Oil Tanker Market In "State Of Panic" As Charter Rates Plunge, Cargoes Rejected

Tyler Durden's picture

While everyone knows about the epic oversupply of dry bulk containerships as a result of the pre-bubble surge in charter rates (and subsequent collapse), which sent many shipping companies to an early bankruptcy or outright liquidation and also resulted in very depressed shipping rates for the last several years as the supply overhang continues to be cleared out of the system (coupled with still depressed end-demand for "dry" commodities) , few may be aware that in the past several months the same fate has befallen the oil-tanker industry. As Bloomberg reports, John Fredriksen's oil-tanker behemoth Frontline Ltd., said it’s rejecting some cargoes after a rout in rates for the vessels. "Frontline is offering tankers for charters “selectively” and the market is in a “state of panic” as excess ship supply drives down charter costs, Jens Martin Jensen, chief executive officer of the Hamilton, Bermuda-based company’s management unit, said by phone today."

The reason for the charter rate crunch: plunging rates. "Crude rates remain in the doldrums,” RS Platou Markets AS, an Oslo-based investment bank, said by e-mail today. VLCCs earned $17,000 a day on average in the first quarter, down 32 percent from a year earlier, it said.  Fredriksen split Frontline Ltd. in two in December 2011, forming Frontline 2012 to withstand a slump in returns that put the original company at risk of running out of cash. Frontline Ltd.’s shares fell to the lowest since May 1999 last month and slumped 95 percent since the end of 2007.

It has gotten so bad that VLCCs have been losing $29 a day on the benchmark Saudi Arabia- to-Japan voyage as of March 28, according to the most recent data from the Baltic Exchange in London. Frontline said in February the ships in its fleet need a daily return of $24,200 to break even.

The collapse in charter rates can be seen below:

Naturally, corporate income statements are getting slaughtered as a result of the plunge in revenues...

Earnings for very large crude carriers, the industry’s biggest ships, plunged 75 percent from a year earlier to $11,624 a day, according to figures from Clarkson Plc the world’s largest shipbroker. A surplus of the supertankers seeking charters in the Persian Gulf averaged 21 percent during the first quarter, the largest glut since 2009, according to market surveys by Bloomberg.

... and expenses: adding insult to injury, this year shippers have to deal with not only dropping revenues, but soaring input costs as well, ironically: fuel costs.

The exchange’s earnings assessments don’t account for speed reductions aimed at reducing fuel consumption, the industry’s largest expense. Last year’s average price of $658.54 a metric ton was more than double the 2008 level, figures compiled by Bloomberg from 25 global ports show.

Absent some near-term miracle, it is likely that VLCC rates will continue tanking:

There are currently 22 percent more VLCCs seeking Persian Gulf cargoes than there are likely to be shipments over the next 30 days, according to a Bloomberg survey of five shipbrokers and owners today. That was the same as last week.

Yet while Bloomberg is quick to go with the generic explanation and blame it all on the supply side, one can't help but wonder just how much of the drop off in charter rates is a function of what has been a major collapse in global trade in the past 6 months, coupled with a drop off in end demand for energy around the world. Because while one can go with the myth of a US energy self-sufficiency, the same can certainly not be said for Japan, which is naturally the other half of the benchmark Gulf to Japan VLCC rate.

One therefore wonders just how much of a disconnect is there between the Japanese stock market, now reflecting solely the collapse in the Yen, and the underlying economy, especially if the Japan charter rate is indicative of the true state of the Japanese economic engine (or lack thereof):

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disabledvet's picture

"we don't need your phucking oil anymore." KAPICHE! now...let me explain "why the bull market while perhaps on the verge of a correction is still a bull market" so that all you HOMEGAMERS can understand how this bull market thing actually works: http://www.youtube.com/watch?v=ieCSUnVL-_s

edb5s's picture

Spot the divergence! 

THX 1178's picture

Is it "panic" or PPPPAPAPAAAANANNANNNNNNNIIIIICCCCCCCCC!!!!!!!!!!!!!!!!!!!!!!!! 

knukles's picture

Some dickwad from California was on Boomberg or CNBS (whats it matter anymore) and said that the decline in demand for gasoline was because of all the electric cars.



McMolotov's picture

When people are starving in the streets, it will be attributed to fad diets and skinny supermodels.

knukles's picture


And excuse for everything!  Alls well in River City, kiddies, sleep well!


kaiserhoff's picture

Transitory...,  and not part of core CPI.

Hell's the problem?

McMolotov's picture

Not part of core CPI, but isn't gasoline included when they release consumer spending figures?

So it doesn't count for CPI because they don't want inflation to be up, but it does count for consumer spending because they want to be able to say, "Consumer spending rose last month."

What a racket.

kaiserhoff's picture

You do my sarc too much honor:)

aint no fortunate son's picture

2nd chart's the latest in a dozen that look like crocs waiting for lunch on the Maru River

StychoKiller's picture

Hmm, mystery meat in UK lamb curries, and missing Wildebeests near the Maru...

Debeachesand Jerseyshores's picture

"dickwad" was to kind of a word for that asshole.

Banksters's picture


2009 Jan. 15 (Bloomberg) -- Morgan Stanley is seeking a supertanker to store crude oil, joining Citigroup Inc. and Royal Dutch Shell Plc in trying to profit from higher prices later in the year, four shipbrokers said.


Ah memories

icanhasbailout's picture

Yeah, whatever happened to those - did they cash out or are they still hanging out with full tankers waiting for even higher prices?

CheapBastard's picture

"Panic" ... sounds bullish to me.

candyman's picture

Was it Shaw last week who said he was loading up on LPG transport vesssels? Guess thats a different market, don't know that one at all.

mayhem_korner's picture



Stagflation in a boat.

