Why Could Nordic American Tankers’ Profit Margins Rise?
Nordic American Tankers' 3Q15 Results: Assessing the Future
Voyage expense
Over the last three years, Nordic American Tankers (NAT) only employed its fleet in the spot market. Under a spot charter, the company pays the voyage expenses. Voyage expenses consist of fuel, port charges, and commissions for all of the vessels operated in the spot market. The voyage expenses fell to $35 million from $42 million in the prior quarter and $54 million in 3Q14. The ratio of the voyage expenses to the revenue also fell to 35% from 37% in the prior quarter and 57% in 3Q14.
Outlook for voyage expenses
The fuel expense accounts for a major portion of the voyage expenses. According to data from Bunkerworld, the average bunker fuel price in the third quarter for the Port of Fujairah was $267 per tonne. The average price for the fourth quarter until November 16, 2015, is $240 per tonne. A fall in bunker fuel prices will improve the voyage expenses. Since the company added new vessels to its fleet, its total voyage expenses will rise in the coming quarters. However, lower bunker fuel prices will push the voyage expense-to-revenue ratio down more. It will increase the company’s profit margin.
Growth in net revenue
The net revenue for crude tanker companies is calculated as the revenue minus the voyage expenses. Due to a fall in the voyage expenses, the company’s net revenue in 3Q15 is 63% higher compared to 3Q14. In 3Q14, its revenue was only higher by 7%.
Vessel operating expenses
All crude tanker companies like Frontline (FRO), Teekay Tankers (TNK), Euronav (EURN), Tsakos Energy Navigation (TNP), and DHT Holdings (DHT) incur vessel operating expenses whether they operate their vessels in the spot market or fixed market.
Nordic American Tankers’ vessel operating expenses fell to $15.7 million in the third quarter compared to $16.8 million in the previous quarter and $16 million in 3Q14.
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