In the first of two features, Tanker Shipping & Trade examines the sources of data required to justify an investment in tankers and the software available to support the decision-making process
The decision to invest in a tanker newbuilding or a second-hand vessel is not to be taken lightly and the factors at play will differ between shipowners. For oil majors or traders, the motivation to invest in tonnage is to secure supply and reduce the risk of exposure to freight rate volatility. For the classic Greek owner, the motivation is that it is the family business and such decisions usually crop once in a generation.
The motivation to sell a tanker is equally diverse. It is well known that the Japanese trading houses depreciate VLLCs from new to 15 years’ old and then sell them for further trading. The sale does not represent any jeopardy. A replacement has already been ordered and the old vessel owes the Japanese trading houses nothing. Brokers know these VLCCs are sold at or even below market value and they are much sought after.
There are the two basic reasons to invest in the tanker market: to earn revenue from carrying cargo or from trading the vessel. The first is a long-term view to produce a series of earnings that cover the newbuilding price, operating costs (opex) and the financial costs; the second is to speculate and buy when the price is low and trade the vessel when the price is high.
To be successful with the long-term view one requires reliable and timely data on cargo. Is the growth in cargo demand such as to justify a purchase? Traditionally this data was provided in-house from the research department of the shipbroker involved in organising the newbuilding contract. But that all changed in the late 1990s when Dr Martin Stopford, author of Maritime Economics and president of Clarkson Research Services (CRS), launched the Shipping Intelligence Network (SIN). CRS was one of the first maritime dot.coms and is still regarded as the benchmark product for the provision of maritime data.
The original version of SIN mimicked the data available in CRS Shipping Intelligence Weekly, covering rates, time charter equivalent earnings, timecharter rates, estimates of average second-hand and newbuilding prices and fleet size data. This was backed up by actual fixtures and sales. All this data was available in time series format, downloadable in Excel or other formats.
An important element in any sale and purchase decision is to establish the value of the tanker. The seller and the buyer will rarely agree on this sum, which is why there is a position of sale. CRS is part of Clarksons Platou, the largest traditional shipbroker in the world and one that still offers the traditional method of valuation via the shipbroker. It also has its own independent valuation service, Clarkson Valuation Limited. The company provides around 30,000 valuations each year to ship finance banks, publicly listed companies and large private owners.
Another company providing independent market data and valuations is Maritime Strategies International (MSI). MSI has recently launched an online tool, Horizon, which, says, MSI’s director of oil and tanker markets, Tim Smith, offers a comprehensive platform designed to support strategic decision-making and investment in all shipping markets, including the crude oil, oil products, chemical, LNG, LPG and shuttle tanker markets.
“Users can access extensive time series data and forecasts across tanker markets covering trade flows, fleet dynamics, tonnage supply/demand balances, earnings and asset prices. These are accompanied by detailed market reports providing insight and analysis on the key structural factors driving the market, as well as scenarios offering alternative, event-driven simulations of potential risk,” he says.
He notes that the Horizon platform goes beyond market reports, data and forecasts: “Through the FMV asset valuation tool, users can enter vessel names or IMO numbers to run current and forecast valuations, generating earnings, residual values, OPEX benchmark reference timeseries and recent sales data for specific tankers. A portfolio of vessels can be stored on the system, retrieved and run quickly, providing a user-friendly, efficient and tailored system for fleet and portfolio valuation and assessment.”
The system also provides an interactive market modelling system. Users can construct alternative scenarios, changing variables such as GDP, trade flows, vessel ordering, deliveries, and scrapping to explore how different assumptions could move the market from the MSI view. The scenario simulation function also enables users to react to fast changing events.
Mr Smith says: “Horizon can react to events such as Covid-19 coronavirus. The changes to fundamental conditions imposed by the user can be quickly run through Horizon, impacting earnings and asset prices. Users can transpose these alternative market scenarios directly on to vessel-specific projections for earnings and prices. This allows stress testing of portfolios and investment projects, providing a fully integrated and interactive analysis tool.”
For many years the forecasting of trade flows and vessel values rested with a privately-owned company, Marsoft, founded in 1979 and based in Boston, USA. At Marsoft’s core is an underlying macro-economic model that forecasts trade flows on a quarterly basis, and by extension, the impact on vessel rates and values. The company offers quantitative analysis of market developments and sophisticated analysis of risk and financial performance. Marsoft was developed as a professional and corporate decision support system, with data and analytics to support internal management decision-making in the banking sector.
When VesselsValue launched its automated data- and algorithm-driven valuations service it was seen as the dot.com disruptor, an imposter upsetting the cosy world of shipbroker-led valuations. That was 10 years ago and now the company is part of the establishment; VesselsValue still offers the instant valuations required by banks to assess the vessel being offered as collateral or to be funded, but it has recently upped its game and is now offering qualitive data. The company has teamed up with Idwal, the Graig Shipping-sponsored ship inspection service and Idwal now offers a condition assessment valuation.
Idwal’s chief executive officer, Nick Owens says: “Through the combination of Idwal’s latest inspection reports and Idwal Condition Grade data with the daily automated values from VesselsValue, users now have unequalled visibility into their potential ship’s true value, which effectively speeds up the decision-making processes for individuals and organisations across the globe."
Part II in this series will look at the software and data resources available to aid commercial tanker operations. If your company would like to participate, please contact: Craig.firstname.lastname@example.org