The Business Times

Tanker rates rally as owners trim glut

Published Tue, Oct 8, 2013 · 10:00 PM
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[LONDON] The cost of hauling crude on the largest tankers is poised to rise to a four-year high as the biggest demolition programme in a decade trims a glut of capacity. Rates still won't be high enough for owners to break even.

Shipping companies will demolish 23 very large crude carriers this year and scrapping will stay at about that level for the next three years, according to EA Gibson Shipbrokers, a brokerage in London. Daily rates will average US$22,000 in 2014, the mean of 10 analyst estimates compiled by Bloomberg News shows. While that's almost three times more than current earnings, it's still below the US$25,000 that Frontline, which operates 31 of the vessels, says it needs to cover costs.

Rates plunged as much as 97 per cent from their December 2007 peak of US$229,484 a day as the surge spurred the most orders for new ships since the 1970s, just before the global recession began. That generated the biggest capacity surplus since the mid-1980s and drove Overseas Shipholding Group and General Maritime to seek bankruptcy protection. Freight swaps traded by brokers show rates won't exceed Frontline's break-even cost of US$25,000 before at least 2015.

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