For any industry Break even cost is very important because if its product or service is trading below the break even cost or cost of production for most of the industry then there is a very good probability that the price of the product or service will go up. There in lie investing opportunities.
The break even cost for VLCC [Very Large Crude Carrier] used to transport crude from exporting nations to importing nations has a break even cost of around $31100 per day and for Suezmax [smaller carrier than the VLCC] the break even cost is around $25300 per day for year 2010 as per Frontline which is the world's largest tanker company.
Recently the trend of the day rates for VLCC's is as follows as per Frontline whereas the break even cost is $31100/day
Quarter – Day Rate
2009 Q1 - $50300/day
2009 Q2 - $38400/day
2009 Q3 - $32100/day
2009 Q4 - $33200/day
2010 Q1 - $45300/day
2010 Q2 - $46600/day
2010 Q3 - $29800/day
2010 Q4 - $24700/day
Recently the trend of the day rates for Suezmax is as follows as per Frontline whereas the break even cost is $25300/day
Quarter – Day Rate
2009 Q1 - $37900/day
2009 Q2 - $26800/day
2009 Q3 - $15900/day
2009 Q4 - $21300/day
2010 Q1 - $31800/day
2010 Q2 - $31000/day
2010 Q3 - $18200/day
2010 Q4 - $16500/day
As can be seen above the company is making a loss of 20%(~$6000) every day to operate a VLCC and 34%(~$9000) loss every day to operate a Suezmax. In-fact the current day rates are among lowest in 8 years. The company which is the world's largest tanker operator operates around 44 VLCC and 21 Suezmax vessels. So the monthly loss for the company would be upwards of 13 million dollars as it operates vessels other than VLCC and Suezmax DH.
The main problem is that the company cannot stop running vessels as there is typically interest cost on these huge vessels and also the company cannot sell the vessels in current scenario because it would make a loss as the vessel prices are down. This is pretty much the scenario every now and then for all the shipping companies. So this situation cannot continue for long because many of them will go bankrupt if the day rates don’t turn above break even shortly.
The idea of the above article is to highlight that the time has come to review the shipping companies for possible investment opportunities as the cycle should start to turn …..
The break even cost for VLCC [Very Large Crude Carrier] used to transport crude from exporting nations to importing nations has a break even cost of around $31100 per day and for Suezmax [smaller carrier than the VLCC] the break even cost is around $25300 per day for year 2010 as per Frontline which is the world's largest tanker company.
Recently the trend of the day rates for VLCC's is as follows as per Frontline whereas the break even cost is $31100/day
Quarter – Day Rate
2009 Q1 - $50300/day
2009 Q2 - $38400/day
2009 Q3 - $32100/day
2009 Q4 - $33200/day
2010 Q1 - $45300/day
2010 Q2 - $46600/day
2010 Q3 - $29800/day
2010 Q4 - $24700/day
Recently the trend of the day rates for Suezmax is as follows as per Frontline whereas the break even cost is $25300/day
Quarter – Day Rate
2009 Q1 - $37900/day
2009 Q2 - $26800/day
2009 Q3 - $15900/day
2009 Q4 - $21300/day
2010 Q1 - $31800/day
2010 Q2 - $31000/day
2010 Q3 - $18200/day
2010 Q4 - $16500/day
As can be seen above the company is making a loss of 20%(~$6000) every day to operate a VLCC and 34%(~$9000) loss every day to operate a Suezmax. In-fact the current day rates are among lowest in 8 years. The company which is the world's largest tanker operator operates around 44 VLCC and 21 Suezmax vessels. So the monthly loss for the company would be upwards of 13 million dollars as it operates vessels other than VLCC and Suezmax DH.
The main problem is that the company cannot stop running vessels as there is typically interest cost on these huge vessels and also the company cannot sell the vessels in current scenario because it would make a loss as the vessel prices are down. This is pretty much the scenario every now and then for all the shipping companies. So this situation cannot continue for long because many of them will go bankrupt if the day rates don’t turn above break even shortly.
The idea of the above article is to highlight that the time has come to review the shipping companies for possible investment opportunities as the cycle should start to turn …..
