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Tanker Shipping & Trade

Tanker Shipping & Trade

A resurgent industry is poised for more tanker business

Thu 12 Oct 2017 by Barry Luthwaite

A resurgent industry is poised for more tanker business
A rejuvenated and rationalised Chinese newbuilding sector is gearing up again to attract more orders

What a difference a year makes. The signs are China has put its house in order and is now ready to win more international tanker business

A year ago, China was struggling with mounting economic problems and a loss of confidence among owners in the stability of its shipbuilding industry. All that has changed: China has got to grips with its problems and is implementing changes that will make a real difference to international trading. Such problems stalled the impressive expansion of the domestic tanker fleet. Although the domestic mercantile programme is progressing, it now takes second place on the government’s agenda as a plethora of export tanker business revives the shipbuilding industry. There is more confidence in the air as China finally begins to cut debts and adopt a strict audit policy from the so-called ‘white list’ of healthy shipyards. More worrying, perhaps, is the state’s acquisition of all the medium and large shipyards (only one privately owned builder remains).

What a difference a year makes. Tanker owners have returned with confidence, safe in the knowledge of prompt receipt of refund guarantees and continuing low prices. New financial inducements to order are apparent. Mergers of shipyards and dissolution of others has moved China toward a more streamlined and competitive industry. With debt problems in South Korea and higher priced ships in Japan (due to the strengthening of the yen against the US dollar), conditions are ideal for a Chinese revival.

With the dry bulk collapse, the Chinese Government has been forced to instruct shipbuilders to chase tanker orders and capitalise on buoyant owners that have money to spend on account of the bullish trading climate. The emphasis has switched from domestic to export business. The strength of Chinese output is underlined by a tanker backlog of 346 vessels, which will eventually commission 30,031,606 dwt into the global trading fleet. From this figure only 86 units (aggregating 13,048,450 dwt) are destined for the Chinese-domiciled fleet, leaving 260 tankers totalling 16,983,156 dwt for export delivery. These are filling capacity as far ahead as 2020.

In the first six months of 2017, the Chinese Government supplied US$17.7M to the construction industry, largely intended to support development of new ship designs. The biggest sum went toward projecting designs for large oil tankers to be built at Shanghai Waigaoqiao Shipbuilding, as a switch away from building Cape bulk carriers. The country had previously been preoccupied with the China VLCC programme, which has seen a consortium of domestic owners come together and own, among them, some 50 VLCCs, of which 15 have been delivered. The idea is to increase self-sufficiency and be less dependent on charter tonnage. Now the hunt is on for more export VLCC business. Already 10 vessels are committed for overseas owners. Some Japanese owners are looking to order VLCCs if prices are too high at home. In a year’s time Nantong COSCO KHI (NACKS) will deliver to Mitsui OSK a VLCC that has been on order since 2015.

With banks withdrawing from the financing of ships due to hard times and lack of long-term faith in shipping, investment owners have to look elsewhere for funding. Private equity is also in sharp retreat. Around the world Chinese Government finance is providing a lifeline, and not necessarily for ships that must be built in China. It used to be the Export-Import Bank of China leading the way, but in recent months all that has changed in favour of leasing deals. This practice provides a win-win deal for owner and lessor. Basically, Chinese leasing subsidiaries of shipyard groups provide finance on a long-term charter basis, with purchase options at a later date or on expiry of bareboat charter. The lessor takes a share of the vessel earnings as a contribution to loans.

The main proponent of this scheme is Bank of Communications Financial Leasing (BoCom FL), which becomes nominal owners of the vessels involved. The BoCom FL leasing initiative has spread its wings outside China: financial assistance has been granted to ships on order in South Korea. To date, few Chinese owners appear to have used this method. BoCom FL is financing 28 tankers: 12 Suezmax, six Handymax, six medium products, and four Aframax. Of these, only four Suezmaxes and four Aframaxes are being constructed in China. The balance are all on order in South Korea. BoCom FL will soon be joined by CSIC Leasing, a division of China Shipbuilding Corp. Minsheng Financial Leasing and CSSC Leasing also have loan deals with tankers on order. The latter is the leasing arm of China State Shipbuilding Corp.

