Someone making truckloads of money in this pandemic? Seems like a misnomer?
Well, there are always two sides – loser and gainer. While the virus has rendered more losers than gainers, there is one sector which never ever had it so good. In fact when economy slows, this industry sags the most but this time around, with a complete shut down all almost all economic activities, the shipping industry has never had it so good!
They are raking in the moolah and beaming ear-to-ear. Logically, with all borders closed and not much exports happening, one wonders why shipping? Well, crude oil is their gold. All the shipping companies with tankers are truly making the most of this pandemic.
OMCs, refiners, and even traders are chasing the shipping companies, asking for more and more tankers for storage. They buy the oil and it is stored in the tanker on the high seas for months. They have run out of all storage on land and that is why almost every single tanker is now booked and full.
The demand is now high for Very Large Crude Carrier (VLCC) or oil super tanker – it can hold 2 million barrels of crude. In fact a few days ago, Indian Oil floated a tender for both a VLCC as well as Suezmax carrier, each for storage for six months. This huge demand in turn has pushed up the prices of VLCCs to the stratosphere. Those in the industry say that a VLCC is currently quoted at a phenomenal $1,50,000 per day for a 6-month contract v/s $10,000 in April 2019.
Despite the high prices, the shipping guys are saying that it is probably for the first time in the history of their existence that they have been so much demand with the phones ringing incessantly. The Wall Street Journal did a survey of 16 tanker owners around the world and based on data from brokers, reported that around 100 of the world’s 815 VLCCs were contracted over the last 12 days, keeping the prices so high.
In India, companies making the most of this unexpected boom time are GE Shipping, Shipping Corporation of India, Mercator, Seamec, Reliance Naval and Essar Shipping. While this rush is sure to show in its earnings for Q1FY21, many say that this will not last very long for two reasons – firstly, falling oil prices will force oil producers to cut production. OPEC and other oil producers have agreed to cut production by 9.7 million barrels/day in May and June. Secondly, once the economy starts slowly opening up, the demand for oil will surge and those who are storing oil, could start selling oil and supply could flood the markets. This could send the prices down sooner than later. But at the most, these shipping companies are sailing on some pretty high waters till Q2FY21. The loss that they are making on falling freight rates for other vessels will be more than made up by the oil tankers.
Indeed, these shipping companies have got an unexpected chance to make money – at least someone is benefitting instead of all hurting at the same time.