VLCC average TCE earnings (AG/Japan) stood at $27,500 per day at 12th December this year, the highest level since 2010 and has continued to rise.
Suezmax returns were the highest since 2008, with the WAF/UKC route earning on average $25,500 per day over the same period. The picture was the same for Aframaxes trading North Sea/UK-C, with TCEs at $24,000 per day, Gibson Research said in a report.
The product sector saw a poor start to the year, but still achieved strong annual figures. LR2 and LR1 AG/Japan trades showed the highest annual average earnings since 2008 with $17,750 per day and $15,000 per day, respectively.
MRs were the exception, averaging slightly more in 2013 than this year to date. Despite this, rates had firmed by the middle of this month. Earnings volatility has also been greater this year.
Over the same period, an increase in asset prices was seen on the back of improving investor appetite for newbuildings and stronger spot revenues.
However, prices were still below the 2008 peak. For example a newbuild VLCC cost $160 mill in January 2008 and $89.5 mill in June 2013, compared with today’s newbuild VLCC price (South Korea), which stands at around $97 mill.
Combining asset prices and revenues, allows for a basic breakeven cost analysis to be performed. Gibson analysed tankers ordered in 2012 and delivered in 2014. The calculations included a 15-year loan at 4% interest.
The result was encouraging with all newly delivered tanker types achieving positive cash flows for the year to the beginning of December, the report said.
Spot market Aframaxes and Suezmaxes made the largest profit overall at $9,500 per day each over their breakeven costs. LR1s achieved the lowest at just $1,750 per day.
Overall, clean tanker types received in the region of $2,500 per day return on their investment, compared to the lowest crude return of $6,750 per day for a VLCC.
Gibson said that further analysis showed that tankers ordered at the peak of high asset prices in 2007/8 may still be struggling to achieve an overall profit on their investment - taking into account historic, current and forecast tanker earnings.
For example, VLCCs ordered in 2008 at the yearly average of $149 mill per vessel were estimated to require revenues of $32,750 per day per vessel over 15 years to breakeven, taking into account loan repayments, interest and operating expenses. Around 18% of the VLCC fleet and 15% of the Suezmax and Aframax fleet, respectively, are of this vintage.
Looking at the clean market, the LR2s appears to be the worst affected with a total of 27% of the fleet ordered some six/seven years ago. MRs, meanwhile, have 19% of the fleet at risk. LR1s seem to be best off in this scenario with only 8% of the fleet in danger. This is because only the LR1s ordered in 2008 are potentially financially unsustainable and not those ordered a year earlier.
Therefore, it can be concluded that although vessels ordered in 2007/8 may still be struggling to breakeven, the strength of this year’s freight market has helped asset liquidity and offset earlier losses.
Developments in 2015 will be monitored closely to see how this picture pans out, Gibson said.
**By the middle of this week, VLCC spot rates had edged up to more $90,000 per day equivalent for trips from MEG to the East and brokers had high hopes of the $100,000 per day mark being breached before the holiday period.