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Collapse in tanker rates

Collapse in tanker rates
Tankers are being chartered for voyages at spot rates that fail to cover bunker and port costs

Tankers are being chartered for voyages at spot rates that fail to cover bunker and port costs.

Tankers are being chartered for voyages at spot rates that fail to cover bunker and port costs, as earnings dramatically plunge across all tanker types in both dirty and clean trades.

Worldscale rates for clean tankers operating on some major routes are now translating to dollar-per-day earnings of less than zero, according to derivatives broker, Imarex.

The rates decline has sharply accelerated this month, pushing rates below $10,000 per day for aframax, suezmax and very large crude carriers on all but a handful of world"s key tanker journeys, and well below operating costs for most owners.

Many spot rates are now at the lowest levels ever recorded by the Baltic Exchange.

That included an astonishing $250 per day for very large crude carriers transporting oil from the Middle East to the US this week, just a fraction of the $10,000 per day owners earned just over two weeks ago.

On the world"s largest VLCC trading route, from the Middle East to Japan, rates have fallen to under $8,000 per day, just over 10% of the $70,000 per day seen at the beginning of 2009.

?There"s no reason why the market should be where it is,? said Frontline acting chief executive Jens Martin Jensen.

?It doesn"t make any sense. If [a crude oil trader] pays $50 a barrel and you have 2m barrels on board [a tanker] worth $100m, who cares if you are paying $10,000 or $20,000 per day? It doesn"t make any difference. It"s weakness in certain owners minds.?

The world"s largest owner of VLCCs said rivals operating in the spot market were poised to lay up their tankers to remove tonnage from the 530-strong VLCC fleet.

?Owners are thinking about it now,? Mr Jensen said. ?I think that some owners will be forced to do it if the market remains like this.?

He said government stimulus packages would kickstart consumer-driven demand for commodities ?so hopefully we will see a recovery in the market in the third quarter?.

The largest slump has been seen for long range one and medium range tankers, which are now well below operating costs.

Imarex earnings for MR tankers were calculated at minus $900 per day for Platts TC6 cross-Mediterranean route, and at minus $1,500 for intra-Asian cargoes. The TC6 route was earning just over $3,000 per day on March 31, while intra-Asian cargoes were at $2,600.

?You tend to see rates get depressed for a week or two, and then you see owners usually put their foot down and say "enough is enough" and rates pick up again,? said Simon Newman of ICAP Shipping"s tanker research department.

?The problem this year is that the upside of that is pretty minimal as there are so many ships around and not many cargoes.?

Average operating costs for VLCCs were estimated at $8,000-$8,500 per day, brokers said.

Breakeven costs varied depending on the age and financing of the ship, but were around $32,000-$35,000 per day.

Tanker demand has dropped sharply following crude oil production cutbacks by the Organisation of Petroleum Exporting Countries and falling demand.

Poor scrapping rates and newbuilding deliveries saw the VLCC fleet expand by 3.2% and the suezmax, long range two and MR fleets by 2.5% last quarter, according to London broker Gibson.


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