Tanker Freight Rates Cool !

Good news for Pelaut and Marine Industry business, tanker feight rates cool now, posted by Berita Kapal.
A new report from US-based Mcquilling Services said that tanker freight rates are expected to remain at or near 2010 levels (adjusted to 2011 WS flat rates) this year, while bunkers will average $510 per metric ton, so TCE revenues should be slightly less than last year.

The report said that during 2010, tanker demand measured in ton miles grew an estimated 3.9% over 2009 levels, but only 2.7% from 2008 levels.

It went on to mention that “the majority of demand resides in the VLCC sector at over half of total tanker ton-miles recorded. Estimated year-on-year gains of 3.5% for crude and residual fuels transport demand and 7.3% refined products transport demand were observed in 2010. On average, clean transport demand has risen 5.2% per year since 1999. We expect tanker demand going forward to average between 1-2% for crude and residual  fuels transport, although we see about 4% growth in the VLCC sector in 2011. We estimate clean product transport growing at about 4-5% per year on average during the planning period” said Mcquilling Services.
In terms of fleet supply, the researcher expected 327 vessels to be delivered into the trading tanker fleet from shipyards during 2010. “Only 234 occurred, 93 fewer than anticipated, but net fleet growth in 2010 was still 7%. Our orderbook at the beginning of 2011, after adjusting for the likelihood of delays and cancellations, amounts to 713 vessels on order between 2011 and 2014, (excluding IMO 1 and 2).
Last year was the deadline for the phase-out of single-hull tankers under IMO 13G  regulations and 152 tankers exited the trading fleet. Going forward, we expect far fewer exits
as the decision criteria returns to economic obsolescence from regulatory mandate.

In 2011 we expect 75 vessels to leave the trading fleet but still see fleet expansion of 6% due to the heavy delivery schedule. The main theme for the 2011-2015 planning period is again net fleet growth, carried over from last year. However, we see differences in the supply and demand balance across sectors with VLCC and Suezmax tonnage challenged the most by the specter of a developing tonnage surplus. Supply factors such as slow steaming or floating storage can absorb a substantial portion of the surplus of vessels available to meet demand, however” said the report.
As far as rates are concerned, spot freight markets increased in 2010 over 2009, but bunker prices were 6.4% higher than forecast, reducing earnings somewhat. “We expect freight rates in the larger sectors to trade sideways for the next two years, driven by an oversupply of vessels. Freight rates in the smaller sectors will be influenced by these levels, as has been observed historically, even though their supply and demand fundamentals are generally better than in the VLCC or Suezmax sector.

 Lackluster freight markets in the near-term may lead to a bearish asset price sentiment and weaken the resolve of shipbuilders. This may lead to an erosion of new building contract prices but over the five-year forecast period, we expect the overall asset price trend to be up.
Traditional shipping finance remained tight in 2010, available to mainly existing clients of the few banks who continued their lending with stricter terms and covenants. Analysis of acquisition projects reveals lackluster operating returns based on forecasted freight rates and current asset prices. Second-hand tonnage yields the best return results. Successful tanker enterprises will need to combine steady operating returns with well-timed acquisitions and sales of vessels in order to yield acceptable total returns over the next few years, as has been the case historically.

Bunker prices will continue to escalate, driven by thinning supply, quality problems and emissions restrictions. This will continue to erode time charter equivalent revenues for tanker operators” concluded the report

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