To anyone paying even casual attention, it comes as no surprise that pretty much the entire shipping sector is suffering mightily from overcapacity, which has driven down rates substantially below break-even.
The distress is probably the most acute in tankers, with General Maritime Corp. (NYSE:GMR) filing for bankruptcy on November 17, and Frontline Ltd. (NYSE:FRO) in the midst of a "restructuring". Current daily rates for VLCCs are in the neighborhood of $7800/day, while operating costs result in a break-even figure of $30K/day.
Fortunately for investors, particularly those seeking income, there are at least a couple of firms bucking the trend. These would be Teekay Offshore Partners (NYSE:TOO), and Teekay LNG Partners (NYSE:TGP). The primary reason, I believe, these two firms have fared substantially better than the sector is that both entities focus on longer term charters, rather than enduring the volatility often found in the spot market.
Teekay Offshore focuses on chartering out shuttle tankers, used to transport product from offshore production platforms to refineries. With the global expansion of offshore exploration, Teekay Offshore stands to be able to continue to provide a consistent return to investors.
I was curious as to just what constituted "long term" charters. Going to the firm's website didn't really turn up the information that I was seeking, so I got in touch with the company in order to see what data it might provide. In a timely response, I was informed that the fleet average across all asset classes is 5 years, with a minimum length of 3 years for any charter dropped down from parent firm Teekay Tankers (NYSE:TNK).
Teekay LNG Partners, as the name suggests, focuses on long term charters of LNG/LNP carriers. An equally important part of the company's fleet are FSOs (floating storage and off-loading units), and FPSOs (floating production, storage, and off-loading units). In point of fact, the current glut of tankers may well be of added benefit to Teekay LNG because often, these units are converted oil tankers.
Due to the particularly unique aspects of Teekay LNG's fleet of vessels, the typical charter length is considerably longer than would be usual in the crude oil tanker market. In this market, Teekay LNG's charters range from 10 to 25 years in length.
Between the two entities, the fleet breakdown is comprised of:
FPSO 2 vessels
FSO 5 vessels
- Shuttle tankers 36 vessels (which includes 1 committed newbuild)
Aframaxes 11 vessels
TOO closed at $27.01 on Friday, Dec. 9 yielding 7.4%
TGP closed at $32.41, yielding 7.78%.
Sources: Company website, Morningstar, Yahoo Finance
Disclosure: I am long TOO.
Additional disclosure: I may initiate a long position in TGP within the next 72 hours.