…As Ardmore CEO notes: MR Charter Market Took an Unexpected Hit in Q2***
An Arbitral Tribunal of the London Court of International Arbitration (LCIA) has found that the Government of Djibouti’s action of seizing control of the Doraleh Container Terminal from DP World was illegal, DP World informed.
The LCIA Tribunal has ruled that Doraleh Container Terminal’s Concession Agreement “remains valid and binding notwithstanding Law 202 and the 2018 Decrees.”
Law 202 and the referenced decrees were devices enacted by Djibouti to seek to evade Djibouti’s contractual obligations, and these have been found to be ineffective in law, according to a statement released by DP World.
“DP World will now reflect on the ruling and review its options,” the port operator added.
On 22 February 2018, the Government of Djibouti seized control of the Doraleh Container Terminal from DP World, who designed, built and operated the terminal following a concession awarded in 2006.
Djibouti has insisted so far that the contract termination was done via a transparent legal process, highlighting that DP World lost all rights to the concession contract.
The government claimed that the decision was made after failed attempts to renegotiate the concession terms and that it is grounded on the general interest of the country’s citizens.
Namely, the country was not satisfied with the revenues from the operation of the terminal, adding that its poor performance was hampering the economic development and growth of Djibouti.
Following the termination, DP World launched a new arbitration in February 2018 seeking a declaration that the concession was valid and binding on the government.
In the meantime, the medium range (MR) product tanker market sustained an unanticipated blow from a number of one-time events in the second quarter of 2018, Anthony Gurnee, Chief Executive Officer of Ardmore Shipping, said in a conference call.
These events included lower demand at the Atlantic Basin as a result of localized factors in the key consumer markets in Brazil, Mexico and West Africa, largely political issues, according to Gurnee, followed by high oil and bunker prices as well as weak crude tanker market.
As a result of the unprecedented downturn of the crude oil taker market, fueled by geopolitical tensions and tonnage oversupply, crude tanker owners have started taking a portion of the product tanker cargoes to ease their woes.
“Crude tanker market weakness resulted in some encroachment to product tanker trades, particularly Aframax newbuildings competing with LR2s,” he said. “Having said that, we feel that the impact of crude tankers on MR trade is limited, probably well under 1% of overall supply.”
However, despite the quarter being unexpectedly tough, Gurnee believes that moving ahead the outlook is positive as MR supply growth remains at all-time lows.
“We’re forecasting 23 MRs to deliver over the remainder of 2018, with 29 delivered year-to-date, and this is compared to the 5-year historical average of 112 per year. Scrapping has increased with 31 MRs scrapped year-to-date, indicating a run rate of approximately 50 to 60 per year, and as a consequence, MR fleet growth net of scrapping is expected to be well below 1% in 2018 and into 2019,” Gurnee explained.
Furthermore, demand fundamentals remain solid in terms of oil consumption growth and export-oriented refinery capacity development.
“Atlantic Basin cargo volume should return to normal levels in the second half as the short-term factors play themselves out. Refined product inventories are well below 5-year averages, and with refinery throughput set to increased by further 2 million barrels a day in the third quarter to all-time highs, the conditions are in place for an increase in CPP trading activity,” he added.
Ardmore also believes that the IMO 2020 sulphur regulations will have a positive impact on the market as of next year boosting ton demand and demand growth for product tankers.
Ardmore Shipping Corporation reported a net loss of USD 13.7 million for the six months ended June 30, 2018, sinking further into the red from last year’s USD 4 million, mostly driven by challenging charter market conditions.
Spot and pool MR tankers earned an average of USD 12,086 per day, while chemical tankers earned an average of USD 12,816 per day for the six months ended June 30, 2018.
World Maritime News
