High Shipping Costs Are Here to Stay, Says Bloomberg
By Henry Ren (Bloomberg) Stubbornly high shipping expenses for businesses are getting sealed into contracts for the next 12 months, forcing companies to pass the extra costs on to consumers....
Aug. 28 (Bloomberg) — Frontline Ltd., the oil-tanker company led by billionaire John Fredriksen, urged shipowners to scrap crude carriers that are more than 15 years old to help reduce an excess of the vessels.
Unless the market improves, Frontline is unlikely to make the investment required to keep two tankers in service before a special survey of the vessels scheduled for this year, the Oslo- based company said in a statement today. Frontline also reported its fifth straight quarterly net loss. The stock declined as much as 11 percent in Oslo trading.
The tanker market is “massively oversupplied,” said Frontline, which split in two in December 2011 to avoid running out of cash amid the lowest rates since 1999. Ships are losing $1,795 a day on the benchmark Saudi Arabia-to-Japan voyage, according to the Baltic Exchange in London. Still, speculation about a rebound may deter owners from demolishing older vessels, said Dag Kilen, an analyst at Fearnley Consultants A/S in Oslo.
“We expect a recovery in the market by 2015, so if you have tankers aged 15 by the turn of 2014, you will wait before scrapping,” he said today by phone. Demolition of vessels aged above 15 years “is more something that Frontline hopes for,” Kilen said.
Vessels are required by so-called classification societies that oversee industry safety and standards to undergo a special survey every five years for a check of elements including structure, according to London-based shipbroker ICAP Shipping International Ltd.
“If similar decisions are taken by other owners, it is likely to reduce the oversupply in the tanker market,” Frontline said after opting against investing in the two ships.
Frontline fell 9.2 percent to 15.70 kroner by 12:05 p.m. in Oslo trading, reducing the company’s market value to 1.23 billion kroner ($204.2 million). The stock is down 15 percent this year, rebounding from a slump of as much as 46 percent at the 2013 low in May.
The net loss widened to $120.3 million, or $1.54 a share, in the second quarter from $24.3 million, or 31 cents, a year earlier, the statement showed. Revenue dropped 26 percent to $121.2 million.
Frontline said its very large crude carriers need a daily return of about $25,000 for the rest of 2013 to break even in terms of average total cash costs. Each of the ships can hold 2 million barrels of oil. Suezmax ships carrying half as much cargo need $19,000 a day, the company said.
– Rob Sheridan, Copyright 2013 Bloomberg.
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