By Stelios Kollintzas
More and more tanker Owners are consolidating, in a bid to achieve economies of scale and take advantage of the benefits. However, a merger or an acquisition is concluded for a number of reasons, depending on the aim of the parties involved. The past year was evidently active in the product tanker sector, going beyond few minor transactions. To be precise, we are about to see the formation of some of the world’s largest owners and operators of product tanker shipping.
In a way, one could say that the soft market prevailing during the past few years but also the prospect of another spike in freight rates ahead, both constitute a good reason for consolidation. In the first instance consolidation makes sense while trying to survive the market and dealing with financial problems, while in the latter, consolidation helps positioning better in order to fully capture a potential recovery. In other words, no matter what the drive behind consolidation is, it is a win-win choice. On another instance, consolidation has also been the focus of smaller companies, which are either listed or have the ambition to go public. Sufficient scale is vital to create big companies with high market capitalization, which will attract interest among the biggest investors and make stocks more liquid.
Although the shipping community has urged the need for consolidation, no major consolidation move was recorded for almost two years before Scorpio Tankers acquired competitor Navig8 back in May 2017. Saying this, it is the BW Tankers and Hafnia Tankers merger that made the headlines of the year, creating the world’s single largest fleet of product tankers, which will control over 85 vessels. The second deal that made the news is the merger between the privately held Diamond S Shipping and the publicly listed Capital Product Partners. Once the deal is completed, the single public company formed, will boast a fleet of more than 65 ships in total. Taking into account the above deals, the top 5 owners of product tankers will be shaped as follows:
1- HAFNIA (85+)
2- SCORPIO (80+)
3- TORM (70+)
4- DIAMOND S (65+)
5- MAERSK (60+)
The substantial economies of scale achieved by joining forces come with a list of further benefits including; strong presence across product tanker segments, enhance customer network and relationships, commercial and marketing efficiencies, minimization of commercial and operating costs, advantages in terms and quality of financing, well positioned for further consolidation opportunities and adequate size to gather market information and secure charters.
The industry’s course towards consolidation is not likely to change direction. The tanker market is highly fragmented with many owners who have one or two vessels struggling to survive. Consolidation is good for the market and it is better news compared to people ordering new ships. As such, seeing more ships in fewer hands might be good for the market.
Chartering (Wet: Stable- / Dry: Soft- )
Pressure keeps mounting in the dry bulk market and with Capesize resistance evaporated sentiment and consequently earnings are expected to remain under pressure in the following days as well. The BDI today (22/01/2019) closed at 1,036 points, down by 56 points compared to Monday’s (21/01/2019) levels and decreased by 60 points when compared to previous Tuesday’s closing (15/01/2019). Steady business in the Middle East managed to support sentiment in the crude carriers market despite losses still being recorded in a number of routes. The BDTI today (22/01/2019) closed at 868, decreased by 52 points and the BCTI at 664, an increase of 9 points compared to previous Tuesday’s (15/01/2019) levels.
Sale & Purchase (Wet: Stable+ / Dry: Stable+)
Following the admittedly soft activity that was noted in the sector up until recently, dry bulk candidates have seen more demand in the past days, with buyers in the sector looking at the latest correction in asset prices as a good opportunity to invest. In the tanker sector we had the sale of the “MILOS” (157,525dwt-blt ‘16, S. Korea), which was sold to Norwegian owner, Ocean Yield, for a price in the region of $56.0m. On the dry bulker side sector we had the sale of the “QUEEN CUKI” (63,707dwt-blt ‘15, China), which was sold to U.S based owner, Eagle Bulk, for a price in the region of $20.5m.
Newbuilding (Wet: Firm+ / Dry: Stable+ )
The newbuilding market remains busy with a healthy number of orders reported for yet another week across both the dry bulk and tanker sector. As far as tankers are concerned, it is worth noting that this is the third week in a row that a VLCC order surfaces, bringing the total number of firm VLCC orders in the past weeks to 10. The sizeable Kamsarmax order by AVIC Leasing for ten firm vessels is also drawing attention as the last time we saw an order in this size was two months ago, while despite the fact that this deal is on the back of specific employment, the company’s plan is reported to be further expansion of their Kamsarmax fleet given that market performance will also allow such move. In terms of recently reported deals, South Korean owner, Sinokor, placed an order for two firm and two optional VLCC tankers (320,000 dwt) at DSME, in South Korea for a price in the region of $91.5m and delivery set in 2021.
Demolition (Wet: Soft- / Dry: Soft-)
The stability on the demolition front seems to have lasted only for a little while, with prices across the Indian subcontinent showing signs of a softening market in the past days and activity volumes reflecting additionally the weakening momentum. Following a generous amount of deals, cash buyers in Bangladesh have moved to the sidelines in the past days having no reason whatsoever to retain their previously higher price levels given the lack of interest their competitors in the region have been showing. Indeed, India is currently witnessing further volatility in both local scrap steel prices and currency, which gives little confidence to buyers in the country to get back into action for now, while Pakistani buyers also chose to remain inactive despite appetite for tonnage rumored to be growing in the past weeks. Average prices in the different markets this week for tankers ranged between $250-430/ldt and those for dry bulk units between $240-420/ldt.
Please click here to open Intermodal's Weekly Market Report for the week 3,2019