Alexander the Great VLCC

Tanker Rates Finish Biggest Week of 2013

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February 22, 2013

Alexander the Great. Image: Capital Ship Management

By Rob Sheridan

(Bloomberg) — Hire costs for the largest oil tankers on the industry’s busiest trade route had this year’s biggest weekly gain as more cargoes entered the market.

Charter rates for very large crude carriers on the benchmark Saudi Arabia-to-Japan voyage rose 7.4 percent this week to 33.94 industry-standard Worldscale points, daily figures from the London-based Baltic Exchange showed. Hire costs edged up 0.1 percent today, the sixth straight advance.

The supply of cargoes available for loading increased and Chinese buyers returned to the market after last week’s Lunar New Year holiday, London-based shipbroker Braemar Seascope Ltd. said in an e-mailed report. Still, tanker owners are contending with one of the “worst winters ever,” billionaire John Fredriksen’s Frontline Ltd. said today.

“Owners need to fight for every half point with high bunker prices, increased competition and the dismal returns being shown,” Braemar said, referring to the cost of marine fuel. “Charterers have maintained a relatively low cap on market levels both to eastern and western destinations.”

Daily losses for VLCCs on the benchmark route narrowed to $1,626 from $2,171 yesterday, exchange data showed. The ships, each able to hold 2 million barrels of crude, earned money in only four sessions of 2012’s third quarter on the journey.

VLCC rates are close to zero amid very high availability of vessels, said Frontline. The company reported a fourth-quarter net loss today, its sixth in seven quarters.

Fuel Costs

The exchange’s assessments fail to account for owners’ efforts to improve returns by securing cargoes for a voyage’s return leg or reducing speed to burn less fuel, known as slow- steaming. The price of fuel, or bunkers, the industry’s main expense, declined 3 percent to $634.92 a metric ton, figures compiled by Bloomberg from 25 ports showed.

While today’s drop was the biggest since Dec. 16, fuel prices increased for nine weeks in 10 before this week.

The combined carrying capacity of the world VLCC fleet will expand 5.3 percent this year, below demand growth of 5.9 percent, according to Clarkson Plc, the biggest shipbroker.

The Worldscale system is a method for pricing oil cargoes on thousands of trade routes. Each individual voyage’s flat rate, expressed in dollars a ton, is set once a year. Today’s level means hire costs on the benchmark route are 33.94 percent of the nominal Worldscale rate for that voyage.

The Baltic Dirty Tanker Index, a broader measure of oil- shipping costs that includes vessels smaller than VLCCs, added 0.6 percent to 677, staying at the highest since Jan. 4, according to the exchange.

Copyright 2013 Bloomberg.


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