Oil tanker freight rates are being dragged down by lower bunker costs. File Image / Pixabay
Shipping intelligence service Alphatanker expects the Worldscale Association's annual recalculation of its flat freight rates for tankers in 2021 to result in a 20-25% drop from this year's levels after the collapse in bunker prices seen since March.
Worldscale flat rates are set annually and are used as the basis of some freight markets with trades being made at a differential to them.
"Last year the Worldscale Association based their bunker costs on the September 2019 average 0.5% VLSFO," Alphatanker said in an emailed research note Tuesday.
"However, we understand that this year they will return to use their previous methodology which was to take annual average price from October last year to September this year."
Changes in bunker prices are a key element in the annual Worldscale recalculation. The flat rates are used to represent underlying shipping costs, rather than supply and demand levels in freight markets.
Alphatanker sees average very low sulfur fuel oil (VLSFO) prices from October 2019 to the present as being 35% lower than the September 2019 average, the company said. This would be offset by rising port costs because of weakness in the US dollar, particularly on shorter routes where port costs represent a higher percentage of the total rate.
"Based on all of the above, but especially lower prevailing bunker prices, we expect that flat rates for 2021 will drop on average by 20 to 25% of their 2020 values across Baltic Exchange benchmarks routes," Alphatanker said.
"All told, we expect that flat rates will be slightly lower than those used in 2019 but above those used in 2018."