Euronav: The speed of the vessel is one of the changes that can have an impact on the tanker market
Many investors are asking questions about the dynamics of the tanker market and asked us to confirm their views on vessel utilisation across the tanker market, the Euronav special report "Speed Up For What" reads.
This answer is very much linked to how supply and demand balance one another in a bulk tramping market. Whilst there is no precise correlation between earnings and supply, it is critically important to understand that small changes can have major impact on the market as a whole.
When the market is undersupplied with tankers, there is little or no resistance to pricing and when the market is oversupplied with just a few tankers, the market has no support and indeed owners have been known to even transport cargo at a negative gross cash flow.
The speed of the vessel is one of those changes that can have an impact on the market. But what is it that ship owners want to gain by speeding up their vessels?
Time Charter Equivalent (TCE) Earnings
The expenses of a shipping company fall into two categories.
1. The fixed daily costs: which arise every day of the year, regardless of the movement or employment of the ship, and are typically called daily costs in the shipping world. They can be listed as follows: depreciation, capital cost, crewing, technical maintenance (including drydocking), insurance and general administrative expenses.
2. The variable costs: which are the costs related to a voyage (sailing the ship, positioning or even waiting to load or discharge a cargo). They can be listed as follows: bunker (fuel) costs, port costs (including agent costs), canal transit fees, towage and pilotage.
Even though they may occur every day, they are not daily costs because they vary hugely as they relate to the service being undertaken and in particular to the fuel consumption of the service undertaken.
Waiting might consume only 5 MT of bunker oil a day whilst the consumption of oil when sailing depends on whether the ship is empty (ballast) or laden (with a cargo on board), how much cargo is on board and the speed the ship is sailing. Indeed, consumption is also affected by weather conditions and currents. In ballast, at low speed, in fair weather, the consumption might be as low as 30 MT per day but laden, at high speed, in heavy weather, it could be closer to 100 MT per day.
For commercial and business management purposes the variable costs of any voyage are deducted from the Freight lump sum (paid by the cargo owner) to derive a Net Freight amount because these costs are variable with the particularities of the voyage performed, i.e. cargo size, distance, number of ports, etc. The Net Freight amount can then be divided by the number of days that the voyage took to perform (including the time and voyage expenses of positioning of the ship from the last port it
discharged a cargo to the port where it will take a new cargo) and this establishes a daily rate of income, which is called the Time Charter Equivalent Earnings (TCE Earnings) which is expressed in USD/day.
Antwerp, Belgium headquartered Euronav is one of the world's leading independent tanker companies engaged in the ocean transportation and storage of crude oil and petroleum products. The company has offices throughout Europe and Asia. Euronav employs its fleet both on the spot and period market. VLCCs on the spot market are traded in the Tankers International pool of which Euronav is one of the major partners.
Euronav’s owned fleet, consists of 36 double hulled vessels being 1 V-Plus, 2 FSO vessels (both owned in 50%-50% joint venture), 11 VLCCs (of which 2 in joint venture) and 22 Suezmaxes (of which 4 in joint venture). Euronav vessels mainly fly Belgian, Greek and French flag.