The number of tankers on order is a leading indicator for future capacity, which directly affects performances of tanker investments. As a general rule, a decline in the number of vessels on order is a negative.
On November 30th, the number of vessels on order fell to 132, a decline of 78.8% from 2008’s peak of 622. The figure is a leading measure of future available capacity because it takes into account new orders placed by tanker companies and subtracts the amount that has moved into the construction stage. Updated every Friday by IHS GLobal Limited, a global information company, a decline in the number of orders suggests either fewer orders were placed or more ships have entered the construction stage.
Since peaking at the beginning of 2009, the number of orders has experienced a downtrend as companies realized they have over booked ships due to over optimism throughout the years 2006 to 2008. In reaction, they have reduced the new orders to a minimum (in many cases taking none) thereafter. As construction companies worked through their order books, the number of vessels on order fell below the 2005 average of just above 200 this year. This is a positive sign for the industry as it now provides the opportunity for tanker companies to increase capacity utilization.
Although further vessels may enter the industry over the short to medium term, a reading below 200 is an early sign that tanker companies such as Teekay Corp. (TK) and Frontline Ltd (FRO) may see a bottom with better days to come in the future. For investors who are looking to diversify across major high yield dividend paying companies, as there are companies that are still struggling and at risk of bankruptcy, The Guggenheim Shipping ETF (SEA) is an option.