25-12-2017

What is the Tanker Market Outlook?

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–one 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 21 forecasting cycles. In 2012, a more robust approach to characterize historical tanker demand projections was implemented. 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 15×15 matrix of load and discharge regions was created, 225 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.

In the 20th Anniversary Edition, published in 2017, the group 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 2018-2022 Tanker Market Outlook brings new enhancements and methodologies, inducing a further expansion of the use of remotely-sensed vessel position data to better illustrate fleet utilization statistics and current trends in the market. Three new trade routes have been added to the forecast table, which provides an outlook on spot rates and TCE earnings over the next five years. Utilizing these new trades, the team has developed two new triangulated routes to better display market earnings within the long-range clean sector. This year’s annual report will also feature the latest long-term fleet supply forecast methodology, which, through regression modeling, forecasts forward vessel additions based on historical fleet evolution and the current orderbook to reflect the cyclical nature of this market.

Source: McQuilling Partners, Inc.

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