Jan. 9, 2017
Forecasting the future in most industries is an activity characterized by imprecise results. Nonetheless, firms must develop some basis for planning for their future business activities. This is especially true for those in the tanker shipping industry where marine logistics is a key part of the supply logistics chain and ships represent capital investments.
Twenty forecasting cycles ago, marine transport consultancy, McQuilling Services, recognized a need for tanker freight rate forecasts, which is why they developed what’s known today as the “Tanker Market Outlook.” This report, produced on an annual basis, provides market participants with a five-year tanker freight rate and TCE forecast as well as a five-year outlook for time charter assessments and asset prices.
In the early years of producing the report, the group created a multi-dimensional approach to developing the outlook, which combined analysis with experience and observation. Included in this is the evaluation of mathematical models using regression analysis combined with experiential observations from spot brokers and the consideration of freight forward curves for various tanker sectors. The analytical process is based on many assumptions concerning economic growth rates, oil prices, oil demand, fleet additions and exit velocities. Regression modeling is used to evaluate the utility of many different possible explanatory variables in estimating spot market rate behavior in each sector.
As the industry evolved, so did the Tanker Market Outlook and major enhancements to the forecasting process have been made over the past 20 forecasting cycles. In 2006, a concept called “Capacity Index” was introduced, which is the measure of the relative balance of tonnage supply versus tanker demand. The development of capacity index involves substantial calculations to transform projections of global oil demand into tanker transport figures. The group’s efforts proved to be fruitful as the results of this analysis were quite positive, showing strong correlation between the capacity index and the resulting freight market observed.
A more robust approach to characterize historical tanker demand projections was implemented in 2012. McQuilling Services defined 15 geographical regions representing existing and emerging trade flows for tankers trading clean and dirty and assigned the countries of the world participating in maritime petroleum trade to these regions. A 15x15 matrix of load and discharge regions was created, 226 trades in all.
In addition to developing enhanced forecasting methodologies, new features have been added to the report over the years, including new trades, an asset price forecast, expanded sections that cover the world economy and oil supply and demand. In 2016, the group was proud to include in the report a time charter rate forecast and with an expansion of trade data information was able to provide 95% coverage of global trade flows.
The 2017-2021 Tanker Market Outlook represents the 20th forecasting cycle since beginning this process. In this year’s report, the group has incorporated “big data” by utilizing remotely sensed position data to track real time fleet deployment and utilization across the various tanker segments. Through this rigorous data distillation process, McQuilling Services is able to quantitatively determine and convey to clients daily demand and supply signals that may be leading indicators of directional movements in short term freight rates. Augmenting this new analytical tool to the group's traditional demand/supply fundamentals methodology enables clients to gain valuable insight for their strategic planning requirements.
The new outlook will be available the week of January 16.