China’s existing tanker fleet remains at a modest 454 vessels, aggregating 32,469,080 dwt. VLCCs number 56, product carriers 174 and chemical tankers 111. The total of 86 vessels on order for the domestic fleet is dominated by 31 VLCCs for delivery up to 2020. Unit wise, the leading owners for trading vessels are Sinochem (47), China Shipping Tankers (41), COSCO Dalian (39), Nanjing Tanker Corp (37) and China Shipping Development (25). China is slowly turning its attention to cabotage, with a number of small and medium size product tankers planned or on order to provide coastal tanker voyages and serve Hong Kong.  

The statistics here only cover owners with head offices in mainland China. The merchant fleet is actually larger because increasing numbers of ships are operated out of Hong Kong or Singapore. Unofficially, there is understood to be a more free-trade atmosphere, with Singapore an established broking and fixture hub for tanker business. Overseas registration is increasingly used by Chinese owners. Links and partnerships with overseas owners are being pursued as Chinese fleets build in strength.

China is building up a formidable chemical and product carrier fleet. Leading the way is highly ambitious Sinochem, which has ambitions to be one of the world’s leading players, rivalling traditional Scandinavian and European operators. The company is by far the largest chemical operator in China, with 68 vessels (nine of which are under a joint basis with Stolt-Nielsen). Sinochem has more newbuildings on order, and plans VLCCs. The owner also picks up high-quality secondhand tonnage where appropriate. There is a gradual move to transfer all technical management from Shanghai to Singapore under the guise of AOX Singapore because of the size of the fleet. Cosco Group and China Shipping Group have merged to form China Cosco Shipping, advancing consolidation. China is exporting a lot of chemical products to India and southeast Asia.

With the mergers kicking in and the industry settling down, China will move forward with more expansion. Few domestic owners order overseas, so more domestic orders can be expected. The hunger for export business will continue. It is clear that faith will be placed in the wet trades and not the bulk carriers that gave the nation’s shipbuilding industry the serious problems from which it is only now recovering.

TOTAL ORDERBOOK FOR CHINESE SHIPYARDS  
Vessel type no dwt
Aframax 53 5,948,212
Handymax 55 2,675,498
Handysize 52 1,514,300
Medium chemical 22 418,200
Medium products 5 93,900
Medium tanker 12 187,217
Panamax 23 1,689,000
Small chemical 13 100,690
Small products 16 97,662
Small tanker 27 161,298
Suezmax 27 4,239,909
VLCC 41 12,905,720
Total 346 30,031,606
     
TANKERS ON ORDER IN CHINA FOR DOMESTIC OWNERS  
     
Vessel type no dwt
Aframax 9 1,025,000
Handymax 5 255,000
Handysize 4 147,000
Medium chemical 2 41,000
Medium products 3 57,900
Medium tanker 3 39,000
Panamax 5 358,000
Small chemical 3 17,990
Small products 3 15,500
Small tanker 10 70,060
Suezmax 8 1,280,000
VLCC 31 9,742,000
Total 86 13,048,450
     
TANKERS ON ORDER IN CHINA FOR EXPORT OWNERS  
     
Vessel type no dwt
Aframax 44 4,923,212
Handymax 50 2,420,498
Handysize 48 1,367,300
Medium chemical 20 377,200
Medium products 2 36,000
Medium tanker 9 148,217
Panamax 18 1,331,000
Small chemical 10 82,700
Small products 13 82,162
Small tanker 17 91,238
Suezmax 19 2,959,909
VLCC 10 3,163,720
Total 260 16,983,156
     
Shipowner country no dwt
Bangladesh 3 117,000
Denmark 47 2,873,199
France 2 15,900
Germany 16 580,417
Greece 51 6,411,900
Hong Kong 15 713,000
Indonesia 2 10,000
Japan 7 1,132,520
Korea (South) 8 617,000
Malaysia 2 13,000
Netherlands 2 12,100
Norway 18 949,709
Russian Federation 2 14,080
Saudi Arabia 4 340,000
Singapore 36 1,086,707
Spain 1 12,500
Sweden 21 473,297
Taiwan 3 150,000
Undisclosed 3 62,500
United Arab Emirates 7 841,127
United Kingdom 6 429,600
USA 2 75,000
Total 260 16,983,156

 

Source for all figures in these tables: BRL Shipping Consultants. Data as at 4 October 2017

 

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