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Tanker Shipping & Trade

Expect more market rationalisation, but don’t worry, the good times are not over

Thu 08 Feb 2018 by Barry Luthwaite

Expect more market rationalisation, but don’t worry, the good times are not over
The wheel of fortune is now spinning in favour of both owner and shipbuilder, with an order backlog of 948 tankers

Expect more market rationalisation, but don’t worry, the good times are not over

Following a two-year bullish market there is a consensus of opinion that 2018 will be a year of consolidation of gains – but the good times are not over. Global trade is growing and giving rise to optimism. The year got off to a good start with reasonable charter rates for tankers, and oil majors offering longer charters. The price of oil has risen to US$70 a barrel, its highest level for three years. The price could inch higher after more cutbacks in output by OPEC members. Tanker owners have reasons to be encouraged that another good year is underway. That said, bunker charges will increase due to the rising price of oil.

Contrary to expectations shipyards still have a healthy intake of business. Owners are buoyed by the fact that with tougher emission controls and other environmental measures legally enforceable from the start of 2020, non-compliant owners will be caught out. With tier III engine newbuildings facing rises of US$1-3 million, owners will welcome a more level playing field.

The consensus is that there will be a large volume of recycling by owners of older tonnage as their vessels become more uncompetitive. Charterers are at last getting the message that modern vessels with legislative compliance are key to global trading. The market is identifying several fleet replacement programmes: a two-year run from now is ideal for ships to begin trading when older vessels face disposal in early 2020. Another factor is that we are approaching a maximum 15-year lifespan for tankers, which was unheard of just a few years ago. The climate is changing fast and much for the better.

Tankers were the saviour of many shipyards in the wake of the bulk carrier drought, but now normal order intakes have resumed for the latter, giving builders a much-needed boost. Debts are being reduced. With bankruptcies and mergers having dominated the headlines in 2017, a settling-down period has begun. There are now much more rigorous checks on validity of construction, for the sake of the health of the shipyard. The number of cancellations in 2016 and 2017 were the highest since the years immediately following the financial crash nearly a decade ago.  

All segments of the wet trades are doing alright, though it is very difficult for small owners to survive in the wet trades. Newbuilding investment, especially by Greece and China, still continues apace. Prices are beginning to move up, but only slowly. Banks have suddenly taken an interest once more in owner financing, but loyalty may be in short supply if a recession hits again. There is evidence that some owners are eying opportunities for asset play in the future. Orders placed at today’s prices will inevitably appreciate between now and 2020, which could prove an interesting year indeed. Some argue that there is too much interference from legislators, but if it means more vigorous environmental protection this can only be a good thing.

Tanker supremacy in overall terms is underlined by the fact that the 13-month period from the start of 2017 to the end of January 2018 saw the delivery of 444 vessels aggregating 41,735,374 dwt (as opposed to 392 totalling 33,072,162 dwt in the whole of calendar 2016). The plethora of deliveries is having its own impact alongside new newbuilding contracts. In the same period 340 new ships were ordered, but the gap is at its highest since the financial crash and will widen further in the months ahead. This statistic alone is evidence in support of the tanker revival. It is interesting to note that 33 vessels have already been delivered in 2018. This expansion pace would mean around 396 additions by the end of 2018, so the momentum should prevail.

Consolidation of shipyard performance is still very much in evidence. STX  Offshore and Sungdong Shipbuilding, two builders in trouble, are in the ‘last chance saloon,’ and state-owned export credit agency Export-Import Bank of Korea (Eximbank) is calling for more mergers or capacity sales. Eximbank controls Sungdong, while STX is still under the supervision control of Korea Development Bank. Both builders have suffered serious financial problems, with STX having entered receivership for a second time in 2016. Noted for their tanker construction, both builders were ordered by creditors to conduct due diligence examinations. This resulted in many tanker cancellations, with owners given enforced cancellation ultimatums. Only vessels already started were saved. In some cases more money was sought if the contracts were loss making.

Sungdong’s orderbook emptied and today the Tonyeong site only holds five Aframax tankers for Kyklades Maritime. Deliveries will run from September 2018 to May 2019. These are the only vessels on the books, but if stability holds the Greek owner will be rewarded with early deliveries. With presumed creditor guarantees this could be a worthwhile gamble, and marks a return to crude transport for the first time in seven years by the owner.

STX Offshore has received the go-ahead to accept orders again at higher prices, and cashed in on the ordering frenzy last year. Fifteen product and chemical tankers are committed for delivery between February 2018 and June 2019. For owners there is the bonus of early deliveries due to the slimmed-down orderbook. This is scant consolation to those owners, including BP, that were told to cull their ships. Hidden within the current orderbook, though, are recurring delays due to liquidation problems.

There is evidence of more orders being placed in smaller sizes for crude transport only. Chinese coastal traffic requirements are accounting for several, while others for overseas owners fill a void in the Panamax and Aframax sizes to serve smaller ports where there is sufficient demand for regular crude imports. Numbers will remain small as owners of these types prefer the option of coated tanks for versatility of clean and dirty products trading.

