Tanker Market Forecast for 2014: Rates on benchmark routes to decline by 4%
In its latest analysis of the 2014 trends of the tanker markets, based on Worldscale data issued for next year, Mcquillinig Services said that it expects the flat rates on benchmark voyages to fall by an average of 4% compared to 2013. This contrasts to the 9% jump between 2012 and 2013. This was largely driven by the base bunker price declining 8% for the 2014 calculation.
According to the US-based firm, “when determining how the rates will impact owners’ earning, we examined TD3, the 260,000 ton trade from Ras Tanura to Chiba. With roughly 45% of global oil demand growth forecast to be derived from non-OECD Asia, this route is a key driver of oil markets. The year-to-date spot average on this route has been WS 38.9 with a daily time charter equivalent (TCE) of US $12,225/day. If we factor the reduced flat rate, our 2013 year-to-date spot rate rises slightly to 40.1 and the TCE increases to approximately US $13,300/day. Despite this increase, it seems likely that owners will need to continue pushing spot rates higher in 2014, to break even and overcome financial pressures”.
Mcquilling added that “some additional support for higher spot rates should also stem from forecasts that the global economy is recovering, supporting oil demand. In its latest Oil Market Report, the International Energy Agency stated that it expects demand growth to be 1.2 million b/d in 2013 and 2014 to 91.2 million b/d and 92.4 million b/d respectively. This is being supported by an improving economic outlook in the US.
Nevertheless, the availability of tonnage and the potential that some owners might increase speed could quickly eliminate any of these gains. As 2014 draws near, owners, especially of larger tonnage, will attempt to maintain the momentum of the current market. Lower flat rates will help them make their case, but ultimately, their fate will be controlled by the throttle”, it concluded.
Explaining its methodology to determine its projections, Mcquilling said that “flat rates are issued by the Worldscale Association at the end of each year. These rates, which are given in values that represent the shipping cost per metric ton are provided in US dollars. Flat rates are a fundamental component in spot rate negotiations between owners and charterers. Spot rates are a gauge of the prompt tanker market, and represent a percentage of the flat rate, with the latter being equal to the nominal or 100% freight rate. The Worldscale Association publishes more than 300,000 flat rates for various load/discharge points. The updated flat rates take effect at the start of each year. In an effort to assess the future developments of the market, McQuilling Services provides a forecast of Worldscale flat rates using the organization’s “Basis of Calculation”.
While the flat rates provided by Worldscale are applied to the entire spectrum of the world’s vessels, the organization uses a constant total cargo capacity of 75,000 tons. This cargo capacity accounts for cargo plus stores, water and bunker fuels. A constant sailing speed of 14.5 knots, both laden and ballast is applied as are bunker consumption rates at sea and in port, load/discharge days are established and a fixed hire rate of US $12,000/day is employed. To calculate the annual increase in port charges, we assume a rise of 5% on an annual basis. Our initial port costs are derived through industry relationships with international vessel agents”, the company explained.
Meanwhile, “in its latest report on the tanker market, BIMCO said that for the December/January period, it expects that time charter equivalent average rates for the VLCC segment come down somewhat from recent highs to settle in the region of USD 12,000-30,000 per day. Suezmax crude oil carriers are also seen down from recent peak to reach USD 10,000-20,000 per day. For the Aframax crude segment, expectations are more or less unchanged at USD 10,000-18,500 per day. In the product segment, BIMCO expects earnings on benchmark routes for LR1s and LR2s from AG to Japan to improve and meet a level at USD 6,500-16,500 per day. The winter season should support the present levels. Handysize rates thus forecasted to stay at USD 10,000-16,000 per day. MR average rates are expected stronger at USD 11,000-17,000 per day”, BIMCO concluded.
Nikos Roussanoglou, Hellenic Shipping News Worldwide