• DATVF.ATLPHL
    1.696
    0.058
    3.5%
  • DATVF.CHIATL
    1.922
    -0.041
    -2.1%
  • DATVF.DALLAX
    0.844
    -0.053
    -5.9%
  • DATVF.LAXDAL
    1.492
    -0.057
    -3.7%
  • DATVF.SEALAX
    0.899
    -0.077
    -7.9%
  • DATVF.PHLCHI
    0.914
    -0.025
    -2.7%
  • DATVF.LAXSEA
    2.048
    0.014
    0.7%
  • DATVF.VEU
    1.511
    -0.002
    -0.1%
  • DATVF.VNU
    1.384
    -0.030
    -2.1%
  • DATVF.VSU
    1.168
    -0.055
    -4.5%
  • DATVF.VWU
    1.473
    -0.032
    -2.1%
  • ITVI.USA
    10,159.330
    1.720
    0%
  • OTRI.USA
    4.760
    -0.100
    -2.1%
  • OTVI.USA
    10,151.560
    -0.460
    0%
  • TLT.USA
    2.420
    0.020
    0.8%
  • WAIT.USA
    150.000
    0.000
    0%
  • DATVF.ATLPHL
    1.696
    0.058
    3.5%
  • DATVF.CHIATL
    1.922
    -0.041
    -2.1%
  • DATVF.DALLAX
    0.844
    -0.053
    -5.9%
  • DATVF.LAXDAL
    1.492
    -0.057
    -3.7%
  • DATVF.SEALAX
    0.899
    -0.077
    -7.9%
  • DATVF.PHLCHI
    0.914
    -0.025
    -2.7%
  • DATVF.LAXSEA
    2.048
    0.014
    0.7%
  • DATVF.VEU
    1.511
    -0.002
    -0.1%
  • DATVF.VNU
    1.384
    -0.030
    -2.1%
  • DATVF.VSU
    1.168
    -0.055
    -4.5%
  • DATVF.VWU
    1.473
    -0.032
    -2.1%
  • ITVI.USA
    10,159.330
    1.720
    0%
  • OTRI.USA
    4.760
    -0.100
    -2.1%
  • OTVI.USA
    10,151.560
    -0.460
    0%
  • TLT.USA
    2.420
    0.020
    0.8%
  • WAIT.USA
    150.000
    0.000
    0%
American ShipperContainerMaritimeNewsOcean shippingShipping

Ocean Rate Report: Saudi attacks spark higher tanker earnings

The drone and missile attacks on Saudi Arabian oil facilities do not appear to be a doomsday event for crude tankers. At least initially, the rate effect is positive.  

The most directly exposed shipping segment is very large crude carriers (VLCCs), tankers designed to carry around two million barrels of crude oil each. According to Clarksons Platou Securities, VLCC rates initially shot up by 26% or $7,500/day on Monday, Sept. 16, to $36,100/day. The following day, VLCC rates pulled back 7%, to $33,500/day, although they were still up 19% week-on-week.

“The incident is likely to prove a non-event and we are back to [where we were] last week, when the outlook was deemed great, ” said Frode Mørkedal, managing director of research at Clarksons Platou Securities. “Adding to that, we believe the overall renewed concern [over] oil supply could lead to more consistent bidding and keep rates modestly more elevated than before the event.”

Jon Chappell, shipping analyst at investment bank Evercore ISI, commented, “Net-net, the attacks are not a game-changer – as it stands today – nor do they change our fundamental bullish outlook.”

Chappell believes VLCC rates spiked on Monday on the premise that “any substitution of Atlantic Basin oil to Asian markets would expand ton-miles [demand measured in volume multiplied by distance] and the use of ships for storage in a market that feared for supply shortages would help balance tanker capacity.”

As the initial shock wore off, “a level of clear-headed calm is now emerging” and more “clarity” that “volumes will only be modestly impacted,” he said.

One of the biggest fears about VLCC rates was that lost volumes from the attacks would be replaced by either Saudi stockpiles positioned around the globe in places like Japan, or strategic reserves of countries including major Asian buyers such as South Korea, Japan and China. Such a drawdown would significantly reduce VLCC demand due to the replacement of long-haul Middle East-to-Asia voyages.

Given the surprisingly upbeat recovery outlook provided by Saudi Arabian officials on Sept. 17, there is now less concern about such inventory releases in tanker circles. Chappell said on Sept. 18, “Many of the pledges to use strategic petroleum reserves – by the U.S., China and IEA [International Energy Agency] – have now been walked back, as it appears there will be little impact on oil availability as soon as later this week.”

