Thursday, 6 October 2011

Severe fallout of tanking tanker market


With the tanker market slumping amidst huge tonnage oversupply, spokesperson for Wilhelmsen Ship Management Arild Johannessen has told Bloomberg that an unnamed ship-owner will cold lay up a brand new supertanker in Malaysia. Reports from other industry sources say that younger tankers are being sold for scrap today - and that ship owners are seriously contemplating scrapping many more.

These developments come after a long period where the tanker market has been under severe pressure. With operators struggling to cover costs, charter rates for tankers have plunged since the 2007 peaks; Clarkson Plc, the world's largest shipbrokers, has said in a report that rates are down a massive 96 percent since that year when they had risen to a record $229,000 a day. Clarkson Research Services says that this promoted owners to order a record number of these tankers in the next two years, "depressing freight rates to a 14-year low, as the fleet swelled almost three times faster than demand." As a result, the industry is saddled today with the largest supertanker fleet in 29 years. There are 152 supertankers contracted to be built, to add to the 570 already existing, Clarkson says. Forty-one have been added In 2011 alone.

 The Wilhelmsen managed tanker will be the first to be mothballed since the 1980's slump in shipping. With a capacity of 2 million barrels of crude, it will be laid up in an undisclosed location in Malaysia. Johannessen did not name the ship or the owner for reasons to do with privacy. 

Halvor Ellefsen of London based shipbrokers Galbraith’s says that tanker layups are a short-term measure and may not change market dynamics fast enough. “More than anything else, it just shows how many ships there are. Even if this happens on a meaningful scale, it’s hard to see it saving the tanker industry as ships that get laid up will just come back into the market when freight rates jump,” the shipbroker says.

Many tanker owners are believed to be seriously considering the viability of their fleets as fears of a global double dip recession resurface in the aftermath of the European crisis. After two years of uncertainty, many of them have hoped that things would start looking up after the third quarter of 2011. It is becoming painfully apparent, however, that the glut of tonnage oversupply, with new tankers still slated to enter the market regularly, is a much bigger issue than earlier envisaged, especially after fears that the Chinese economy may be slowing down as well. 

Meanwhile, supertanker prices have fallen by more than a third, says tanker broker EA Gibson, who had said at the end of last year that this class of ship ordered in 2007 and 2008 would need daily earnings of $55,000 just to break even. London based Moore Stephens has pegged running costs of these giants at $10,645 a day, excluding fuel costs.  

British broker Braemar Shipping Services Plc says that supertanker earnings are averaging a paltry $1,000 a day today. German based tanker owners Dr. Peters Group add that ship-owners who have speculated with new tonnage are much worse off than owners who have been circumspect in securing revenues with long-term charters. Says spokesman Holger Romer, “If you have a new ship that was ordered in ‘07 and ‘08, it was at a high price and now if you don’t have a charterer, it’s a big problem.”

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