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Tanker oversupply to hurt larger ships the most says analyst

Friday, 10 February 2012 | 00:00
Tanker owners are struggling with overcapacity issues, on the back of a fragile economical recovery, with a new research report from US-based Mcquilling Services mentioning that over the next five years a total of 767 tankers are expected to be delivered into the market, including ships delayed from previous years. "We forecast 228 tankers will be delivered into the market in 2012. This represents a slippage of 35% based on the original-unadjusted orderbook. In the larger tanker classes we anticipate deliveries of 62 for VLCC and 43 for Suezmax" said Mcquiliing.
It went on to mention that “with the exception of the MR2 class, with an estimated 44 deliveries this year, supply increases should be less pronounced in smaller tanker classes. Relatively healthy freight rates have fueled MR2 market optimism for this class in recent years. The least pronounced supply growth should occur in the Panamax and MR1 classes with a respective 3 and 9 deliveries expected this year. The small orderbook is due to the increasing specialization of trades for which these tankers are used. Note that through 2014 the tanker fleet will continue absorbing a high number of tankers before beginning to slow towards the end of our forecast period. Starting in 2014, we expect the delivery program to slow to roughly 125 vessels with this number continuing to shrink” said Mcquilling Services.
It also stated that “on the back of the continued weakness in the global economy, oil market disruptions and over capacity, tanker contracting fell to 109 last year, its lowest level since peaking in 2006. Given the current size of the fleet, which stands at 3,498 tankers above 27,500 dwt, contracting is expected to remain low in the short-term. The availability of loans to the shipping industry will remain limited in the current economic environment. This should help the market gradually return to balance as it should continue to limit new tanker orders.
Prior to making adjustments to represent delays and cancellations we recorded 562 vessels 27,500 dwt and above currently on order through 2014. This accounts for vessels that have a hull and an IMO number but omits deals listed as “reported”. Our process of forecasting slippage considers many factors. After determining what vessels will be delivered as IMO 1 or 2 we adjust the orderbook for delays and cancelations based on an internal assessment of the financial health of shipyards and owners. The final step in estimating fleet expansion compares the current orders in a given year to a fraction of the average placed between 2001 and 2011. We use the greater of the two to determine the number of deliveries that could materialize during the forecast period” said Mcquilling.
Meanwhile, “as bunker prices rise in an environment of tanker oversupply, upward spot rate movements are limited and owners have reduced sailing speeds to reduce fuel consumption. We have responded to this move by lowering our average fleet sailing speed by 1 knot to 13.5 realizing that some owners may be operating at speeds closer to 8-9 knots. As the sailing speed is reduced, the delivery of a cargo takes more time, reducing both the global and route specific availability of vessels. Other factors that will contribute to a reduction in tanker supply are port delays and demand for floating storage” said the report.
Mcquilling also mentioned that “in our 2012-2016 Tanker Market Outlook, we calculate the surplus or deficit of vessels by subtracting estimated demand from the average annual tanker inventory that is available for each vessel class. By normalizing this result we produce a capacity index to gauge the surplus or deficit of a specific tanker sector. In addition to the previously mentioned factors that absorb tanker capacity, the capacity index accounts for tanker supply reductions stemming from weather, maintenance, delays, dislocation, capacity reductions and availability reductions.
In the coming years, the capacity index for the total fleet will continue to rise as deliveries will outpace deletions. In the short-term we see a rising capacity index in the LR1 class as a relatively strong delivery profile could pressure fundamentals. The capacity index is also pressured as we currently forecast demand growth to be less pronounced during the out years. This factor could be adjusted upwards if the global economy regains its balance and returns to a growth trajectory. It is important to remember when looking at the capacity index that it is a tool to gauge the interaction of supply and demand and not an absolute indicator of expected market performance. Looking forward, the tanker market will continue to be pressured by the combination of high tonnage availability combined with demand side pressure” concluded Mcquilling Services.
Nikos Roussanoglou, Hellenic Shipping News Worldwide
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