Mørkedal believes the market appears to have avoided the potential risk of “a significant inventory draw globally, which would have likely tempered import demand.”

The bearish counterargument to such expressions of relief is that the attacks on Saudi oil facilities inherently increase the likelihood of military action in the Middle East at some point down the road. If that were to occur, a significant volume of tanker cargo volume would almost certainly be removed from the market – an extreme negative for rates.

Public companies with spot VLCC exposure: Euronav (NYSE: EURN), DHT (NYSE: DHT), Frontline (NYSE: FRO), International Seaways (NYSE: INSW).

A step back for containers

In the Americas container shipping sector, the ever-pressing question remains: What is going on with the trans-Pacific peak season in 2019?

One proxy for trans-Pacific demand is the rate it costs to ship a container from China to North America’s West Coast, which is tracked by an index of Freightos (SONAR: FBXD.CNAW). After a very weak August, rates finally spiked in early September. But now, rates are falling yet again, dropping to $1,440 per 40-foot-equivalent unit (FEU) as of Sept. 17 – an 11% decline week-on-week (rates from China to the U.S. East Coast over the same period were more stable).

Eytan Buchman, chief marketing officer of Freightos, put a positive spin on the situation, explaining that “with rush ordering before October’s tariff increase now over, carriers are content with keeping trans-Pacific prices steady, cancelling a mid-month price increase and holding back on peak-season surcharges.

“Shipping a 40-foot container from China to the U.S. currently costs 34% less than the same time last year, but the comparison isn’t fair given 2018’s abnormally high prices,” he said.

An important factor for rates in the period ahead is the Chinese national holiday of Golden Week, which extends from Oct. 1-7. During that week, manufacturing and shipping grind to a veritable halt – which generally spawns price hikes after the festivities end.

“November is when peak season will really take off,” affirmed Buchman, adding that “near-record imports are predicted in advance of December’s tariff change.”

Another possible explanation for currently disappointing trans-Pacific container rates is that it’s not necessarily about weaker U.S. import demand. FreightWaves’ channels within the U.S. domestic trucking sector are indicating relatively healthy volumes. This raises the possibility that ocean freight rates on the trans-Pacific are being weighed by vessel oversupply, a theory espoused by some analysts.

Public shipping companies with exposure to spot box shipping rates: Maersk Line (Copenhagen: MAERB.C.IX), Hapag-Lloyd (Frankfurt: HLAG.D.IX), Matson (NYSE: MATX), Evergreen Marine (TWSE: 2603), Hyundai Merchant Marine (KS: 011200)

Editor’s note: Freightos has a business agreement with FreightWaves that includes editorial coverage.

Dry bulk rates keep slipping

Last week, the FreightWaves Ocean Rate Report compared dry bulk and its investors to the New Orleans Saints football team and its fans.

Much to the dismay of at least one FreightWaves staffer who is both a die-hard Saints fan and a proponent of dry bulk, the analogy has become increasingly appropos. Since last week’s report, Saints quarterback Drew Brees has been pulled from the lineup for hand ligament surgery and bulker rates have continued their slide. Fans of both the football team and dry bulk are increasingly tense.

According to Clarksons Platou Securities, the latest rate for Capesize bulkers (larger vessels that have capacity of 100,000 deadweight tons or more) is $33,400, down 6.4% week-on-week.

The Baltic Dry Index has fallen for 10 straight trading sessions. Its level on Sept. 18 – 2,283 – was down 9% from its recent high of 2,518 on Sept. 4.

Despite this, the broader football analogy still applies: The Saints season is far from over and regardless of a moderate setback for dry bulk rates, pricing is still healthily above breakeven and rates could easily resume their upward trajectory. More FreightWaves/American Shipper articles by Greg Miller

Public companies with spot Capesize spot exposure: Genco Shipping & Trading (NYSE: GNK), Golden Ocean (NASDAQ: GOGL), Star Bulk (NASDAQ: SBLK), Safe Bulkers (NYSE: SB), Seanergy (NASDAQ: SHIP).

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Greg Miller, Senior Editor

Greg Miller covers maritime and finance for FreightWaves. He took a circuitous route to get here: After graduating Cornell University, he fled upstate New York's harsh winters for the island of St. Thomas, where he rose to editor-in-chief of the Virgin Islands Business Journal. In the aftermath of Hurricane Marilyn, he escaped the tropics for the safety of New York City, where he served as senior editor of Cruise Industry News. He then spent 15 years at the shipping magazine Fairplay in various senior roles, including managing editor. He currently resides in Manhattan with his wife and two Shi Tzus.

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