“Admire a small ship, but put your freight in a large one,” the Greek poet Hesiod wrote. “For the greater the lading, the greater will be your piled gain — if only the winds will keep back their harmful gales.” Shipping companies have followed that sage advice in recent years, investing heavily in — and profiting from — the largest oil tankers. Now they’re being buffeted by those harmful gales.
In a perfect storm of too many ships, a collapse in charter rates and looming global economic clouds, tanker stocks are foundering. The Baltic Dirty Tanker Index, which measures charter rates on international oil routes, has sunk from 1,055 to 762 over the past eight months.
And while that’s better than the index’s low point of 657 back in January, bunker (or ship) fuel prices for Very Large Crude Carriers (VLCCs) have increased by one-third. With daily charter rates that low and substantially higher fuel prices, many shippers are losing up to $1,800 a day after they pay bunker fuel and other costs.
As evidence of tough times in the shipping sector, Danish shipping company A.P. Moller-Maersk, on Wednesday reported a 79% drop in net earnings, attributing its $297 million quarterly loss to turmoil in its container shipping and tanker units.
While tanker stocks are showing minor improvement since the sector’s low-water mark in October, there are solid reasons why tanker stocks are hitting a reef right now. Here are four:
As of this writing, Susan J. Aluise did not hold a position in any of the stocks named here.