Tanker sector hits new low as medium range rates crash

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Michelle Wiese Bockmann - Thursday 19 March 2009

 

MEDIUM range tanker rates today crashed to below $4,000 per day, forcing owners to contemplate removing their tonnage from the market and joining idling bulk carriers and containerships. 
The dramatic fall in rates in clean products trades this week leads an overall downturn for the tanker sector, after it experienced record average earnings in 2008. 
“It’s bad, really bad,” a US-based broker told Lloyd’s List. He forecast “a rough ride” in 2009 for the global fleet of medium range tankers. “We’re catching up with reality now,” he said. 
Rates for the Baltic Exchange’s TC2 route, transporting 37,000 tonnes of clean products from Europe to New York, have fallen below W75 but brokers have reported lower fixtures as desperate owners grab any cargo they can. 
The rates falls are not as acute in the crude sector, but earnings have also dropped swiftly on the spot market, in response to oil production cuts and contracting demand. 
Very large crude carriers on the benchmark shipping lane from Saudi Arabia to Japan have reached a five-year low of under $28,000 per day, below break-even rates for most owners in the 525-strong fleet. 
Rates have also fallen below operating costs for aframax tankers on two major trading routes over the last month. 
Baltic Exchange rates for aframaxes trading in the Mediterranean and the Caribbean have hit the lowest levels since the indices began in the last month, to as low as $9,500 per day. 
“Are we saying it’s all over yet? Not completely. But the market has taken a serious dive this week,” said another London-based broker. 
An oversupply of medium range tankers has been responsible for the rapid decline in rates, compounded by the rapidly swelling fleet, forecast to expand by 20% this year. 
Around 150 new ships will be delivered into the existing fleet of 670 clean tankers of 45,000 dwt-55,000 dwt in 2009, according to ICAP Shipping. 
“Every second day there’s a new MR out,” the US-based broker said. “They’re popping up everywhere.” 
Current earnings for medium range tankers have fallen below operating costs, estimated at around $6,900 per day, based on research from accountant Moore Stephens. 
Last year, MR tanker earnings averaged $18,000 per day. 
Mike Rudd, who heads London-based ACM Shipping’s products desk, said those owners who could were considering idling vessels because it was not profitable to run them. 
“We’re overtonnaged in all areas, and the requirements are such that it’s difficult to see a way out of the gloom and doom currently,” Mr Rudd said. 
“It’s actually getting a bit monotonous being so pessimistic every day.” 
He said the only “glimmer of stability” in clean products trades was the export of naphtha from north western Europe to the Far East but this had provided employment for larger, long range tankers. 
Other brokers have expressed concern that a major refinery starting production in India and exporting to Europe could depress European demand for the US Gulf’s low sulphur diesel, further hitting the MR tanker sector. 
“People have been full of gloom and doom for the last four or five years saying that there’s going to be a crash. At some point somebody’s going to be right,” the US broker said.