Tanker Freight Rate Forecasting: A Question of Supply & Demand. Tanker freight forecasting in the spotlight since about 2000

Transcription

1 Tanker Freight Rate Forecasting: A Question of Supply & Demand INTERTANKO 27 Houston Tanker Market Outlook: Slide 1 Tanker freight forecasting in the spotlight since about 2 Jan 95 Increase in market levels Increase in market volatility Increase in the number of publicly traded shipping companies Analyst coverage of the industry increased TK Jan 96 VLCCF Jan 97 NAT Jan 98 Jan 99 Jan Jan 1 GMR FRO Jan 2 TNP TRMD Jan 3 Why? SFL TOPT ATB Jan 4 Jan5 Preface Jan6 DHT ONAV ULTR Tanker Market Outlook: Slide 2 1

2 Specific Challenges in Forecasting Freight Rates for Tankers Underdeveloped process in this industry Multivariate problem: complex logistics system with many influences Availability of good quality data Forecasting future freight rates in the tanker industry is an activity characterized by imprecise results Preface Tanker Market Outlook: Slide 3 Capacity Index Preface Freight rate behavior closely linked to interaction of tonnage supply & demand Systematic approach incorporating influence of these tanker market fundamentals High correlation of Capacity Index to freight rates in large tanker sector Intuitive Apples to Apples comparison of tonnage supply to tonnage demand measured in vessels Capacity = Available Supply - Demand Index (%) Available Supply Tanker Market Outlook: Slide 4 2

3 Capacity Index Preface Average Annual Spot Rate (WS 27 Basis) AG EAST AG WEST CAPACITY INDEX VLCC Capacity Index 3% 2% 1% % -1% -2% -3% Tanker Market Outlook: Slide 5 Development of Tanker Market Outlook: Slide 6 3

4 Historical Context Million Dwt Industry capacity must be viewed in the context of the last 25 years of marine crude oil and petroleum transportation activity There has been a massive shift of tonnage and cargo carrying capacity away from the larger tanker sectors and towards the smaller tanker sectors Deadweight Range (MDWT) No. of Vessels Million Dwt End Deadweight Range (MDWT) No. of Vessels Source: Drewry Shipping Consultants & McQuilling Tanker Market Outlook: Slide 7 Historical Context Conversely, the average size of vessels in each vessel class has been steadily increasing with time Overall, the fleet size has increased substantially but the overall carrying capacity only slightly Delta Number of Vessels 2,279 2,959 3% Capacity (MMDwt) % Ave. Dwt (MMDwt) (16%) Tanker Market Outlook: Slide 8 4

5 Current Context Three factors determine tonnage supply available to transport existing demand at any given time: Additions of new vessels delivering from shipyards Vessels that are removed from trading for scrapping or conversion Significant reductions of supply due to factors that limit the actual availability or utilization of vessels. Tanker Market Outlook: Slide 9 Additions to the Fleet Shipyard capacity basically fixed in the short run (1-3 years) However, some flex in shipyard programs due to increased productivity of shipyards and non-execution of options by owners Many firm orders placed for delivery in 29 / 21 timeframe Main tonnage supply wildcard is Chinese shipbuilding Tanker Market Outlook: Slide 1 5

6 Additions to the Fleet Number of Vessels VLCC Suezmax Aframax Panamax MR Source: McQuilling Tanker Market Outlook: Slide 11 Deletions from the Fleet IMO 13 G Second accelerated phase out of single hull tankers and double-bottomed / double-sided tankers entered into force 5 April, 25 Limited impact during timeframe Significant exits scheduled for 21 across all major tanker sectors Legislation allows for life extension basis satisfactory completion of Condition Assessment Scheme (CAS) if flag state concurs Tanker Market Outlook: Slide 12 6

7 Deletions from the Fleet VLCC Uncertainty in 13-G exit profile due to unknown future CAS acceptances, whether vessels will trade to their maximum trading year on passing CAS, unknown position of some flag states Number of Vessels STRICT LENIENT Phaseout Year Source: McQuilling Coated MR Number of Vessels STRICT LENIENT Phaseout Year Tanker Market Outlook: Slide 13 Reductions in Tanker Supply The marine transportation system described by the global carriage of crude oil and petroleum products is imperfect and highly inefficient If it were perfectly efficient, tankers would be able to load their next cargoes in the same location as where they discharged their last cargoes and sail loaded to full capacity all the time In reality, tankers spend a significant portion of their lives sailing around empty or otherwise inefficiently deployed Tanker Market Outlook: Slide 14 7

8 Reductions in Tanker Supply UTILIZED Full cargo on board in transit at optimum speed or vessel in port loading or discharging consuming laytime or on demurrage UNDER CARGO Laden, at sea or in port Actual utilization achieved in practice UNUTILIZED Ballasting underway, no cargo on board; Scheduled or unscheduled maintenance; Weather delays and slow steaming delays not part of regular laden transit time or ballast time; Awaiting laydays; Less than full cargoes; Out of position Theoretical Full Utilization 1% BALLAST Capacity Reduction (1-21%) UNAVAILABLE: Maintenance & Repair (2-3%) Lost Time (2-3%) Waiting Time (3-6%) Dislocation (5-1%) Unutilized Tanker Market Outlook: Slide 15 Development of Tonnage Demand Tanker Market Outlook: Slide 16 8

