Chief executive Jens Martin Jensen refuses to take rates below $10,000 per day
JOHN Fredriksen controlled tanker giant Frontline would rather its crew went fishing than accept rates for its very large crude carriers at below $10,000 per day, writes Michelle Wiese Bockmann.
Frontline Management chief executive Jens Martin Jensen explained the company’s policy of slow steaming and keeping vessels idle at a conference call last Friday as it refused to fix its tankers on the spot market on low rates.
It did not make sense to fix a $100m asset carrying a $150m cargo at these levels, Mr Jensen said, which is why VLCCs could be withdrawn from the market for nearly a month until rates rose.
“One waiting day in today’s market will cost you about 0.4 Worldscale points, based on a standard Persian Gulf-Singapore voyage,” he said.
“That means you can, basically, sit and wait for 25 days and you only need a rate increase of 11 Worldscale points to make the same return on the bottom line. So we believe it makes more sense to wait, take some capacity out of the market, so slow the ships down, do some maintenance work and maybe let the crew do some fishing instead. That will help the market for sure.”
Frontline reported a jump in second quarter profits to $81.3m on operating revenues of $356m the back of improved tanker rates, but warned that the third quarter will be far weaker.
Frontline said that although 30% of suezmax tankers and 20% of VLCC newbuildings appeared to be delayed at shipyards in 2010, the high number of expected vessel deliveries over the next two years would affect net fleet growth and market balance.
However, Mr Jensen said that demand for VLCCs to be used for storage would return as the oil price contango — when the future price is higher than the spot price — would also come back. “We’ve already been approached with various inquiries, mainly related to Brent positions during the fourth quarter,” he said, highlighting expectations for a seasonal uplift in the final three months of 2010.
These VLCCs would be delivered in October or November, Mr Jensen said, highlighting a recent time charter for 30-90 days at $38,000 daily which he said would help build a floor on the market.
Frontline also highlighted concern that the global economic recovery may falter from the second half of 2010, which could affect oil demand forecasts.
The company said it would pay a dividend of $0.75 per share for the quarter, up from $0.25 a year earlier.
Additional reporting by Richard Meade
