The tanker sector was the last of the three major shipping sectors -containers, dry bulk and tanker - to be hit hard by the crisis. Because of the strict vetting system and pollution laws, it has the highest operating standards. There is specific legislation that compels removal of older tonnage from the fleet. The companies are generally older and more mature with stronger balance sheets and reserves than listed companies in the other sectors. Most tanker companies have been less aggressive in expansion than their counterparts the other two sectors. The order book is large, but smaller comparatively with the other two sectors and there is compulsory phase out of older single hull tonnage and stricter age limitations. There is definitely an over capacity problem that needs to be worked out and some over extended companies.
Tanker companies have generally been pioneers in shipping. They developed the concept of very large vessels. They made great strides in hull design with double bottoms, segregated ballast and double hull. They developed innovative cargo system designs to carry specialty cargoes like LNG, LPG, chemicals and clean petroleum products.
They were also innovative financially. Companies like OSG were among the first to go to public markets. In the latest upturn, they were among the first to expand. Genmar did an early block vessel acquisition from Metrostar. OSG bought out Stelmar. These were timely acquisitions, taking advantage of the upward market cycle.
Ironically, Top Ships - a laggard, under-performer in the sector- was one the first listed companies to restructure with its lenders, selling off a large part of its fleet in 2008 to de-leverage and improve liquidity. It was a timely move.
The tanker sector was not as hard hit in the fall of 2008 as its counterparts in other sectors. Rates were down, but not catastrophically low. For a time, the sector benefited from extreme contango, where there was an increased demand for storage and the winter season. Perhaps, however, this storage demand contributed in part to the current market conditions where the fall in activity and freight levels has really begun to bite hard. The clean product market has been dismal lately and the fallout is impacting negatively also the chemical trades.
Since most tanker companies have stronger balance sheets than their shipowner brethren in the other two sectors, they in a better position to weather the storm. The extreme case is NAT, which is entirely free of senior debt and carries only market risk. Others like OSG have over US$ 1 billion in liquidity. So far there have not been dilutive new capital raises to pay down down debt and cover losses as has been endemic in the dry bulk sector.
With major oil companies as customers, their counter party default risks are smaller that the dry bulk sector, although there are some disturbing rumors about charter payment delays lately. They also are generally less exposed to massive asset impairment from large block vessel acquisition and M&A deals late in the cycle, where many dry bulk owners have taken big losses. Tanker values, however, are beginning to fall as a faster pace than previously.
BLT is a notable exception buying out Chembulk (former MTM) at a mark up price from AMA with heavy debt finance very late in the cycle. Eitzen has been struggling from overexpansion. The Arlington merger with Genmar was a timely sellout, but it is relatively small deal for Georgiopoulos Group done on a conservative basis. Frontline may have some problems with their block acquisition of the TOPS Suezmax fleet. The vessels are older and said to be without center bulkheads, not the most desirable tonnage to have in this market.
We can only hope that the current low oil prices will lead to new demand soon and the needs for crude oil prove more inelastic than other sectors. Emerging economies like China and India are more oil intensive than Western developed countries. A growing number of oil producers will be in need to export more for their growing domestic needs. Seaborne transportation distances for crude oil are likely to remain large.
Tanker companies have generally been pioneers in shipping. They developed the concept of very large vessels. They made great strides in hull design with double bottoms, segregated ballast and double hull. They developed innovative cargo system designs to carry specialty cargoes like LNG, LPG, chemicals and clean petroleum products.
They were also innovative financially. Companies like OSG were among the first to go to public markets. In the latest upturn, they were among the first to expand. Genmar did an early block vessel acquisition from Metrostar. OSG bought out Stelmar. These were timely acquisitions, taking advantage of the upward market cycle.
Ironically, Top Ships - a laggard, under-performer in the sector- was one the first listed companies to restructure with its lenders, selling off a large part of its fleet in 2008 to de-leverage and improve liquidity. It was a timely move.
The tanker sector was not as hard hit in the fall of 2008 as its counterparts in other sectors. Rates were down, but not catastrophically low. For a time, the sector benefited from extreme contango, where there was an increased demand for storage and the winter season. Perhaps, however, this storage demand contributed in part to the current market conditions where the fall in activity and freight levels has really begun to bite hard. The clean product market has been dismal lately and the fallout is impacting negatively also the chemical trades.
Since most tanker companies have stronger balance sheets than their shipowner brethren in the other two sectors, they in a better position to weather the storm. The extreme case is NAT, which is entirely free of senior debt and carries only market risk. Others like OSG have over US$ 1 billion in liquidity. So far there have not been dilutive new capital raises to pay down down debt and cover losses as has been endemic in the dry bulk sector.
With major oil companies as customers, their counter party default risks are smaller that the dry bulk sector, although there are some disturbing rumors about charter payment delays lately. They also are generally less exposed to massive asset impairment from large block vessel acquisition and M&A deals late in the cycle, where many dry bulk owners have taken big losses. Tanker values, however, are beginning to fall as a faster pace than previously.
BLT is a notable exception buying out Chembulk (former MTM) at a mark up price from AMA with heavy debt finance very late in the cycle. Eitzen has been struggling from overexpansion. The Arlington merger with Genmar was a timely sellout, but it is relatively small deal for Georgiopoulos Group done on a conservative basis. Frontline may have some problems with their block acquisition of the TOPS Suezmax fleet. The vessels are older and said to be without center bulkheads, not the most desirable tonnage to have in this market.
We can only hope that the current low oil prices will lead to new demand soon and the needs for crude oil prove more inelastic than other sectors. Emerging economies like China and India are more oil intensive than Western developed countries. A growing number of oil producers will be in need to export more for their growing domestic needs. Seaborne transportation distances for crude oil are likely to remain large.
Some economists are predicting a pick up in economic activity by the end of 2009, but others feel than 2010 will be a lackluster year. In the meantime, there is certainly going to be some restructuring and consolidation in this sector.
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