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Industry Opinions


Shipbuilding’s Slippery Slope
May 09, 2014
In general, it is difficult to engender sympathy for shipowners. To market insiders, the plight might be somewhat easier, but one could make the case that market cyclicality is largely within their collective control. Although demand and trade growth are dictated by forces well beyond the confines of offices and board rooms, the booms and busts of the market are largely vessel supply related. The delayed nature of the shipbuilding process only serves to complicate matters as shipowners must evaluate how favorable they expect market conditions to be when their vessels hit the water. While shipyards take the opposing position, it could be argued that they are even more exposed than the ship orderer; shipyards face the threat that orders will be cancelled if the mood isn’t right. As orderbooks swell on the tide of positive sentiment, observers question, how much is too much?
The Burmese Crude Oil Python
May 02, 2014

When thinking about the prognosis for tanker demand growth, the most immediate threat, second to the construction of a canal, is the development of overland transportation.  Pipeline projects are typically painstaking efforts that involve buy-in from inherently conflicted stakeholders.  Federal and local governments, citizens, regulators, oil companies and refiners must come together to balance transportation economics against political interests in a multi-billion dollar arena: not an easy task.  As such, these projects are extremely sensitive to the ebbs and flows not only of the broader economic health of ultimate consumer markets, but political wills that characterize oil trade, more often than many would prefer.  One project in particular, the Sino-Burma pipeline, raised eyebrows amongst the VLCC shipowning community when it threatened to significantly reduce voyage time between the Middle East and China by avoiding the Straits of Malacca.  A closer look at the project particulars reveals that this once-feared venture could end up being more help than hazard. 


Suezmaxes: Around The World In More Than 80 Days
April 25, 2014
The staggering decline in crude oil trade volumes between West Africa and the United States has led many to cursorily dismiss the Suezmax sector on the whole. Diminished light‐sweet crude oil import requirements by the United States, and little reason to believe in their near‐term return, has rightfully called the relevance of Bonny ‐ Philadelphia as the benchmark trade into question. Afterall, without its beloved TD5, what is a Suezmax to do? With few noteworthy developments elsewhere in the market, it is a time for pause: where have all the Suezmaxes gone?
Thinking Outside the Triangle
April 17, 2014
Although US refined products exports largely underpin medium-range (MR) product tanker demand in the Atlantic Basin, there is little evidence of similar stability in US Gulf – UK Continent (TC14) freight rates. In many of the crude oil trades, high demand for crude oil in a particular market leads to high demand for ships and, often, robust freight rates. Because the Atlantic Basin refined product market is short-haul in nature and driven by traders’ arbitrage activities, it is far more fickle. Teasing out trends in the to and fro trades between the US and Europe can be quite challenging, as product prices, freight rates and where the cargo ultimately ends up are highly interdependent. For shipowners, the ability to secure cargoes and get paid roundtrip freight in both directions is an attractive proposition, yet one that is without guarantee. Furthermore, the seemingly inverse relationship in freight rates between the two benchmark transatlantic trades may highlight just how savvy charterers have become.
Liquefied Petroleum Gold
April 11, 2014
While the large crude oil tankers slip into what seems like a second quarter slumber, buzz continues to build around the liquefied petroleum gas (LPG) sector. Press headlines tout the recent success of LPG shipowners, many of whom are finally able to relish the fruits of their labor. Freight rates on the sector’s the largest vessels, Very Large Gas Carriers (VLGCs) are in uncharted territory, topping $100 per metric ton this week on the benchmark Arabian Gulf to Japan trade. As the supply for LPG continues to grow with increased natural gas and crude oil production, incremental seaborne transportation requirements will mount. As with other shipping markets, oversupply concerns are omnipresent, but, for now, the near-term future for LPG shipowners appears to be graced by the Midas touch.
Moonlighting in the Sunshine State
April 04, 2014
A recent, This Week In Petroleum, published by the US Department of Energy’s Energy Information Agency (EIA) suggested that a shift in Florida’s gasoline supplies could be underway. Florida is essentially entirely dependent on gasoline imports from neighboring states or other countries, the majority of which require marine transportation. The EIA suggested that due to a shortage in Jones Act tonnage and high transportation costs, incremental gasoline cargoes would likely be increasingly sourced from foreign markets. Although it is true that spot market freight rates for tankers under the Jones Act are at all-time highs, the cost of transportation for units moving gasoline from places like Houston, Pascagoula, Mississippi and Convent, Louisiana to Florida has been well-established through term charters for quite some time. Additionally, the volatility in foreign-flag freight rates breaks any semblance of sustained arbitrage. Nestled between the trading and storage hubs of Houston and New York, Florida serves as a balancing point for foreign and domestic freight rates, driving seemingly disparate markets toward parity.
Quoth the Raven: Exxon Valdez
March 28, 2014
This week marks the 25th anniversary of the infamous Exxon Valdez oil spill, an accident that would forever shape the marine industry. While the oil industry at large is no stranger to public scrutiny, misinformation and/or media hype, it could be argued that the tanker industry has it particularly tough. In fact, it could be concluded after the Exxon Valdez had an impact disproportionate to the actual magnitude of the spill. Thankfully, the improvements in procedures, vetting standards and operational safety, many of which were initiated by the Exxon Valdez spill, ensure that nearly all of the 50 some-odd million barrels transported by sea daily are delivered without incident.
Spring Chickens and More to Hatch
March 21, 2014
The spate of newbuilding activity across different tanker sectors could be evidence that a lemming-like approach to supply analysis is well underway. Besides the obvious consequence of oversupply, short-term market players seem to propagate the myth that vessels older than 15 years will be forced into an early grave. It is important to remember that the intended useful life of a tanker is 25 years and explicit age restriction policies have never been widely adopted by the oil companies. Historically, older vessels have tended to survive, even when utilization has suffered during periods of slack demand. It is no secret that the tanker fleet is poised for significant expansion over the next few years. Even if freight rates suffer as a result, vessel removals will likely take significantly longer to materialize.
Do You Need to Clean Up Your Act?
March 14, 2014
One critical decision a shipowner faces when ordering an Aframax is whether or not to coat the vessel’s tanks to allow for clean refined product carriage. In the few years leading up to the market peak in 2008, anticipation and excitement for long-haul refined products trades gained momentum. New refineries to be built in the Middle East would forever change the commercial landscape of the tanker market. Refined product ton-miles would grow to the detriment of the crude oil trade. The onset of the financial crisis forced companies looking at investment in, or expansion of, refineries to pump the brakes on such ideas. With worldwide petroleum demand in question, the sense of urgency for refining projects quickly dissipated. Eventually, worldwide fuel demand growth was restored, but many of the proposed refining projects were not. With an ever-changing outlook, the long-haul product market continues to be shrouded with uncertainty. The question remains not when, but if, large scale export refineries will ultimately turn on their boilers.
Ukraine in the Membrane
March 07, 2014
The recent developments in Ukraine serve as a stark reminder that crude oil and natural gas supply security for captive consumers are only as sure as their provider’s next false move. Russia and Saudi Arabia regularly interchange positions as the world’s largest oil producer, depending on OPEC production quotas, heightening market sensitivity to sabre-rattling of any sort. As tensions in Ukraine, Crimea and Russia mount, it is not yet clear the full extent to which the conflict will impact natural gas and oil supplies. To be sure, however, if trade barriers solidify, the ramifications for the oil and tanker markets will likely be significant.
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