ANALYSIS OF THE CRUDE TANKER MARKETS

ANALYSIS OF THE CRUDE TANKER MARKETS
LONDON | 18 November 2015
McQuilling
Services,
LLC
McQuilling
Services,
LLC
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About McQuilling
McQuilling Services is the marine transportation consulting and advisory group of McQuilling
Partners, Inc. The primary focus of McQuilling Services is to provide clients commercial consulting
services related to global seaborne transportation and related disciplines in the supply chain. The
approach of the Company is to develop products and services based on specific client
requirements, data, and the systematic employment of quantitative methods, bringing individually
crafted solutions to client’s needs. The Company employs a collaborative business model
combining experienced internal resources with exceptional industry partners to produce a team of
directed experts. This model creates a targeted, content-rich knowledge and experience base to
serve clients’ needs cost effectively.
McQuilling Partners is a privately-owned marine services company, providing transportation
services to clients in the shipping, commodity and financial services industries. McQuilling
Partners is a respected tanker specialist globally and is one of a select few firms that sit on both
the International and the Asian Baltic Exchange Tanker Route panels. McQuilling Partners
facilitates the physical transportation of liquid and dry bulk commodities annually through the
provision of brokerage services and provides coverage in the wet freight derivatives market for all
the traded routes. The firm has assisted numerous clients in the sale or purchase of marine
assets, and advised them on their directed research and consulting requirements. Today,
McQuilling is a privately held firm numbering over 160 people, specializing in the marine
transportation of commodities for a global client base. Representing broad commercial experience
in the international shipping markets, McQuilling provides professional, reliable and personalized
service to clients from offices located in New York, Houston, Caracas, Lima, Mexico City, Rio de
Janeiro, Athens, Dubai, Mumbai, New Delhi and Singapore.
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About McQuilling
“When you can measure what you are
speaking about, and express it in numbers,
you know something about it, when you
cannot express it in numbers, your
knowledge is of a meager and
unsatisfactory kind; it may be the beginning
of knowledge, but you have scarcely, in your
thoughts advanced to the stage of science.”
Lord William Thomson Kelvin - 1824-1907
Kelvin Wave Angle – 19.47 degrees
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Market Analysis
McQuilling 6-C© Strategic Planning Model
► SWOT analysis is a tool that fits into a larger strategic-thinking context
related to how a company charts its course for the future, given internal
considerations, and the externalities that it faces from the market
► A systematic review of a company’s strengths and weaknesses, and the
opportunities and threats that it faces is part of the discovery process in
strategy planning
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Market Analysis
SWOT Analysis
As applied to the crude oil tanker market, or any market for that matter, the
concept is the same, but the approach is somewhat different –
Strengths
► Strengths are positive drivers or influences in the
marketplace faced by its participants
Weaknesses
► Weaknesses are negative drivers or influences in
the marketplace faced by its participants
Opportunities
► Opportunities reflect features of the marketplace
that can be taken advantage of to benefit
participants
Threats
► Threats expose participants to downside risks
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Strengths
Positive drivers or influences in the
marketplace faced by its participants
Tanker Demand = f(Oil Demand, Supply)
► Global growth remains moderate,
approaching on-trend growth in
2016
► Steady recovery in advanced
economies since 2013, led by US
(2016: 2.8%), UK (2016: 2.2%)
► Challenges for emerging economies:
falling commodity prices, reduced
capital inflows, currency pressures,
financial markets volatility
► Increased strength in emerging
economies forecast for 2016 but
downside risks increasing
Source: World Economic Outlook, October 2015, IMF
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Positive drivers or influences in the
marketplace faced by its participants
Strengths
Tanker Demand = f(Oil Demand, Supply)
World Oil Demand
97.5
World Oil Supply
mb/d
mb/d
97.5
95.0
95.0
92.5
92.5
90.0
90.0
87.5
87.5
85.0
85.0
1Q2013 3Q2013 1Q2014 3Q2014 1Q2015 3Q2015 1Q2016 3Q2016
1Q2013 3Q2013 1Q2014 3Q2014 1Q2015 3Q2015 1Q2016 3Q2016
Going Forward:
