Tuesday, December 16, 2008
Spot rates slumping as charter fixtures rise
Tuesday, 16 December 2008
Analyst at McQuilling Services are suggesting that dipping time charter rates have contributed to the recent slump in spot tanker rates. In a recent report, the marine consulting service noted that the number of time charter fixtures (for vessels of 27,500 dwt and higher) in the October 1 -December 10 period was was 23% higher from the same period last year. The rise in charter fixtures came as period charter rates fell.
“As a result, a lower number of spot cargoes was observed in the marketplace causing spot demand to decrease, on top of the overall weakening demand, and consequently resulting in sliding freight rates,” McQuilling said.
In its latest report, comparing spot tanker demand during 2007 and 2008, McQuilling found that the changing balance between tonnage supply and demand had less effect on rates than psychological factors.
According to the report, spot fixtures for 2008 till November were up 6% year-on-year, led by the month of April which saw a 31% year-on-year jump. At the same time, spot rates for dirty tankers reached records in April, with levels remaining at historical highs for the rest of the second quarter (Q2).
But McQuilling said that the 31% increase in monthly spot cargoes for April did not reflect higher tanker demand.
On the contrary, dirty tanker demand was 0.7% lower in the first half of this year compared to the first half of 2007, said McQuilling.
“We believe that a significant part of the reason behind such a high number of spot cargoes lies in the period charter market,” said McQuilling.
It said a the reason was that a rise in time charters at the time mean many period charters were not renewed.
“That resulted in more cargoes being covered by spot tonnage, rather than internally committed tonnage, and caused an increase in spot demand propelling the rates to new highs.”
According to McQuilling, the rate spikes propelled by an increase in spot demand were caused by a psychological effect rather than a fundamental shift in supply and demand interaction.
“In other words, the number of cargoes remains about the same but the ratio of cargoes lifted by chartered-in tonnage versus the spot tonnage changes,” it said.
McQuilling sugggested that the market may currently "be experiencing the same effect in a reverse order" after falling charter rates caused an increase in charter fixtures.
"As a result, a lower number of spot cargoes was observed in the marketplace causing the spot demand to decrease, on top of the overall weakening demand, and consequently resulting in sliding freight rates," it said.
As adapted from Tankerworld
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