Storm Preparation – Is a Tanker Market Downturn Coming, and if so Which Listed Tanker Company is Best Prepared?

Why Might a Tanker Market Downturn be a Consideration?

The tanker orderbook looms over the tanker market like a colossus. Now at the end of a frenetic phase of ordering that peaked in 2006 (84MnDwt ordered)1, the orderbook (153MnDwt) is equivalent to an ominously massive 41% of the trading fleet (376MnDwt)2. In normal circumstances 20% is considered very high. The outsized orderbook has pushed planning for a downturn towards the top of the agenda. Grey clouds over the world economy have further focused the minds of owners looking to batten down the hatches with the credit crunch threatening to unbalance the world economic equilibrium and sustained high oil prices threatening to derail crude oil demand growth.3 Steam has been coming out from under the bonnet/hood of the tanker market since the seasonal 4Q rate spike failed to materialise in 20064. Both rates and stock prices have performed poorly for this sector so far during 2007. The good news stories are almost all coming from the dry market and consequently tankers are beginning to look like the poor relation to their twin titan.

Steam has been coming out from under the bonnet/hood of the tanker market since the seasonal 4Q rate spike failed to materialise in 20064. Both rates and stock prices have performed poorly for this sector so far during 2007. The good news stories are almost all coming from the dry market and consequently tankers are beginning to look like the poor relation to their twin titan.

Adding to the malaise, the tanker market looks a little green around the gills if you look at some of the headlines so far in 2007. “OMI Sells Out”, “OSG continues to Diversify”, “Genmar Gives it all back”. When OMI sold out to Teekay and D/S Torm, it could be argued that OMI didn’t like the scenery (or mood music) and opted to exit, rather than go for the next level of growth. On a more incidental level – OSG’s international tanker operation accounted for 92% of revenue in 2006, but their AR06 put heavy emphasis on its new LNG interests (4 vessels on order) and Jones Act franchise, which perhaps indicates concern about tanker market prospects. Genmar’s actions may also be enlightening with regard to the state of the market. Normally an aggressive operator, it has done little in tankers this year apart from give money back to its shareholders and build up its timecharter cover, while its sister company in the dry market Genco has gone into investment overdrive.

This is only an excerpt of Storm Preparation – Is a Tanker Market Downturn Coming, and if so Which Listed Tanker Company is Best Prepared?

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