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Despite the still existing threats and challenges shipping players in the US look slightly more positive into the future. But there are still hurdles on the road to real recovery.

A snapshot by Barry Parker

Braemar ACM’s shipping economist Henry Curra for example sees vessel oversupply continuing to exert a dampening effect on rates for[ds_preview] larger tankers well into 2018 – intensified by vessels coming out of »floating storage and congestion« as oil markets put less of a premium on forward pricing.

Speaking with Curra at the recent expert conference of the Connecticut Maritime Association (CMA), Basil Mavrolean of C.R. Weber noted the vessel prices (referring to VLCCs), in real terms, are quite low, pointing to the continued newbuild deliveries. Casey Scott, from Conoco Phillips Global Marine focused on the impacts from the upstream oil environment on the crude oil tanker markets and suggested that increased production from the Mideast would be a positive for large tankers, but less so for other regions. Shale oil production in the U.S. was not seen as a positive for larger tankers (though recent U.S. crude oil exports in VLCCs did not feature in this part of the discussion). Bright spots inferred from the experts’ comments could also be in the realm of smaller tankers – with Mr. Scott pointing to refinery capacity »creeping closer to the wellhead,« boding positively for product tankers in longer hauls (implicitly at the expense of larger tankers moving crude).

In the US listed shipowners community, the question of consolidation (smaller companies combining fleets) is an important aspect. Ardmore Shipping’s CEO, Tony Gurnee looks at phases of consolidation and then de-consolidation and, then, talking about arguments for growing fleets through business combinations, said »… there’s a better case to be made for access to capital markets than to the operational/commercial side …« Ms. Lois Zabrocky, CEO of International Seaways (the now independent international fleet of OSG) hinted that the presence of financial investors, a feature in recent years, may bring about different motivations and drivers than traditional shipping, with Mr. Mavrolean saying: »There is motivation from private equity (PE) investors to grow companies …« Bart Kelleher, Strategist at Chembulk Tankers, draws the distinction that not all PE is alike; some investors have fueled industry over-building, while referring to others such as KKR which is Chembulk’s largest shareholder, he says »… they’ve brought about capital discipline …« through an analytical approach to building upon the company’s existing platform – »beyond just the steel«. »In those instances,« he says, »that’s actually been better for the shipping market«.

The tanker market operates within the larger energy environment with the oil price having an impact over the next few years. Casey Scott, from Conoco Phillips, cites the ability for incremental oil production to be brought on quickly (tamping down the price), and says, »We have clearly decided that we need to learn to make money in this $40 to $60 /barrel range« – what he had earlier termed »… a structural shift to a lower price band«. Ms. Zabrocky, from International Seaways, opines that oil in this price range »… is good news for tankers … with the price band … creating stability … and spurring demand. I like that.«

Ed Waryas, Board Member of the provider of shuttle tankers KNOT Offshore Partners stresses the salutary effects of low oil prices on shuttle vessels. »Offshore pipelines will have a breakeven of at least $80/barrel oil,« he says, so that planners could look at delivering offshore oil into coastal refineries using shuttle tanker solutions.

Fuel markets

The issues facing marine fuel markets stem from the clock ticking towards January 1, 2020, when the sulfur content of marine industry fuels will be capped at 0.5% versus 3.5% currently, in most geographies. The central questions surround likely availability of compliant low sulfur fuels in 2020; it’s unclear whether refiners could produce the requisite incremental amounts. Bunker industry veteran Adrian Tolson, now running consultancy 20/20 Marine Energy, provides an insightful look into the entire bunker supply ecosystem, suggesting – also in a CMA session, that the present situation is one of »…Confusion, Delusion and Inaction …« with an illustration of a panicked »deer in the headlights« to drive home his point. With shipping companies struggling financially, he asserts that: »One of the pillars of the bunker transaction is very shaky.« Looking ahead, he explaines that with uncertainty over how marine fuel markets will develop through 2020, traditional commodity finance banks are taking a very cautious view of backing marine fuel transactions.

Interestingly, he noted possible roles for »fintech« as the bunker finance chain is streamlined as transparency comes to this part of the business, and even roles for venture capital in financing technologies for removing sulfur from fuels.

Supply Side

In discussions of shipping market development, the tonnage supply side is always considered. One must wonder whether owners scrap ships in response to large expenses of burning low sulfur fuel, whether in buying fuel, or the capital expense, perhaps, of scrubber installation? Mr. Tolson suggests that answers will need to wait until 2020. In the context of Ballast Water Treatment (BWT), which brings about a hefty »Capex« (Capital Expense), Bart Kelleher from Chembulk and Ed Waryas both indicate that BWT expense must be considered among numerous factors, such as the likely hires going forward, and cost structures.

Mr. Waryas is quick to point out that – in the context of BWT, as ships are older, large capital outlays loom larger. But the same observation could certainly also be applied to installation of an exhaust gas cleaning system (»scrubber«).


Barry Parker