Friday, August 27, 2010

Dry Bulk And Oil Tanker Shipping Rates Under Pressure As Containers Hold Up

Latest Financial Reports Good but Concerns on Overcapacity Continue
Shipping News Feature

WORLDWIDE – NORWAY – Concerns running through the industry regarding the future rates of dry bulk freight also extend to oil tanker field according to the largest independent tanker group, Frontline of Norway. Despite posting improved second quarter figures last week the Bermudan registered corporation are predicting a downturn over the next few months. A company statement outlined clearly its expectation that it would produce ‘a materially lower result in the third quarter’.

Frontline, with one of the world's largest fleets of VLCC and Suezmax tankers, and Suezmax OBO carriers, recently put some of its vessels at anchorage due to overcapacity in the sector despite a rise in net income in the half year to June of around 55% to $160 million. The group concentrates much of its tonnage on spot market contracts which are typically higher than time charter rates to compensate for the lack of confirmed continual employment. After having delivered their cargo, spot market vessels typically operate in ballast (without cargo) until being re-chartered.

It was thought by many that the new stringent requirements for vessels concerned with the carriage of oil products would mean a shortage of suitable ships. Whilst this may have been true in the short term, many companies placed orders in the good times in anticipation of a rise in the market. Now the new builds are coming on stream at a time when the market has weakened, but this effect is somewhat self balancing as where possible vessel orders have been cancelled.

Cancelling an order of course may itself lead in turn to a new ship being sold off comparatively cheaply, the shipyard having to cover costs and in all likelihood having been paid compensation for the cancellation. Indeed the head of Frontline, John Fredriksen, was last year involved in controversy after it was reported he intended to dabble in a new container venture to be developed by buying up cheap vessels, a project it is alleged he withdrew from to avoid conflict of interest.

The concerns over future freight rates currently do not appear to extend to the container sector where Trans Oceanic agreements, prohibited under anti trust laws in many other industries, appear to be holding up.

Photo: The 150,000 dwt ‘Front Glory’ under way.