Forecasts are estimations of future activities based on models designed to mimic reality. As such they are abstractions that are highly dependent on data, analytical methodologies and specific assumptions. Whether complex mathematical formulations or simple projections based on experience and observation are used, forecasting the future in most industries is an imprecise and inaccurate activity. The spot market for tanker freight rates is no exception; however, our methodology has steadily yielded results within 10% of market actuals. This note discusses an important element of McQuilling’s forecasting process: the development of the final forecast.
As a supplement to this year's 2014-2018 Tanker Market Outlook, we've developed an "Outlook Scorecard," which provides a snapshot of previous market behavior as well as 2014 forecasts. The one-page format makes it a perfect desk reference that can be used throughout the year.
New tanker contracting in 2013 rose to 392, which was the highest level since 2007. This was led by a wide margin for MR2 vessel orders (223 orders), which continues to cement our belief that clean tanker rates are in store for a supply driven contraction. This reality will gradually emerge as previous years’ orders deliver from yards, especially in 2015 and 2016. Our concerns are also supported by our finding that the average age of the MR2 trading fleet, omitting IMO 1 and 2 classifications, is approximately 10 years old. As these new tankers are added to the trading fleet, rate pressure could be exerted across the spectrum.
Asset prices appear to have reached some equilibrium in 2013 after enduring a continuous downturn since 2009. Average annual composite tanker prices were down 0.42% year-on-year with mixed performances on a sector by sector basis. End of the year momentum could have set the stage for what may be the first positive year since 2008 registering a current 5% return based on January 2014 levels over 2013 averages.