Shipping analyst sees upside to current tanker market

Eric Watkins
OGJ Oil Diplomacy Editor

LOS ANGELES, Feb. 16 -- Despite what it calls "the prevailing pessimism of massive tanker order-books and declining oil demand for 2009," transport analyst McQuilling Services says there is still an upside to the current market.

In its most recent report, McQuilling says that for the purpose of transporting crude and petroleum products, "supply cannot be represented simply by the total number of tankers present in the fleet."

From the total, deductions must be made for ships that are not trading. These include the 30-35 Very Large Crude Carriers (VLCCs) reported in storage status during the present contango in the oil market or are otherwise underutilized or not available to transport cargo at a given time.

"Port delays can absorb a significant number of vessels—just the prescription for an over-tonnaged market," McQuilling said.

Soaring prices
Soaring bunker prices in 2008 led to slow-steaming, which in turn caused a reduction in the available supply of tankers to answer the demand for oil transport.

While this diminishing effect on supply has subsided following the collapse of oil prices and corresponding bunker prices, port delays remain another detractor of supply availability.

Furthermore, McQuilling says, "these delays have shown little promise of correcting themselves in 2009, and may have the potential to further soak up available tonnage in the marketplace."

Port delays have shown significant rise in 2008 when compared to 2007, particularly in the VLCC and Suezmax trades, which account for most tanker tonne-mile demand.

Port waiting times
In a study of over 1,800 fixtures, McQuillings found that the average time spent in port for a VLCC increased to 4.3 days from 2.6 days, year-on-year.

Equally significant, it said, Suezmax tankers' average port stay increased from to 5.3 days from 3.6 days in this same time.

VLCC loadings in the Arabian Gulf indicated a 62% increase in port time, and a 122% increase in cargo operations in the Far East, with most demurrage claims indicating "no available berthing," or "awaiting shoreside readiness," by their vessels' masters.

The Far East had its share of bad weather and may have had difficulty maintaining pace with the volume of inbound cargoes as shore-side supply constraints left vessels awaiting berthing.

In the US Gulf, VLCCs saw a 27% rise in stays, largely stemming from adverse weather. Hurricanes Ike and Gustav caused over a week's worth of closures each in 2008, and visibility-impairing fog brought many more days of port side shut-downs throughout the year across all tanker sectors observed.

Suezmax tankers calling at West Africa more than doubled their time in port, averaging more than 6 days/visit in 2008 compared with 2007.

"Given the robust level of political unrest in this region, a spike is of no surprise," McQuillings says.

"Militant groups caused significant disruption to port operations on Africa's West Coast, where shoreside facilities, supporting vessels, and pipelines alike were regularly targeted in attacks," it noted.

In the US Gulf, Suezmaxes saw a 35% increase in port times for reasons similar to those for VLCCs.

Aframaxes saw a major increase in port delays in Europe and the Mediterranean, nearly doubling their stays year-on-year to an average of 4.9 days/calling, according to McQuilling's analysis.

More strikes, unrest
A series of 24-hour strikes in French ports such as Lavera caused as many as 50 vessels reported to be backed up awaiting cargo operations, while workers vied for change to local port reform legislation.

Additional political unrest in this region was prevalent during conflicts in Georgia and the Gaza Strip.

The US Atlantic Coast ports saw moderate increases in port stays for Panamax tankers, mostly stemming from insufficient berthing or shoreside tankage availability upon vessels' arrivals.

"Interestingly, our analysis thus far has revealed no other significant increases for Aframax and smaller tankers, barring the fleet-wide delays experienced in the US Gulf already discussed," McQuillings said.

"This finding is contrary to current perceptions, and we continue to investigate port delays for smaller vessels," it said.

McQuillings' models indicate that the effects of port delays have significantly reduced the availability of tonnage to answer global tanker demand.

Port delays in 2008—1.7 days across the VLCC fleet—effectively reduced supply by 17 VLCCs compared with average stays in 2007.

2009 outlook
Port delay times in 2009 remain to be seen further, but a few contributors are expected:

-- US: There will be another hurricane season, and fog will persist. Fog was causing port closures in Houston as this report was being written. Since Jan.23, the US Coast Guard has imposed a requirement that vessels having called on Venezuela during the last five port calls before calling on a US port may be subject to a US security boarding prior to being allowed to enter port.

-- West Africa: Civil unrest continues unabated, and risk evaluation firms forecast that it will increase.

-- Mediterranean: Rumors of protest in France echo all too familiarly as the deadline nears to answer required measures consistent with recently-passed port reform legislation.

-- Worldwide: Port congestion will continue to cause delays, as refiners and distributors presumably still lack shore-side tankage, and bottlenecks caused by supply chain restraints at underdeveloped ports are unlikely to change in the current economic turmoil.

"Cramming more tankers into the mix can only serve to complicate things further," McQuillings said.

A firm indication of forecasted port delay increases is the recent 15% rate hike projected by The Strike Club, a firm that covers a vessel's daily running cost or charter hire as a result of port strikes or delays—this following a 25% increase in claims last year.

Just how much of 2009's massive order-book will be soaked up by port delays, charters for storage, and other effects remain to be seen; but the report concludes that "if current trends persist, the tonnage 'oversupply' may be somewhat mitigated by ships 'just waiting around.' "

Contact Eric Watkins at hippalus@yahoo.com.

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