Before Overseas Shipholding Group (OSG) can start making money again, the global product tanker market needs to pick up.
Sam Norton, the chief executive of the Jones Act tanker owner, said during the company's first-quarter earnings call on Friday that excess refined products from pandemic-stricken Europe was being shipped to the US on tankers available at bargain rates.
"Even though the US Jones Act is described as being insulated, isolated markets, they're really not," Norton said.
"You couple that weak demand for products with weak demand for transportation, with MRs hovering in the single digits ... that opens up the [opportunity] to take production out of Europe and move it to the United States.”
Of OSG's 25 vessels, 14 are US-flag product tankers, used to carry gasoline and other refined products between US ports in keeping with the country's cabotage rules requiring such trips be carried out by ships built, crewed, flagged and owned domestically.
The company reported time-charter equivalent revenue of $65.5m for the quarter, down 32.5% from the same period in 2020 and contributing to a net loss of $15.9m.
The deficit was its deepest since 2016.
At the same time, vessel earnings have been depressed, with the Baltic Exchange assessing TCE rates for an MR in the Atlantic Ocean rising above $10,000 per day just five times during the quarter and falling below $5,000 per day for 11 days in early March.
"You look at that picture and, again, logic dictates that’s not sustainable," Norton said during the call.
"International tanker rates of $4,000, $5,000 or $6,000 per day are below operating costs for international operators.
"[The market] also believes that fuel consumption globally will rebound in the second half of the year. I think a lot of that capacity is being held as available in anticipation of the recovery."
He declined to disclose when he thought the market would start peaking up, but said OSG needed to be ready to take advantage when it does happen.
"Our job right now is not to call that turn, but be ready to participate in that turn," he said.
