Media reports quoting senior figures in the industry suggest at least one leading oil tanker operator is likely to collapse which may lead other smaller operators into insolvency as the sector is swamped by oversupply.
The executives were speaking amid a slump that has sent the rates paid to charter ships way below vessel operating expenses. The average short-term spot market rate to charter a very large crude carrier (VLCC) the largest widely-used class from the Gulf to Far Easton stood at just $1,795 per day, compared with the $29,800 that Frontline, the biggest listed tanker operator by fleet capacity, recently said such vessels needed to break even.
Nasdaq-listed Omega Navigation, Netherlands-based Marco Polo Seatrade and several other small operators have already been forced into bankruptcy protection. Cyprus-based Ocean Tankers, which made a 19.6m (101.64mAED) net loss for the first half on 9.77m (50.66mAED) income,has had several of its ships arrested held under court orders by creditors during port calls this year.
Now executives predict that far larger names are likely to follow. Moody’s last week downgraded one operator facing acute challenges New York-listed General Maritime to Caa3, only just above default.
Jens Martin Jensen, Frontline’s chief executive, said his company was running its vessels more slowly to conserve fuel and spending extra time waiting in port before accepting cargoes in an effort to ride out the poor market.
We could see bigger players than [the ones that have already collapsed] disappearing, he said.
Morten Arntzen, chief executive of Overseas Shipholding Group, said the most vulnerable companies were those that had entered the downturn with significant ship orders under way and poor corporate governance. The market has been depressed by the rapid expansion of the world tanker fleet, which is growing far faster than oil demand, as vessels ordered before the financial crisis are delivered.
When banks have to start putting out money for operations and working capital, that’s when companies go out of business, Mr Arntzen said.
EXTENDING INTO 2012
A rut in crude tanker earnings could extend into 2012 if global economic turmoil grows as the sector struggles with an oversupply of vessels, a senior executive with leading maritime transport group Teekay said.
A glut of vessels, ordered before the financial crisis in 2008, has hit the water this year with rates sliding to record lows in recent days as growing availability has continued to overwhelm the sector.
The market is in an oversupply situation and being such a commoditised pricing market, rates are at some of the lowest levels we have seen in many years, said Bruce Chan, chief executive of Teekay Tankers, a unit of Teekay.
In general, we do not see a lot of change for the rest of the year, he told Reuters last month. He added a range of sizes of companies would suffer.
Teekay Tankers operates a fleet of smaller aframax and suezmax tankers, which carry a maximum of 600,000 and 1mn barrels of crude oil respectively.
Costs to hire a 2-million barrel tanker, also known as a very large crude carrier, to ship crude to Asia from the Middle East averaged about $2,200 a day this week, according to Braemar. That compares with crewing and operating costs of $10,000 to $12,000 a day, Tim Ogden, director of tankers at the Braemar Seascope Ltd. unit, said by phone fromLondon.
Owners are contending with a fleet that’s the largest in 29 years and growing at the fastest pace in more than three decades, forcing freight rates to a 14-year low.
Nobody from General Maritime was available to discuss its prospects. The company said when it announced a $36.8m first-half net loss on July 27 that it complied with all its banking covenants.
The value of a five-year-old supertanker fell 12 percent in 2011 to $75 million, to the lowest level since 2004, according to the Baltic Exchange, a London-based provider of shipping freight costs. The value peaked at $162 million in July 2008.
Sources: FT, Gulf Times, businessweek