoming Mid-Year Update report due out in August.
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