T a N K E R S Tankers Vs
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McQuilling Services, LLC Marine Transport Advisors T a n k e r s Tankers vs. Bulkers No. 39 ~ 19 December, 2007 Recent high earnings in the dry bulk market in parallel to a That places the bulker in an advantageous position in weaker tanker market in 2007 urged some ship owners to terms of investment return. Still, during 2006 Suezmax convert their tankers into dry bulkers. However, as the tankers earned higher profits and caught-up to the tanker market spiked in the second half of November, Capesizes’ price differential. In 2007, however, the high 2007 some owners postponed the planned conversions freight rates in the dry bulk market caused a much greater while others abandoned the idea completely. It is gap between the earnings of these two vessel types, interesting to note the combination of advanced proving the dry bulk vessel to be the more profitable technology and easily accessible funds that makes these choice. decisions possible and enables reaction to the market in relatively short periods of time. The Aframax tankers and the Panamax bulkers draw a different picture. One may argue that the reason for such In order to demonstrate which type of fleet has been more a wide gap in profitability (Figure 2) is the size of the profitable in the past five years, we compare earnings in vessels; the Aframax tankers are larger than the Panamax the dry bulk sector and the tanker sector. We compare the bulkers and thereby exposed to bigger earning potential. Capesize bulkers to the Suezmax tankers because of their We agree with that theory in part only. Our previously similar size; and also the Panamax bulkers to the Aframax conducted Capacity Utilization analysis showed that the tankers because they carry similar cargo sizes. Finally, we Aframax sector is greatly underutilized and average cargo calculate the earnings of a mixed fleet with the same parcel sizes of 70,000 and 80,000 mt are carried on vessels number of dry and wet spot trading vessels (yellow line). whose average deadweight is 103,000 mt. Therefore, an Since these vessels are not exactly the same in size and Aframax tanker in terms of deployment is similar, and cargo carrying capacity, our conclusions are based on comparable, to the Panamax bulkers employed on 70,000 general perceptions, yet accurate enough to illustrate the mt coal trades. concept. Figure 2: Average Aframax vs. Panamax Bulker Figure 1: Average Suezmax vs. Capesize Earnings Earnings US $ / day Suezmax N/B ~ US $ million US $ / day Aframax N/B ~ US $ million 5271 71 81 89 4259 59 66 70 80,000 40,000 60,000 30,000 40,000 20,000 27 36 36 40 48 4864 59 68 85 10,000 20,000 ~ US $ million ~ US $ million Panamax Bulker N/B Capesize N/B 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007 Suezmax Cape Suezmax / Cape Aframax Panamax Bulker Aframax / Panamax Bulker The operating cost has been deducted from TCE earnings in order to The operating cost has been deducted from TCE earnings in order to represent gross profits of both vessel sizes. represent gross profits of both vessel sizes. Figure 1 illustrates that average Suezmax and Capesize Since 2003 a modern Aframax vessel earned US $17 earnings were almost identical until 2007. However, the million more than a Panamax bulker, based on summation newbuilding price of a Suezmax tanker in 2003 was 8% of differentials in daily spot market earnings (Figure 2). higher than the price of a Capesize bulker in the same year. However, the price of an Aframax tanker in 2003 was US Ocean House ~ 1035 Stewart Avenue ~ Garden City, New York 11530 Page 1 Tel: +1.516.227.5700 ~ Fax: +1.516.745.6198 ~ Email: [email protected] www.mcqservices.com While McQuilling Services has used reasonable efforts to include accurate and up-to-date information in this report, McQuilling Services makes no warranties or representations as to the accuracy of any information contained herein or accuracy or reasonableness of conclusions drawn there from. McQuilling Services assumes no liability or responsibility for any errors or omissions in the content of this report. This report is copyrighted by McQuilling Services and no part may be copied or reproduced for commercial purposes without the express written permission of McQuilling Services McQuilling Services, LLC Marine Transport Advisors T a n k e r s Tankers vs. Bulkers No. 39 ~ 19 December, 2007 $15 million higher than the price of a Panamax bulker in proves that neither the dry bulk ship owning companies the same year, moderating the investment attractiveness of nor the tanker owning companies made a wrong move the tanker as compared to the bulker. when investing in specific vessel types. However, as the graphs illustrate, owning both vessel types helps in Owning both vessel types (yellow line) would have been mitigating the risk of low markets in one sector by beneficial to the Suezmax and the Aframax owners in participating in market hikes of the other. Diversifying 2007. However, if the recent spike in tanker markets revenue streams continue to represent sound business continues into 2008, the next year’s picture might look strategy, especially in shipping markets today. somewhat different. At the end of the day, this analysis Ocean House ~ 1035 Stewart Avenue ~ Garden City, New York 11530 Page 2 Tel: +1.516.227.5700 ~ Fax: +1.516.745.6198 ~ Email: [email protected] www.mcqservices.com While McQuilling Services has used reasonable efforts to include accurate and up-to-date information in this report, McQuilling Services makes no warranties or representations as to the accuracy of any information contained herein or accuracy or reasonableness of conclusions drawn there from. McQuilling Services assumes no liability or responsibility for any errors or omissions in the content of this report. This report is copyrighted by McQuilling Services and no part may be copied or reproduced for commercial purposes without the express written permission of McQuilling Services .