In a recent note, Mcquilling Services said that “much has been said about the product tanker market recently, mainly about tonnage supply.
Product Tankers: Truncated Trades Temper Ton-MilesIn a recent note, Mcquilling Services said that “much has been said about the product tanker market recently, mainly about tonnage supply. More industry voices are speaking about their concern of over-ordering and too many ships. However, the number of vessels on order and planned for delivery is really only half the story. As long as there is enough demand, any number of ships on order may be acceptable. Concern about oversupply only occurs when there are too many ships relative to demand”.The US-based analyst said that “as a starting point, it should be noted that there is no readily-available information to be had on tanker demand measured in ton-miles. Both historical and projected ton-mile demand data must be synthesized through many steps from basic trade data between countries. Even this data is spotty and somewhat dubious when looking at non-OECD bilateral country trade flows. Perhaps this is why we don’t see a lot of detailed discussion on tanker ton-mile demand. Our demand development process includes a regional grouping of the world which facilitates our tanker market forecasting methodology. This grouping identifies 15 different regions where we track the seaborne movement of crude and refined products. To be sure, there are a number of assumptions required to do this, but in the end we account for all relevant seaborne trade in this way, across 225 distinct trades. On this basis we analyze cargo tons transported and the corresponding ton-miles on each of the 225 trades. For clean products, the historical aggregate tons transported for the period 2000 through 2013. Of the 225 distinct trades, 111 had clean products transported on them in 2013″, Mcquilling Services said.It noted that “we can see clearly a trend of moderate growth (3% compound annual growth rate, CAGR) until 2003 when clean product trade volumes dramatically expanded at 6% CAGR from 2004 through to 2013. This growth was been relatively uniform except for an anomalous year in 2011 when year-on-year growth reached 10%. We see the same accelerated growth in ton-miles beginning in 2004 however, in 2010 it grinds to a halt. We investigated the average miles across trades, and found an interesting result. The relative figure illustrates a dramatic reduction in average miles beginning in 2011 and continuing to date. What could be driving this reduction?”According to Mcquilling, “the extraordinary increase in US Gulf products exports on the back of the North American shale play has been heralded as a demand generator for product tankers. We speculate that in fact, changes in clean product trades worldwide have actually destroyed demand for product tankers since 2010. To test this theory, we deconstructed the results of global product cargo transported by sea into those exported from the North American East and Gulf coasts versus the rest-of-world. We did the same for total ton-miles. The results of this exercise showed that product cargoes transported from North American East and Gulf coasts grew by about 18 million tons from 2010 to 2013. Growth in tons exported from rest-of-world grew 31 million tons. An additional demand of 71 billion ton-miles was added from North America, but rest-of-world product tanker demand declined 36 billion ton-miles. Based on the growth in North American exports and the previous growth trend in overall demand, we should have seen a 127 billion ton-miles increase from the rest-of-world”.The company stated that “this finding gives some basis for our speculation. The US Gulf exports have certainly contributed to demand growth, but is seems that overall, the effect on global product tanker demand has been detrimental. Rest-of-world trades were increasing in length at an even faster pace, until 2010 when rest-of-world product export trades show a precipitous decline, just as US Gulf product exports were ramping up. The foregoing is a high-level analysis of clean demand. It suggests that product tanker demand growth has undergone a dramatic shift downwards since 2010, driven by substantially reduced average trade lengths. This conclusion is based on global trade data, and so accounts for all demand increases and decreases across 225 trade routes. Additional work on both geographic and temporal trade analysis is indicated to determine exactly where the declines have taken place.It would also appear, given the magnitude of the product tanker orderbook that, relative to tanker supply, product tanker demand is not keeping up and the reason may be the negative influence on ton-miles that US Gulf exports seem to represent. We’d be interested in hearing your views”, Mcquilling Services concluded.
