Crude Tanker Supply Side Outlook (Summer 2018) - Invesco Shipping ETF (NYSE:SEA)
What is the Supply Side? Why is it Important?
The supply side is composed of vessels that are on the water and, when speaking about the future, can include vessel contracts on order. Those contracts, or "newbuilds", are collectively referred to as the "orderbook".
As with any market, "price" is determined by a combination of supply and demand. In this case, charter rates for these vessels are the "prices" we concern ourselves with when talking about shipping markets.
Charter rates are negotiated through brokers attempting to balance the available supply of vessels with current demand. If demand outpaces supply, charter rates increase. If demand falls short of vessel availability, rates decline. Charter rates are important for companies, as they compose the operating revenue stream.
In a perfect world, supply growth would keep pace with demand increases for each respective segment, thus ensuring market equilibrium. However, the shipping market is anything but perfect. Much of the volatility in the shipping market, historically and currently, can be traced to the supply side.
For this reason, it is important to keep track of vessel supply which will be a determining factor in how future markets shape up. If you would like a more detailed analysis on the inner workings of the supply side, please click the link for my Supply Side 101 which covers all the basics.
Here, we take a look at the crude tanker market supply side to gain a better understanding of where we are exactly in this cy....