Greek-domiciled owners remain the top contractors, with 147 vessels on order aggregating 21,410,772 dwt. Most striking is the advance of Japan, which is the third-largest investor, accounting for 102 vessels aggregating 9,497,197 dwt. The smaller dwt figure is explained by its core trading areas of products and chemicals. Japan has rebounded strongly to regain its former supremacy in the products sector after being forced to cull fleets following the financial crash. Moves are underway to replenish VLCC and Suezmax fleets as COAs from the major utility companies come up for renewal. The wheel of fortune is now spinning in favour of both owner and shipbuilder, with an order backlog of 948 tankers aggregating 86,511,463 dwt underlining understandable optimism for a continuing smooth road ahead.

TANKERS ON ORDER    
Vessel type no dwt
Aframax crude 10 1,142,000
Aframax LR2 141 15,394,515
Handymax MR2 192 9,401,181
Handysize MR1 116 3,123,934
Medium chemical 52 829,497
Medium products 33 730,150
Medium tanker 14 220,217
Panamax crude 5 336,800
Panamax LR1 36 2,641,948
Small chemical 44 315,789
Small products 74 468,584
Small tanker 19 88,400
Suezmax 95 14,862,751
VLCC 117 36,955,697
Total 948 86,511,463
     
Shipbuilder country no dwt
China 356 29,196,335
Korea (South) 260 36,670,193
Japan 188 14,582,451
Vietnam 31 1,365,646
Russian Federation 27 735,142
Brazil 23 1,112,200
Indonesia 12 139,500
Turkey 10 140,600
Spain 9 970,000
Romania 7 360,900
Philippines 5 778,000
Croatia 4 194,000
Netherlands 4 31,996
Argentina 3 141,000
Azerbaijan 2 16,000
Bulgaria 2 5,500
Hong Kong 2 28,000
Undisclosed 2 27,000
Pakistan 1 17,000
Total 948 86,511,463
     
     
Shipowner country no dwt
Greece 147 21,410,772
China 132 17,276,916
Japan 102 9,497,197
Singapore 99 6,881,812
Denmark 45 2,708,200
Undisclosed 45 2,066,041
Korea (South) 39 3,398,700
Norway 38 3,448,105
Russian Federation 35 1,505,713
Sweden 24 366,394
Brazil 23 1,112,200
Hong Kong 22 2,167,000
United Kingdom 21 1,507,050
Germany 17 677,258
Belgium 16 1,385,484
Indonesia 12 136,500
Italy 10 449,248
Monaco 10 1,656,980
USA 9 1,245,650
Netherlands 8 478,700
Saudi Arabia 8 1,620,000
Spain 8 1,000,000
Canada 7 800,000
Taiwan 7 421,000
Turkey 7 400,500
Iran 6 294,000
Romania 6 246,000
Bermuda 5 699,000
United Arab Emirates 5 201,127
Azerbaijan 4 30,060
Croatia 4 329,000
France 4 115,900
Bangladesh 3 117,000
Switzerland 3 65,400
Venezuela 3 141,000
Egypt 2 313,778
Finland 2 210,178
Malaysia 2 13,000
Thailand 2 6,000
New Zealand 1 23,000
Pakistan 1 17,000
Vietnam 2 52,600
Total 948 86,511,463
     
TANKERS CONTRACTED JANUARY 2017 TO JANUARY 2018   
Vessel type no dwt
Aframax crude 3 342,000
Aframax LR2 48 5,166,336
Handymax MR2 72 3,582,551
Handysize MR1 32 860,952
Medium chemical 28 411,700
Medium products 15 405,800
Panamax crude 5 336,800
Panamax LR1 3 229,000
Small chemical 22 173,699
Small products 16 88,961
Suezmax 33 5,132,256
VLCC 63 19,927,324
Total 340 36,657,379
     
TANKERS DELIVERED SINCE JANUARY 2017    
Vessel type no dwt
Aframax crude 2 225,700
Aframax LR2 78 8,421,990
Handymax MR2 89 4,156,354
Handysize MR1 37 1,034,396
Medium chemical 14 203,627
Medium products 9 137,601
Medium tanker 4 195,217
Panamax crude 3 202,645
Panamax LR1 10 738,823
Small chemical 13 84,865
Small products 55 260,834
Small tanker 16 89,375
Suezmax 60 9,435,720
VLCC 54 16,548,227
Total 444 41,735,374

 

Expected delivery year Total 2018 2019 2020 2021 2022
Vessel type no dwt no no no no no
Aframax crude 10 1,142,000 3 4 3    
Aframax LR2 141 15,394,515 84 44 10 3  
Handymax MR2 192 9,401,181 92 72 21 6 1
Handysize MR1 116 3,123,934 61 36 16 3  
Medium chemical 52 829,497 31 15 6    
Medium products 33 730,150 22 11      
Medium tanker 14 220,217 9 5      
Panamax crude 5 336,800     5    
Panamax LR1 36 2,641,948 33 2 1    
Small chemical 44 315,789 26 16 2    
Small products 74 468,584 68 6      
Small tanker 19 88,400 17 1 1    
Suezmax 95 14,862,751 61 30 4    
VLCC 117 36,955,697 56 50 9 2  
Total 948 86,511,463 563 292 78 14 1

Source for all figures in these tables: BRL Shipping Consultants. Data as at 2 February 2018

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