VLCC earnings are in the headlines in this strange era of excess crude oil production and pandemic-led declines in demand, but on a cargo tonne basis, product tankers are the winners
The headlines report that VLCCs are earning in excess of US$200,000/day, and these rates cascade down through the sectors. The product tanker sector benefits from the impetus given by the crude tanker sector, but it has its own drivers, too. Among the crude tanker panel at the 14th Annual Capital Link International Forum there was an agreement that while the cash flowing into product tanker operating companies was welcome, it was not their main priority at this time.
Scorpio Bulker and Scorpio Tankers president Robert Bugbee said: “There are very few industries in the world that are doing as well as tankers. We (the tanker industry) are achieving extraordinary earnings right now; I doubt there is another industry group that is producing sequential earnings growth quarter-on-quarter. The fourth quarter of 2019 was better than the third quarter; the first quarter of 2020 was better that that and guidance for Q2 2020 indicates it will be even better, both quarter-on-quarter and year-on-year, and this is happening during a global crisis. But the imperative is not what we do with the cash that is coming in, but the safety of the crews. This will ensure operation of the company and that will provide the long-term return for our shareholders.
All the participants agreed that the priority was the safety of crews during the Covid-19 coronavirus outbreak. Torm’s chief executive officer Jacob Meldgaard said: “We are having a dialogue with crews about staying onboard longer. They understand and we are holding back on crew changes for the safety of everyone. Currently it is not hampering the business, but it is a big puzzle that needs to be solved the longer the pandemic lasts.”
The product tanker market is at the firmest levels it has been for years. Ardmore Shipping’s Anthony Gurnee summarised the current product tanker market, saying it is following swings in the crude tanker market but also has its own drivers. “[Demand in] the Far East is coming back to life and the refineries in the Middle East are operating at full capacity. There is a lot of oil product coming out of the region, which is great for tonne-mile demand,” he said.
Mr Bugbee noted that while it is the VLCCs that capture the headlines, on a earning per tonne basis, in this market, “The MRs are every bit as good as VLCCs.”