The European economies are making progress in agreeing to uniform banking terms and financial assistance packages. European economies, however, continue to run significant deficits and face mounting debt, while resistance to deficit reduction measures remains strong. During the quarter the situation in the Eurozone was highlighted by the Cyprus bailout. NAT has no economic interests in Cyprus.
Tanker market rates are also affected by newbuildings that enter the markets, increasing the supply of vessels. Increased scrapping impacts the transportation capacity in the other direction. It is likely that the Suexmax fleet will shrink in 2014. As a matter of policy the Company does not attempt to predict future spot rates. Rates may change quickly, impacting dividend correspondingly.
The graph shows the average yearly spot rates since 2000 as reported by R.S. Platou Economic Research a.s. The daily rates as reported by shipbrokers and by Imarex may vary from the actual rates we achieve in the market, but these rates are in general an indication of the level of the market and its direction. In any analysis of the tanker industry, the direction of the global economy is always the most important factor.
Link to the graph: http://hugin.info/201/R/1701030/561521.pdf
The Suezmax fleet (excl. shuttle tankers) counts 446 vessels at the end of 1Q2013, an increase of 12 since the beginning of the year.
The current orderbook stands at 49 vessels which represent 11% of the Suezmax fleet. We believe a number of these 49 vessels may never be delivered. At the time of this report, the orderbook for 2014 counts only 5 Suezmax vessels. Scrapping activity has increased over the last year. In 2012, 21 Suezmaxes were scrapped compared to 8 during the year 2011. Given the current market conditions we expect to see a further increase in the scrapping activity.
Corporate Governance/Conflict of Interests
In the fall of 2010 the New York Stock Exchange Commission presented its final report on corporate governance. The Commission achieved consensus on 10 core principles. These principles include a) building long-term sustainable growth in shareholder value for the corporation as the board's fundamental objective, b) the critical role of management in establishing proper corporate governance, c) good corporate governance should be integrated with the company's business strategy and objectives and d) transparency for corporations and investors, sound disclosure policies and communication beyond disclosure. We believe the principles presented are essential elements of good corporate governance and they are applied across the Company in its daily operations.
It is vital for NAT to ensure that there is no conflict of interests among shareholders, management, affiliates and related parties. Interests must be aligned. We will work to ensure that transactions with affiliates and/or related parties are transparent.
Strategy going forward
Our objective is to have a strategy that has benefits in both a strong tanker market and a weak one. If the market improves, higher earnings and dividends can be expected. However, if rates remain low, the Company is in a position to buy vessels -- secondhand vessels or newbuildings, inexpensively by historical standards. Therefore, the Company is able to improve its relative position in a weak market and is able to reap the benefits of a stronger economic environment thereafter. Over the recent past the Company has improved its relative position.
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