Economic activity don’t need no stinking oil … world economy collapsing.
It has gotten so bad that VLCCs have been losing $29 a day on the benchmark Saudi Arabia- to-Japan voyage as of March 28, according to the most recent data from the Baltic Exchange in London. Frontline said in February the ships in its fleet need a daily return of $24,200 to break even.
The collapse in charter rates can be seen below:
Naturally, corporate incomes statement are getting slaughtered as a result of the plunge in revenues:
Earnings for very large crude carriers, the industry’s biggest ships, plunged 75 percent from a year earlier to $11,624 a day, according to figures from Clarkson Plc the world’s largest shipbroker. A surplus of the supertankers seeking charters in the Persian Gulf averaged 21 percent during the first quarter, the largest glut since 2009, according to market surveys by Bloomberg.
Adding insult to injury, this year shippers have to deal with not only dropping revenues, but soaring input costs as well, ironically: fuel costs.
The exchange’s earnings assessments don’t account for speed reductions aimed at reducing fuel consumption, the industry’s largest expense. Last year’s average price of $658.54 a metric ton was more than double the 2008 level, figures compiled by Bloomberg from 25 global ports show.
Absent some near-term miracle, it is likely that VLCC rates will continue tanking:
There are currently 22 percent more VLCCs seeking Persian Gulf cargoes than there are likely to be shipments over the next 30 days, according to a Bloomberg survey of five shipbrokers and owners today. That was the same as last week.
Yet while Bloomberg is quick to go with the generic explanation and blame it all on the supply side, one can’t help but wonder just how much of the drop off in charter rates is a function of what has been a major collapse in global trade in the past 6 months, coupled with a drop off in end demand for energy around the world. Because while one can go with the myth of a US energy self-sufficiency, the same can certainly not be said for Japan, which is naturally the other half of the benchmark Gulf to Japan VLCC rate.