If the shipping industry's most dedicated bet on rapid fleet building over the last few years, - the Scorpio project - had just consisted of the dry bulk carrier Scorpio Bulkers, then the management group would be under a great deal of pressure now.
In that scenario it would be a very poor case that president and CEO Robert Bugbee and Emanuele Lauro would have to present to the investors. The very short story would be that they had gambled everything to enter into the bulk market with a new, efficient and very large fleet that was meant to knock the competition out of the court and take over a great portion of the dry bulk market.
And that this failed to happen. Because the dive in the dry bulk market was so sweeping that it swept just about everyone away.
The twin strategy
So Scorpio's twin strategy is now paying off, if one believes that Robert Bugbee's darling, Scorpio Tankers, will deliver this year.
A ways into 2014 the building of the dry bulk carrier Scorpio Bulkers and the building of the product tanker carrier Scorpio Tankers were developing along two parallel paths, which meant that the order book for both carriers had passed 60 vessels in what looked like a strategy to balance dry bulk and tanker evenly. But now that strategy has been radically changed.
As ShippingWatch reported recently, Robert Bugbee knew that the dry bulk carrier was more unpredictable than the fast-growing tanker carrier. But that the development at the end of 2014 would be so unequivocally negative for dry bulk and so favorable for tanker, even he could not predict. The product tanker carrier, which he has always described as "the Beauty" is currently experiencing a prosperity in line with the rest of the industry, relating to the low price of oil.
Big shift in the market
While some competitors such as Maersk Tankers CEO Morten Engelstoft are careful not to proclaim the oil price, and the practically acute need for oil transport, as a game changer, Robert Bugbee is not afraid to talk about a positive shift in the market that could last several years.
"We have always said that 2015 is the breakout year. We have high expectations for 2015, 2016 and beyond. Up to now the product market has been largely about a secular change in refining, now with the lower oil price we expect demand for product to accelerate too. Therefore we think the product market will not just be stronger but it will be so for longer," says Robert Bugbee to ShippingWatch.
But Scorpio Tankers is far from alone in the market, and for a long time product tanker has been at the top of the shipping analysts' and investors' list over sectors with a bright future.
Besides Maersk Tankers, Torm and other carriers will be competing with the US-Monaco-based tanker carrier. Along with the sliding oil price, the price of bunker has fallen as well and undermined the relative advantage of the new fleet that Scorpio Tankers will have in the water sometime this year. Although Robert Bugbee believes that the tight environmental requirements that authorities and energy companies are placing still put the carrier in a more advantageous position.
"We are on the NYSE, we have largest market cap and volume. We have the most modern fleet bought at the bottom of market. We have critical mass in our markets and with our pool partners are able to provide great service and product to our customers. Additionally, our fleet is almost fully delivered and it is trading spot," he says.
He believes that the market already last year experienced significantly better developments than could be predicted. This includes the new refineries in India and the Middle East, which result in longer transports. This includes the demand in Asia going up. And the need for transport to Brazil and Argentina is there as well, because the countries' refineries either are not efficient or behind schedule in terms of building new ones, he points out. At the same time, the portion of orders compared to the existing fleet is declining as well, he adds.
Scorpio has several times in the beginning of 2015 chosen to convert orders on some of the largest dry bulk vessels, Capesizes, into product tankers.
Investment in Dorian
Robert Bugbee resigned from the board at Dorian shortly before the holidays, and this made several observers speculate about a possible divestment. As of now the company is maintaining the investment of 16 percent in Dorian, and during a phone conference in December, the management emphasized that its still views Dorian as a good investment.
In the beginning of 2015, the Norwegian Fearnley downgraded its recommendation of Scorpio Tankers. Fearnley put a "reduce" on Scorpio Tankers after the carrier had announced that profits in the carrier for the fourth quarter would be lower than analysts' expectations. This was also the second quarter in a row that Scorpio Tankers downgraded expectations.
As such, the prediction from Bugbee of a breakthrough in 2015 is pretty much a necessity for the carrier.
Fearnley's downgrade resulted in an immediate public reprimand from Bugbee, who stated that the analyst agency had simply miscalculated the carrier's assets.