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Day Rates Headed Higher at Nordic American Tanker

The beauty of NAT is the combination of low operating costs and exposure to the most lucrative sector of the market: the spot market. The company benefits from the volatile spot market where rates over time run higher than those realized under long term lease rates. These daily rates have fluctuated between $25K and $78K in recent years for the Suezmax ships NAT operates. The rate fluctuations are driven by seasonal demand. They peak during the second quarter and then bottom in the third before cycling up again. To insulate against the wide fluctuations in spot market rates, the company maintains a strong balance sheet with little debt, so daily operating costs are around $9K per vessel. NAT's fleet generates positive cash flow in even the weakest part of the cycle and captures more of the upside than firms operating under long term leases. Time your purchases of NAT for the weak part of the seasonal cycle when investors worry about whether rates will snap back up; they always do snap back up because of seasonal demand increases from late fourth to mid second quarter. Also realize that NAT is a sort of mercenary company. With just 12 ships they can oeprate the way they do in the spot market As their fleet grows there will come a time when they will need to participate in the long term rental market too. That day is still far away.