Tanker companies’ senior managers are adopting a series of defensive measures in order to keep afloat until market conditions are improved. According to excerpts from Weber’s Quarterly Tanker Report shipping is lagging behind even the slow recovery underway in most other industrial sectors and its participants are still at bay waiting for the market to turn. “While stressing that both GDP and global oil forecasts for 2010 and 2011 have been adjusted upwards throughout the year, tanker owners universally identify adverse tanker supply conditions as the primary factor undermining performance. The long term structural problem of too many newbuildings is seen as the most significant negative supply factor. However, third quarter-specific problems, such as unwinding tanker storage, and the removal of an important ton mile multiplier – as China switches the balance of its imports more to the Middle East from West Africa – are also blamed.
The challenging state of freight markets means that the process of rebuilding balance sheets is taking longer than in most other sectors as most owners are forced to concentrate on improving their financial strength rather than on their operating or investment strategies. This introverted perspective is clearly evident in the quarterly reports of several companies.
Even the among the most bullish of listed tanker companies, measures of patience for the appropriate timing to fulfill aims to be consolidators is a prevailing theme.
Paying down debt is the most obvious way to strengthen the balance sheet. Comparing market capitalization versus debt of individual companies reveals that some companies have succeeded in cutting their respective debt burdens” said Weber. Still, as the report points out there are a range of defensive strategies for companies to protect balance sheets, such as, cost cutting, enhance cash flows through long term time charters, sell vessels, cancel newbuilding orders, suspend dividends, renegotiate finance, raise equity from shareholders and increase value to shareholders through stock buybacks.
Meanwhile, in terms of market conditions this past week, a separate report from Gibson shipbrokers mentioned that VLCC Charterers in the Middle East gulf played a steady game through the week with the main concentration upon mopping up their remaining December stems. “Some forays have been made into early January, but the vast bulk of the programme is yet to be fixed. That gives a little hope for Owners, who have now positioned themselves at an almost ‘conference’ WS 55 to the East, WS 37.5 West level, and will be quick to take advantage if any pre-holiday opening of the taps develops. Suezmaxes continue to operate within their own bubble, and although enquiry stayed quite light, availability wasn’t in thick supply, and rates moved up a notch to 130,000 by WS 105 East and WS 75 West with West African gains helping also to keep tails up for the foreseeable future.
Aframaxes managed a firmer scene on bad weather in the Far East, and balanced availability, and rates gained to 80,000 by WS 130 for Singapore with more possibly to come next week.
Suezmaxes in West Africa started the week under pressure but Charterers took it upon themselves to pick up the pace, – Owners breathed a sigh of relief, and upped their rate demands accordingly. Levels thereafter ticked steadily higher to end the week at around 130,000 by WS 100 US Gulf and WS 105 for Europe. Things may now move sideways, but, as in the East, any pre Holiday gluttony will quickly strengthen the market further.
VLCCs remained largely boxed due to a steady influx of refugees from the East, and rates remained at up to a peak 260,000 by WS 67.5 US Gulf and WS 60 East, with India runs covered at down to USD 3.15 million, but could move higher in the medium term if the Middle East Gulf starts to move upwards.
A week of frustration for aframax Owners in the Mediterranean as Charterers maintained a much slower flow, and thereby kept the previously downward trend in place. Rates fell sharply by the weeks end to 80,000 by WS 110 cross-Mediterranean and could even dip lower before bottoming. Hopes exist that Charterers will push a sackful of goodies into the market next week, but that is far from a certainty. Suezmaxes stayed largely unchanged at around 135,000 by WS 120 from the Black Sea to Europe, despite rather modest enquiry. Sentiment was supported by the higher West African levels, and a belief that a more active period would develop within short” said Gibson.