VLGC owners can expect better spot rates as higher Panama Canal toll fees boost journey lengths.
Avance Gas executive chairman Oystein Kalleklev told a conference call with analysts that price rises are deterring LPG shipping companies from using the waterway.
“The Panama Canal was expanded in order to facilitate the increased container shipping traffic. However, a shale boom in the US resulting in a sharp increase in US exports of oil, LNG and LPG was not anticipated. So the Panama Canal is therefore running at max capacity,” he explained.
Kalleklev said the canal, as a monopoly, can adjust pricing according to demand.
“With a high demand they are therefore pushing up the pricing by around 90% until the period 2025,” he added.
Fees will be slightly higher for the ballast voyage than for the laden leg, the boss argues.
“With more expensive transit and the unpredictable waiting times, this means…freight will be priced out of the canal with capacity being used mostly by container ships and LNG carriers, which have some more valuable cargo,” Kalleklev said.
He believes this will result in longer voyage distances, driving up freight demand.
A trip from the US to China is around 10,000 nautical miles (18,520 km) using the canal, but 15,000 miles if vessels route around the Cape of Good Hope, adding 50% to the distance.
“I think particularly on the ballast leg, where the tolls are increasing the most, this will be the case that voyages through Cape of Good Hope on the ballast will be more common,” Kalleklev added.
He believes this also gives owners more flexibility and opportunity to pick up cargoes in the Arabian Gulf and West Africa in addition to the US.
Softer rates
Avance Gas logged an average time charter equivalent rate of $36,212 per day in the second quarter, compared with $37,608 per day in the first quarter.
The company is estimating a level of $32,000 in the third quarter.
Daily operating expenses were just $8,200, down from $8,500 in the preceding three months.
Kalleklev said the guidance was “admittedly a bit on the soft side as the market has been slightly weaker in Q3 compared to Q2”.
“Some of this is due to timing effects as we beat our guidance in Q2 due to similar timing effects,” he added.
He revealed that in the fourth quarter, Avance Gas has booked around 50% of capacity.
And the executive chairman expects rates to bounce back up again in the final three months.
“So while spot rates continue to be volatile, the one-year time charter rates have been remarkable and stable this year, with rates of around $35,000 per day,” Kalleklev added.