9 Development of Seaborne Transport Demand Tonnage Demand WORLD OIL DEMAND (QUANTITY) MARINE FRACTION (QUANTITY) TRADE MATRIX (DISTANCE) TRANSPORT DEMAND (TON-MILES) FLEET CAPACITY (MDWT) TRANSPORT DEMAND (VESSELS) Tanker Market Outlook: Slide 17 World Oil Demand Tonnage Demand Million Barrels per Day Forecast Range Reference Case Tanker demand is a derived demand arising from the energy consumption requirements of the world s economies Overall, the global economy is on a long term growth and prosperity trend While oil will remain the predominant energy source, consumption projections are lower than in recent years due to higher prices Source: US EIA International Energy Outlook June 26 & McQuilling Tanker Market Outlook: Slide 18 9

10 Seaborne Transport Demand Tonnage Demand Fraction of Oil Demand 1% 75% 5% 25% % VLCC Suezmax Aframax Panamax Non-Seaborne Historically seaborne transport of oil represents a growing share of total oil demand The VLCC sector has secured a larger fraction of overall demand at the expense of the other tanker sectors These trends expected to continue going forward Source: McQuilling Tanker Market Outlook: Slide 19 Tonnage Demand Seaborne Transport Demand 26 / 25* VLCC Middle East / Far East-SE Asia Middle East / Carib-USG-USAC Middle East / USWC Middle East / Europe West Africa / Far East-SE Asia West Africa / Carib-USG-USAC Carib-SAmerica / Far East-SE Asia Other VLCC Var (#) Var (%) 6 Share Middle East / Far East-SE Asia % 48% Middle East / Carib-USG-USAC % 14% Middle East / USWC % 4% Middle East / Europe % 4% West Africa / Far East-SE Asia % 8% West Africa / Carib-USG-USAC % 4% Carib-SAmerica / Far East-SE Asia % 2% Other % 16% Total % 1% Source: McQuilling * One-way transport demand Tanker Market Outlook: Slide 2 1

11 Seaborne Transport Demand 26 / 25 Tonnage Demand Suezmax West Africa / Carib-USG-USAC West Africa / Europe Middle East / Far East-SE Asia Middle East / Europe Mediterranean / Europe Mediterranean / Carib-USG-USAC North Sea / Carib-USG-USAC Carib-SAmerica / Europe Carib-SAmerica / Far East-SE Asia Other Suezmax Var (#) Var (%) 6 Share West Africa / Carib-USG-USAC % 14% West Africa / Europe % 8% Middle East / Far East-SE Asia % 9% Middle East / Europe % 3% Mediterranean / Europe % 9% Mediterranean / Carib-USG-USAC % 6% North Sea / Carib-USG-USAC % 3% Carib-SAmerica / Europe % 3% Carib-SAmerica / Far East-SE Asia % 2% Other % 42% Total % 1% Source: McQuilling * One-way transport demand Tanker Market Outlook: Slide 21 & Demand Compare Average Annual Growth VLCC Suezmax Aframax Coated Aframax Supply 9.2% 7.3% 9.6% 4.4% & Demand Demand 3.3% 2.1%.5% 1.3% Tonnage supply is likely to outpace demand over the next few years Tanker Market Outlook: Slide 22 11

12 Implications for the Future Tanker Market Outlook: Slide 23 Annual Freight Rate Projection Spot Rate, Selected Trades, Basis 27 Worldscale Summary Spot Rate (27 WS) MR CPP CARIB / USAC Aframax CARIB / USG Suezmax WAFR / USAC VLCC AG / EAST Panamax CPP AG / JAPAN Source: McQuilling Weakening spot markets at front end of forecast period driven by temporizing demand Market slump in 29 driven by delivery of large orderbooks Strengthening of markets at back end of forecast period driven by exits, uncertainty Tanker Market Outlook: Slide 24 12

13 Shipping Cycle Shift Summary VLCC AG / East Projected Spot Rate (WS 27) 2 High Market Case Reference Case Low Market Case The year 21 represents a major market discontinuity when a large number of vessels may be required to exit the trading fleet over a short period of time This will create tremendous volatility in the short-term in this timeframe and will likely introduce a fundamental shift in the shipping cycle in this marketplace over the longer term. Source: McQuilling Tanker Market Outlook: Slide 25 Observations & Conclusions Summary The tanker industry has recently (>2) emerged from a generation of tonnage overhang, however, a substantial orderbook is likely overwhelm demand over the next few years, causing rates to subside A large number of vessels will almost certainly leave the trading fleet in 21 with consequent impact on rates A weaker near term marketplace (< 21) coupled with primarily upside rate potential in the longer term (>21) creates an overall positive outlook for owners Tanker Market Outlook: Slide 26 13

14 Observations & Conclusions Summary The Capacity Index has proved a useful construct to evaluate freight rate behavior in the tanker market, especially in the large tanker sector Several key wildcards exist that will significantly effect tonnage supply & demand during the timeframe: Supply / Additions: Chinese ship construction Supply / Deletions: IMO 13-G phase out Demand: Chinese oil demand falters Demand: Product transport demand growth Tanker Market Outlook: Slide 27, LLC Marine Transport Advisors Ocean House ~ 135 Stewart Avenue Garden City, New York 1153 Tel: ~ Fax: Internet: services@mcquilling.com Thank you for your attention Tanker Market Outlook: Slide 28 14