Tanker owners face heavy losses.
TANKER owners face annual losses of up to $2m per vessel over the next five years as an oversupply of tonnage and low rates produce poorer cash flows.
New York-based marine transport consultancy McQuilling Services has undertaken a sobering cost-structure analysis on a five-year tanker acquisition project, revealing all classes would produce negative cash flows based on its average rates projections from 2010-2014.
?This result is an indication of how unattractive tanker shipping is currently as an ongoing business,? said McQuilling"s Tanker Market Outlook, in which the data was presented.
?Given the poor cash flow position of tanker projects presently, it would appear difficult to argue that an investment in tanker assets is an attractive acquisition opportunity,? the report said.
?We maintain the belief that 2010 will prove challenging for cost-effective mainstream capital raising projects.?
McQuilling underscored that despite today"s ?dismal operating environment?, favourable returns would be seen in equity investment before tax over a longer 20-year project life ? which might indicate that the time for buying was near.
?We think opportunities for experienced, committed players with healthy balance sheets, plenty of cash and an appetite for risk will abound in 2010,? the report said.
A McQuilling spokesman tempered its cost structure analysis by explaining it was based on round-trip assumptions, so individual operators could do better if fleets were intelligently deployed.
The poor marketplace would also affect owners differently depending on when they bought the tankers, how much they paid and what their financing structure looked like.
McQuilling assumed that 50% of the delivered price was financed over five years based on an interest rate of 5.2%, with a 20-year project life. The bunker price over the period was set at $440 per tonne.
Although banks were lending up to 80% of asset values in mid-2008 at the height of the shipping boom, those still prepared to finance projects now ask owners for more cash up front.
A very large crude carrier, bought for $72m, would earn an average $26,700 per year over the next four years based on McQuilling"s projections, well short of the break-even rate of just over $34,000 needed under its financing assumptions.
The steepest losses calcuated were for medium range tankers, which saw record deliveries coincide with collapsing demand for refined products in the US, and rates hit historic lows of below $2,000 per day on major routes for protracted periods.
MR tankers would lose nearly $9m over five years based on forecast average daily revenues of $6,100, but incur break-even costs of nearly $15,200, according to McQuilling.
Alongside lower cashflows were falling asset values. McQuilling said tankers lost an average 34% in price in 2009, while newbuilding prices have declined 30% from their 2008 peak. Prices would fall another 15% in 2010, McQuilling forecast.
With some 900 tankers above 27,500 dwt on the orderbook, McQuilling believes net fleet growth will peak in 2011, and that the majority of tanker sectors were oversupplied relative to ?near-term tepid demand?.
As a result, time charter equivalent revenues for VLCCs would rise from an average of $24,900 in 2009 to $31,500 in 2010, falling back to $28,400 in 2011 on routes from the Middle East Gulf to Asia.
Medium range tankers transporting 30,000-tonne cargoes from Singapore to Japan were forecast to see average earnings of $6,200 per day in 2010, up from a miserable $2,100 in 2009.
Global tonne-mile demand in 2009 for dirty tankers declined 2.6% in 2009, while clean tanker demand grew 6.4%.