Medium Range Tankers: Going From ‘Just in Time’ to ‘Just in Case’

There has never been a disclaimer like this (at least that I can remember) on an investor presentation: “Given the rapidly evolving situation, this written presentation may be ‘out of synch’ with the realities at the time of reading. We will discuss the up-to-date impact of these events during the presentation.” 

Two weeks into the fighting in the Ukraine, Ardmore Shipping Corp (NYSE: “ASC”), operator of handy sized tankers (most typically- the “MR” sizes around 47,000 – 50,000 dwt.) in the refined oil products and chemicals trades, gave a very candid and informative presentation, through investment specialist Capital Link’s “Company Presentation Series.”

This program, transmitted through the medium of a Zoom webinar, differed dramatically from the typically dry and very rigid format normally seen, with ASC’s Chief Executive Officer, Anthony Gurnee providing a real view of the market for smaller sized tankers. The company operates two dozen tankers- mostly MR’s. 

He explained that ASC is doing everything it can for its seafarers (with Ukrainians and Russians composing around 2% of its staff). Importantly, Mr. Gurnee explained that ASC is “Avoiding Russian cargoes and service providers from both a moral and practical standpoint.”

In talking about the tanker market, he said that the market had shifted around dramatically in the past few weeks, with the mentality of charterers morphing from “just in time” (where cargo is transported as needed) to “just in case” (where inventories are built up in the face of uncertainties). He said that there has been a run on diesel fuel, and that “diesel is now being stock-piled” by nervous charterers. 

The result for Ardmore has been a near doubling daily hires on fixtures of open MR vessels. He said that time charter equivalents (“TCE”- which is a $/day cash flow to ship operators after deducting fuel, port and canal costs)  “have been rising in spite of higher bunker prices.” He added that: “The oil market and normal trade patterns have been scrambled,” providing the micro perspective that “Russian exports of crude and refined oil to Europe have been significantly reduced; [and are] already being replaced with seaborne volumes from U.S. and A.G.”

In describing a composite of daily hires for MR tankers in trans-Atlantic trades (the “TC2” westbound and “TC14” eastbound runs), provided by a London shipbroker, ASC presented a graph showing day rates (a per diem hire that can be compared with TCEs) around $10,000/day in late January 2022, moving up to roughly $25,000/day two weeks into the fighting in Ukraine. 

Mr. Gurnee, in summing up his presentation, told listeners: “I think that the conditions that were holding back the tanker markets, at least in products and chemicals, have fundamentally changed.” When asked about what might happen if the situation in Ukraine calmed down, he opined: “I think that we are a long way away from a settlement and perhaps never going back to business as usual.”

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