Charterers dump VLCC deals as spot rates start sliding
Fixtures fail as Asian oil companies pull out of bookings at last minute.
FAR Eastern charterers have left a handful of very large crude carrier owners ?extremely unhappy? after fixing and failing on spot market trips from the Middle East to Asia this week.
Chinese oil company Glasford and Taiwan"s CPC have pulled out of deals that were awaiting final approval after watching Worldscale rates start to slide on the benchmark Saudi Arabia to Japan VLCC route. ?It"s all very annoying, frankly,? one broker said. ?You get these deals done and then they want to start switching them around. People fix and then obviously the market falls away a bit, which happened this time, and the managers refuse to give them subjects.?
Although on average it takes two days for subjects to be lifted on a tanker deal, the rate is one of the first things to be decided, so for charterers to go back on their word was ?distasteful?, he said.
?Most people would stand by their rates because you do the deal in good faith. It"s not in your option to take the rate, the rate is agreed [between the owner and charterer]. Unfortunately, this seems to be the trend with the Far Eastern managers.?
Another agreed, saying that owners and brokers were increasingly frustrated with the situation: ?There are a few owners who aren"t very happy at all. You normally only fail if there"s a certain reason, not because you don"t like the rate. I think there was an owner this week who even blacklisted one of the charterers because of what happened.?
Taiwanese oil group CPC had originally fixed the Frontline-controlled 1995-built, 298,562 dwt Camden at W120 for a trip loading on February 13 in the Middle East, with discharge in Taiwan.
Similarly, Glasford had agreed to hire the 2003-built, 298,562 dwt BW Luna at W120 also, for a trip to China. This equated to time charter equivalent earnings of at least $85,000 per day, brokers said.
?When it came to lifting subjects two days later, they rather unfairly decided they would give people the option to bring [the rate] down,? said one of the brokers.
?They said they could lift subjects, but that it would have to be five Worldscale points cheaper, which left Frontline dropped by CPC, and then the BW Luna was dropped by Glasford, after it refused to accept the lower rate.?
Luckily for the charterers, there were just enough ships available in the Middle East that could load their cargoes on time.
CPC swapped a ship it had booked for a later loading date to take the cancelled Camden cargo, using the 2007-built, 316,427 dwt Spyros instead.
Glasford fixed the 2009-built, 316,427 dwt Apolytares at W110 to load a 265,000 tonne crude cargo out of Basrah between February 17 and 19, for a trip to Dalian.
Yesterday, the Baltic Exchange TD3 route rate from Ras Tanura to Chiba dropped to W100 or $62,765 per day from W117 or $80,500 a week ago. By comparison, Geneva-based Riverlake Shipping rated its similar route slightly higher, at W110, with time charter equivalent earnings of $78,383 per day.
With a growing number of VLCCs expected to arrive in the Middle East over the next month, plus poorer sentiment in the paper market, the prospect of a continued slide in rates looks strong.
London brokers agreed that for cargoes loading on February 20 onwards, charterers were likely to break below W100, which could be seen by the end of this week.
?There"s a Middle East-to-Thailand cargo that is being worked for February 22-24 and they"ve got seven offers in, so that"ll probably be indicative of what"s going to happen,? said one broker.
Combined with this, the forthcoming Chinese new near holidays, starting February 14, are expected to push the market down further.