Bunker Price Increase Likely to Eat into Product Tanker Earnings: Hartree Managing Director

Jon O'Neill, Managing Director at Hartree, says that an increase in bunker prices will not increase product tanker rates.

Jon O'Neill, Managing Director at Hartree Partners LP (Hartree) says that an increase in bunker prices will not increase product tanker rates, but rather, negatively affect tanker earnings.

"It is hard to see how freight rates will recover substantially in the short term," said O'Neill, adding: "earnings are at the very low end of normal only because bunker prices are low as well.

"If the price of bunkers go up we don't believe freight rates will go up to compensate for that. It will eat into earnings." 

O'Neill says the medium range fleet's return to operations in the Atlantic Basin has led to too many vessels in the region, putting further pressure on rates.

The recent ratification of the International Maritime Organization's (IMO's) Ballast Water Management (BWM) Convention will be a "hammer blow" to the shipping industry, says O'Neill, explaining that the convention's entry into force will likely lead many vessel owners to sell their vessels.

Increased sales, spurred by owners' unwillingness or inability to finance the installation of ballast water treatment technology for compliance with the new convention, will lead to an associated drop in asset prices, says O'Neill.

Hartree is noted by O'Neill to have five vessels currently on bareboat charter that are liable for the installation of ballast water treatment equipment, three of which have completed drydocking, and two that are expected to undergo dry docking before the BWM Convention's entry into force deadline in 2017.

"So we will have a little bit more time to think about that problem," concluded O'eill.

Last year, Shipbroker, Charles R. Weber Company, Inc. (CR Weaver) said tanker rates could get a further boost as tonnage is taken out of service for special surveys or dry docking ahead of the implementation of the BWM Convention.