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TANKERS: Diamond S considering operating pool for Suezmax fleet amid dismal freight

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TANKERS: Diamond S considering operating pool for Suezmax fleet amid dismal freight

Highlights

Depressed freight rates lead to poor Q3 earnings

58% Suezmax fleet booked at $6,800/d for Q4

Product pool entry created rate, utilization favorability

Houston — Shipowner Diamond S Shipping is considering options to put its Suezmax fleet into an operating pool amid the current depressed tanker freight market, CEO Craig Stevenson said in the company's third-quarter earnings call Nov. 16.

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"The performance that we are looking at very closely today is our Suezmax performance, which is substandard so we are taking the same approach to when we looked into our [MR tankers], so we are looking at any or all opportunities to improve our performance," Stevenson said.

Average Time Charter Equivalent earnings for the Suezmaxes in the fleet were $21,386/d in Q3, down from sky-high levels seen in second quarter at $40,626/d, when a depressed crude market gave way to unprecedented floating storage and voyage inquiry, according to the company's presentation.

As of Nov. 12, 58% of operating days in fourth quarter for the company's Suezmax fleet have already been booked at an average rate of $6,800/d, while 60% of the company's MR tankers have been booked at $9,400/d, the company reported. The average cost of operating their crude tanker fleet in Q3 was $7,995/d and $7,191/d for ships carrying refined products.

The dirty tanker market has been plagued with overtonnage concerns since June, as elevated global crude inventories and unwinding floating storage plays have left demand for crude tankers in the doldrums. Lockdown measures in response to the coronavirus outbreak have left seaborne crude demand down 6% year on year, the company reported.

Dirty tanker freight typically sees an uptick in Q4 due to increased weather delays in the US Gulf Coast and a return of refinery demand, however, tanker market participants are less optimistic that the end of the year will bring seasonal highs as Europe and Latin America continued to see heightened lockdown measures, reducing travel demand.

Freight for the actively traded 130,000 mt USGC-Singapore Suezmax route was last assessed Nov. 16 at lump sum $2.3 million, rebounding slightly after it reached $1.9 million on Oct. 14 -- the lowest level since Aug. 26, 2016.

Product pool sees success

Diamond S has had success with pooling in the refined product space, Stevenson said. The company's strategic partnership with Danish shipowner Norden A/S, formed in June, brought 28 MR tankers into the Norient Product Pool.

The pooling has added to utilization and freight rate favorability for the company's product tanker fleet, Stevenson said.

"The performance of that decision in relative to the industry has absolutely achieved what we expected it to achieve," Stevenson said. "It's very much put us back into that tight band of top performers."

The cost of taking an MR on the 38,000 mt USGC-Brazil run was assessed Nov. 16 at w70, or $14.92/mt, the lowest level since S&P Global Platts began assessing the route in August 2014. Freight for the route first reached the all-time low on Nov. 3.

Moving into the dirty tanker pooling space is expected to be more of a challenge, Stevenson said, as competition remains less than favorable.

"We are certainly going to look into it but I would not say that there has been any decision," Stevenson said. "We have talked to a number of people about it and it's not as big of a marketplace or opportunity as the products side of the business."

Diamond S currently owns and operates 15 Suezmaxes, 1 Aframax, and 50 MRs.