Worldscale flat rate on selected benchmark routes are set to fall by an average of 4% next year, compared to 2013.
This drop will be largely driven by the base bunker price declining 8% for the 2014 calculation, McQuilling Services said in the consultancy’s latest note. This contrasts to the 9% jump seen between 2012 and 2013.
When determining how the rates will impact owners’ earning, McQuilling examined TD3, the 260,000 tonne trade from Ras Tanura to Chiba Asia , this route is a key driver of oil markets.
The year-to-date spot average on this route has been WS38.9 with a daily TCE of $12,225. If the reduced flat rate is factored in, the 2013 year-to-date spot rate rises slightly to 40.1 and the TCE increases to around $13,300 per day.
Despite this increase, it seems likely that owners will need to continue pushing spot rates higher in 2014, to break even and overcome financial pressures, McQuilling said.
Some additional support for higher spot rates should also come from global economic recovery forecasts, supporting oil demand.
In its latest Oil Market Report, the International Energy Agency (IEA) said that it expected demand growth to be 1.2 mill barrels per day in 2013 and 2014, up to 91.2 mill barrels per day and 92.4 mill barrels per day, respectively. This is being supported by an improving economic outlook in the US
Nevertheless, the availability of tonnage and the potential that some owners might increase speed could quickly eliminate any of these gains. As 2014 draws near, owners, especially of larger tonnage, will attempt to maintain the momentum of the current market. Lower flat rates will help them make their case, but ultimately, their fate will be controlled by the throttle, McQuilling forecast.
Worldscale Association flat rates are a fundamental component in spot rate negotiations between owners and charterers. Spot rates are a gauge of the prompt tanker market and represent a percentage of the flat rate, with the latter being equal to the nominal or 100% freight rate.
The Association publishes more than 300,000 flat rates for various load/discharge points. The updated flat rates take effect at the start of each year.
While the flat rates provided by Worldscale are applied to the entire world tanker fleet, the Association uses a constant total cargo capacity of 75,000 tonnes.
This capacity accounts for cargo, as well as stores, water and bunker fuels. A constant sailing speed of 14.5 knots, both laden and ballast is applied, as are bunker consumption rates at sea and in port, Load/discharge days are established and a fixed hire rate of $12,000 per day is employed.
To calculate the annual increase in port charges, McQuilling assumed a rise of 5% on an annual basis.
Worldscale releases a base bunker price to be used in this calculation that is an average of the fuel’s price from October of the previous year to end-September of the current year. This is generally provided in the fourth quarter.
The Association reduced its base bunker price for HSFO 380 cst by about 8% from 2013 to 2014 from $686 per tonne to $632 per tonne. The base bunker price in 2013 was the highest level on record, McQuilling said
Despite this year’s contraction, bunker prices have a higher upside potential by reduced supplies stemming from a rise in refinery conversion capacity, aimed to maximise the output of more high value petroleum products.
According to data from JBC Energy, the global surplus of fuel oil was about 1 mill barrels per day in 2008 and should fall to 300,000 barrels per day through 2018. These reduced supplies have contributed to the base bunker price increasing for 12 of the previous 17 years, McQuilling said.
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