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John Fredriksen, the famed shipping baron, will spend $2.6 billion on the construction of the largest fleet of fuel efficient tankers in the world. He has decided to invest the money, based on the belief that fuel costs are unlikely to fall anytime soon, and hoping that the reduced fuel bill will make his tankers much more cheaper to run and competitive.
Last week his company Frontline 2012, said that it had almost doubled its orders for new ships to 53, after construction costs for the vessels fell dramatically. The orders include ships fitted to transport crude oil, refined products, liquefied petroleum gas, and dry-bulk commodities. So far it has paid $315 million of the $2.6 billion tab.
Fuel now accounts for around 75% of a tankers average running costs, meaning that improving fuel efficiency can drastically improve profit margins. The new tankers that are being built, which can hold 37,000 metric tonnes of gasoline, use nearly 30% less fuel to run; this equates to a saving of around $7,000 a day.
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Tor Olav Troeim, Fredriksen’s aide, said that Frontline will not be the largest shipping fleet, but “maybe one of the most profitable ones. Low capital cost, low operating cost gives us a good start.”
The market is currently saturated, with the merchant fleet capacity around 20% larger than demand, creating the largest glut since the 1980s. The increased profitability will give Fredriksen’s company a strong advantage in the market, allowing them to charge rates that would normally not cover the daily operating expenses of traditional vessels.
According to an average taken from 24 analysts, Frontline’s net loss of $3.94 million this year is expected to grow into a $32.3 million profit in 2014, and then $151.4 million profit in 2015. Erik Nikolai Stavseth, an analyst at Arctic Securities ASA, claims that “betting on Frontline 2012 is like betting on the future of shipping. Even if there is only a moderate recovery over the next five years or so, Frontline 2012’s earnings potential is substantial.”
By. James Burgess of Oilprice.com
James Burgess studied Business Management at the University of Nottingham. He has worked in property development, chartered surveying, marketing, law, and accounts. He has also…