Why is the orderbook important?
In order to assess the industry’s future fundamental outlook, managers use the oil tanker orderbook as an important yardstick. It reflects the number of ships that have been ordered and the number of ships under construction.
A rising orderbook often suggests that oil tankers have a better expectation of future supply and demand dynamics that are favorable for new or existing ships generating good returns. Conversely, a falling orderbook paints a negative picture.
After falling from ~140 million to ~40 million in deadweight tonnage between the end of 2008 and 2012, the crude tanker orderbook dipped slightly to 63 million DWT from 63.1 million DWT in June 2014. However, the orderbook has undergone wide expansion from its 2013 levels of 54.2 million DWT.
A rising orderbook suggests investors and managers are ordering more vessels than new ships are being delivered. This reflects managers’ optimism that investment returns are favorable because of rising rates, higher-than-expected rates, or current vessel prices remaining attractive.
Current scenario impact
Despite the orderbook not recording a downfall, the trend shows that, over the past few months, it has been on a consistent level. This reflects that managers are more or less on the sidelines. They’re refraining from ordering a higher number of ships unless they see more positive development.
This trend suggests that the Guggenheim Shipping ETF (SEA) and crude shipping companies like Frontline Ltd. (FRO), Teekay Tankers Ltd. (TNK), Nordic American Tanker Ltd. (NAT), and Navios Maritime Acquisition Corp. (NNA) are likely to trade sideways.
Because buying a new tanker is a large investment that can reach up to $100 million and above, with delivery dates that are usually two or three-plus years ahead, managers and investors tend to be more careful when placing orders. As long as ship orders continue to rise, the long-term prospects of the Guggenheim Shipping ETF (SEA) and tanker stocks remain favorable.
© 2013 Market Realist, Inc.