Demand
Supply
India, Middle East, Emerging Asia
Saudi, Iran, Iraq, Libya, Kuwait
Japan, Brazil, Russia, Eurozone,
Australia/New Zealand
US, Canada, North Sea, Brazil,
Russia
Source: International Energy Agency
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Strengths
Positive drivers or influences in the
marketplace faced by its participants
Tanker Demand = f(Oil Demand, Supply)
Source: Review of Marine Transport – 2015, UNCTAD
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Strengths
Positive drivers or influences in the
marketplace faced by its participants
Tanker Demand = f(Oil Demand, Supply)
► Average demand growth for crude
tankers over the last decade is
about 1% annually
► After declining about 1% from 2013
to 2014, we expect about 3.3%
growth in ton-mile demand in 2015,
to total just under 9.5 trillion tonmiles
► The VLCC sector makes up the
majority of dirty tanker demand at
62% of total ton-miles
► Suezmax market share has been
slowly increasing
Source: McQuilling Services
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Positive drivers or influences in the
marketplace faced by its participants
Strengths
Tankers are Extremely Fungible Assets
NWE
US Gulf /
Caribbean
Middle East
West Africa
East Coast
South America
► Even the VLCC sector, where the trades are most consolidated, has five
major load areas and has moved cargo on sixty-seven trade routes in 2015
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Strengths
Positive drivers or influences in the
marketplace faced by its participants
Tankers are Extremely Fungible Assets
Source: McQuilling Services
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Weaknesses
Negative drivers or influences in the
marketplace faced by its participants
Asynchronous Freight & Asset Price Cycles + High
Capital Cost, Long-Lived Assets
= Extreme Freight & Asset Price Volatility
Source: McQuilling Services
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Features of the marketplace that can be
taken advantage of to benefit participants
Opportunities
Changing Trading Patterns
VLCC
Cargo Quantity
Ton-Miles
29%
Longest trades
41%
71%
Shortest trades
59%
10% shift in
cargo from
short to long
trades
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Cargo Quantity
Ton-Miles
36%
Longest trades
49%
64%
Shortest trades
51%
4%
13
Opportunities
Features of the marketplace that can be
taken advantage of to benefit participants
Changing Trading Patterns
Source: McQuilling Services
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Opportunities
Features of the marketplace that can be
taken advantage of to benefit participants
Changing Trading Patterns
Aframax
Aframax
Source: McQuilling Services
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Features of the marketplace that can be
taken advantage of to benefit participants
Opportunities
Structural Changes to Transport System Logistics
Panama Canal Expansion
*
Caribbean > Far East
Caribbean > USWC
Mediterranean > USWC
Pre-Expansion
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West Africa > USWC
Post-Expansion
WC SA > USG
* Using 10-year Average TCEs
16
Threats
Features of the marketplace exposing
participants to downside risks
Structural Changes to Transport System Logistics
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Features of the marketplace exposing
participants to downside risks
Threats
Tonnage Supply
Source: McQuilling Services
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Summary
Time Charter Equivalent – TCE (US$/Day) – Dirty Tankers
US$ k/day
70
YTD 2015
59.9
60
50
FY 2015 (Proj.)
2016F
2017-19F
56.9
49.0
51.4
42.4
39.5
40
38.7
40.3
38.9
35.7
34.3 34.3
27.9 27.2
30
23.7
21.3
20
10
VLCC
SUEZ
AFRA
PANA
Source: McQuilling Services
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Summary
Prospects for the crude oil tanker market appeared measurably
more positive than in the recent past, however, now tonnage
supply overhang developing:
► The world economy is on a growth trajectory approaching above-trend:
Since the end of 2014, driven by lower oil prices and resurgent advanced
economies, oil demand has increased, driving a growing tanker demand
► Cautious optimism is in order: Global growth is dependent on the wellbeing of regional economies and we see potential downside risks in certain
emerging economies (China, Brazil) and also in mature economies (Japan,
Eurozone)
► Stronger freight markets are typically the harbinger of over-building, leading
to a tonnage supply surplus – we have experienced this during the course
of 2015
North American shale oil has introduced a new pricing dynamic,
the effects of which are presently uncertain
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Thank You!
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