The Summit of Oil

26/08/2019

The summit of the petroleum era is rapidly coming to an end. The shipping industry is scrambling to prepare itself for he future, investing in LNG powered vessels and building LNG transport vessels as to meet growing energy demands LNG seems to be the best long term bet. Yet, I find it tough to swallow that world will simply no longer need petroleum products. With rapid growth in Indonesia, Thailand, Myanmar, Vietnam, China, India and other countries predominately in Asia and Africa, I do not see petroleum being replaced as quickly as the market intends it to be. I see the industry evolving into something new.

Looking at the growth of airline travel, with China alone accounting for 150 million tourists we can see a constant need for jet-fuel. Compound China’s tourism growth with Indonesia’s explosive middle class and we can see that the demand for CPP’s will only continue to grow. As these countries also become more and more mobile we can anticipate vehicle ownership to grow alongside the rise of the middle class.

Now the industry is evolving, it is adapting to changing circumstances. Tougher and higher environmental regulations, more efficient refineries, redistribution of refining capacity and distribution of refined product. 70% of the worlds population is in Asia, the demand for refined product will only continue to grow, across all CPP’s. We also see substantial growth in demand for edible oils and refined edible oil products. When the President of Indonesia Mr. Widodo mentioned in his victory speech that Indonesia will research and develop jet fuel that is made from palm oil its gives and indication of how the industry can adapt to the ever changing global environment.

Further, with radical growth in technology at an unprecedented pace the global shipping industry has much to catch up on. From big data analysis to IOT the industry has many upgrades coming in the future. I find the blockchain and AI space highly interesting in regards to the way it is able to revolutionize the way the industry operates. Many institutions and companies which today seem increasingly powerful may tomorrow be displaced and become irrelevant with wider technological advancement and adoption in the industry.

Captain Rohit Kapur

Why Product Tankers ?

26/06/2019

The Mare Story

When looking at the world today, we see much turmoil, trade wars, Global warming, civil unrest, election turmoil and even systematic monetary policy risk. Over the past 10 years the shipping industry has been hammered hard, despite other industries seeing tremendous risk. These hard times have seen many industry leaders knocked out, Selandia ship management, Hanjin Shipping and even the oldest shipping company in existence Stephenson Clarke Shipping. We now face a new era in shipping, an era were intelligence, meets grit at the cross roads of market analytics and good old fashioned hard work.

I myself am a CEO, but I didn’t always start out as one. I didn’t go to Harvard Business School, I didn’t get a fancy education in Copenhagen. I started out as a deck cadet, cleaning tanks and toilets, I rose to the top by making my way up to captain in less than 10 years. Since taken the helm of Mare Maritime, we have had good and hard times. Our ideology has not changed, 5 years ago I alongside my team of seasoned seafarers decided to create a ship management company. We stared out slow and grew our fleet to 8 ships under management. As we progressed in our career we started facing a down market, the storms became tougher to weather and we have faced some tough seas.

The Market

Now here we are, in 2019.  Since early 2016 roughly 3 years ago, I along with my team have had a bullish stance on the 10-15 year outlook on CPP’S. We now are working with major banks and funds to purchase a large stake in the CPP sector. Our ideology in regards to CPP has not changed over the past 3 years, with closing refineries and more environmental protection legislation across the globe. We feel the demand for CPP tankers will only continue to rise. Why? No Market risk as CPP market is rising and demand for CPP and veg oil only continues to grow.

Market Segmentation

Which product tankers do we feel have the most growth? Our team has analyzed the data and are bullish on shallow draft handy’s and MR’s. They have immense demand stemming from the growth in Indonesia add to the fact that there are no new builds in the pipeline. Our forecast predicts charter rates will see 4%-9% annual increase regularly for the next decade. The growth in industrial production and reliance on refined oil and petroleum products. Consumption in developing countries (specifically India and Indonesia) has been increasing due to growing demand for power generation, transportation and the development of infrastructure and raw materials.

The Rates

We believe that the following product tanker industry trends create attractive opportunities for nontraditional shipping investors.  Demand for seaborne transportation of refined products is increasing at a faster than expected rate. The growth in the supply of ships that transport refined products has slowed. Figure1 above indicates the forecast for future charter hires in the coming years. As you can see Fearnley’s analysis indicates a large growth in the charter hire rate for product tankers. Aggregate seaborne transportation distances are increasing as larger and more efficient refineries are being built in geographic locations that are generally longer distances from the primary areas of refined product consumption. The complexity of the product tanker market with increasingly standardized cargo specifications and global price differentials has led to the development of an active trading market, which further bolsters ton-mile demand.

Chemical / Oil tankers have a lifespan of 25 years, the sales price is dependent on the charter price and number of remaining years of the vessel. During 2014-2015 period, motivated by the high freight rate, large number of chemical tankers were ordered to be built. However, those new ships were completed 12 -18 months later, creating an oversupply in recent years. The market has since pulled back due to the glut in supply,         According to the most recent Clarkson’s Report – an industry leading shipping intelligence weekly, the current average daily charter rate for 40,000-50,000 DWT MR tanker is $13,750 / day. This is a low point in history, the charter price is expected to steadily rise in the coming years. See Figure 2 for the Clarkson’s report.   If you look also at figure 3, you can see that the order book for new builds and the ratio of the existing fleet has become healthier for charter hire growth.  Dewry’s shows that the existing fleet ratio has no levelled off and the number of new orders is down. Meaning it is reasonable to expect a large rise in charter hire rates for chemical tankers in the near future. Compounded with the long-term growth of Indonesia and India, we feel this market is set for a long bull run on charter hires.

The Analysis

Now what does this all mean? The market for product tankers has only one place to go up. With growing global demand, closing of older refineries and new ones being built across Asia, we see a substantial growth in the entire market. More specifically we forecast that regional growth in Asia will beat the market. With massive growth stemming from Indonesia and India in both refined vegetable oil and clean petroleum product. This is an industry I have given my life to, from 17 when I was a deck cadet and was inside the tanks cleaning them, to today at 40 as a CEO of Mare Maritime. I know this industry better then I know the back of my hand, the data analysis simply reinforces that which I know. Product tankers are a great investment and their growth will give those who jump aboard early great returns over the next 15 years.

 

Captain Rohit Kapur

CEO/Founder/Owner

Mare Maritime