(And fuel costs eating away the margins of crude tankers is cannibal).

CrashisOptimistic's picture

One trip in one of those tankers eats the oil that a small town's gasoline use would eat in a year.

dbarrett's picture

I wouldn't draw the conclusion that every factor that moves stocks also moves tanker rates. 

Will QE push tanker rates higher? I doubt it as excess capacity will continue keep a lid on them. It will, however, make building a new one or buying a used one, more expensive. Lets see.....an institution with $500 million in excess cash is trying to see whether they should hold cash or buy a tanker (or any other hard asset). What will they choose? .....Or gold!


Gold Price Girls


ekm's picture

Fonz, It's been 6 months I've been saying that "printing excessively excessive excess reserves" as Benny says, leads to two options only:


1) Hyperinflation if the dollars are ACCEPTED into the real economy


2) Collapse of world trade, if the dollars are NOT accepted into the real economy by rejection of the dollar.


The 2nd has been happening quite slowly but steadily, which is what I call: SLOW MOTION WORLD WEIMAR.

At this points reserves printed in trillions is simply a MONEY CEMETERY holding money nobody wants to do trade with.


I've said it and I will say it again and again and again: Crude oil price will break QE and the reserves, as it broke it in 2008 and it has always broken any attempt at infinite reserve printing.


As always, I almost never check DOW futures. Quite simply right now I'm checking crude oil price and it's been like that for 3 years day after day after day.

fonzannoon's picture

this is the first I am hearing of this from you.


It's just so amazing that they can find buyers to take that packaged dogshit off their hands again...

rosiescenario's picture

....will Citi be able to sell these bundled packages of dogmeat to Iceland, yet again?


One would think by now if any sales person from any TBTF bank tries to sell anything, the targeted buyer is going to immediately try and figure out how to get short whatever is being offered.



Zwelgje's picture

Shit is getting real for NYLON.

NoDebt's picture

Europe down and going downer.  Japan been down so long I don't know when... and going downer.

None of this will affect S&P "hockey stick" earning expectations because they only get 40% of them from overseas.  The other 60% are right here in the USA which is growing so fast we're setting new records almost every quarter.

Remember, it's not the fall that kills you, it's the sudden stop at the end.


Non Passaran's picture

TFA says they're losing $29 a day. It should say 29K a day.

Europe going down? Fuck, I certainly can't say that by looking at the stock market and price of gold. Yesterday's big euro news of the day was how Spain's unemployment dropped by 5K.

I need some seriously bad macro news as all this isn't doing it for me.

dunce's picture

I wonder if hauling a load of crude to Japan and losing 29$ a day may be losing less than the shipper sitting at the dock. I also wonder what the VLCC hauls back or does it sail empty. Is the return trip part of the cost? What are the daily dock fees for a VLCC?

Pairadimes's picture

Nope. No central bank-driven capital misallocation going on here. Nothing to see. Move along.

mt paul's picture

4 words...


offshore floating bullion depositories 

TheFourthStooge-ing's picture

4 words...

offshore sinking bullion depositories.

You know how it is: gold and boats don't mix. Just sayin'...

mt paul's picture

4 more words


 deep sea

salvage robots

LMAO's picture

Well, that's a double whooopeee for John "tax evader" Fredriksen who turned "Cypriot" after a fallout with the Norwegian government and pays his "taxes" to.....Jersey (when will that Isle will be raided by starving banksters and financial mobsters?)

There's something about all these islands: Iceland, Cyprus, Bermuda, Caymans, Jersey......

They attract monkey business, although it’s few and far between said animals on these islands.

Being Free's picture

All this is still bulish for the US market right?

chump666's picture

"... and expenses: adding insult to injury, this year shippers have to deal with not only dropping revenues, but soaring input costs as well, ironically: fuel costs."

The Bernanke and Krugman denial trade in inflation, namley oil inflation. Oil runs everything, all company/business operational costs/overheads come from energy costs. They blow out.  Business shrink or cut staff and inventory

Well done money printers, your best move is yet to come, which is when you get the Asian war going (juicy gas reserves in the south china sea). Truly a work of art in your personified arrogance.


eddiebe's picture

 If it were'nt for bad news, there would be no news at all.., well I'm taking a bit of license there, but here it goes:



FoeHammer's picture

Great tune! Love CREAM's rendition as well

Rusty Shorts's picture

Nice...I usually have this playing in the background when hanging out at ZH..


jimmyjames's picture

It all sounds rather deflationary to me-people are being squeezed-necessities are drawing in whatever velocity there was-

AccreditedEYE's picture

There really isn't enough (if any) sheer panic over how much the Fed has spent and how it, still, refuses to go away. We're gonna need a bigger boat....

Hohum's picture

Excess ship supply; stabilzing rigs; less efficient wells.  oops.

Yen Cross's picture

     I guess the 'Baltic Dry Index' does have meaning, eh Tyler? ;-)

Jendrzejczyk's picture

Totally off topic....

Click on the Cuba version of Google news.

Apparently, Cuba is obsessed with Abu Dhabi.

We are a nation of freedom and transparency!


adr's picture

But DEMAND!!!! All those cars sold, $95 OIL BECAUSE OF GLOBAL DEMAND.

That keps being told, but how can there be overwhelming demand if nobody is willing to pay to ship the oil?


ekm's picture

One of the factory workers here where I work, just parked his SUV at home and it's been 1 year already coming to work with a very small car, his wife's car. They do car pooling.

He told me he couldn't afford the gasoline if he used the SUV