Tanker vessels face worst moment as trade war lingers
This is definitely not the best of time for tanker vessel owners worldwide, as the tragedy of trade war between the United States (US) and China; about 19-month curtailment of crude cargoes; and environmental regulations that are proving uneconomical, hit hard on the fleet.
The tanker market has been in the doldrums and times have been extremely tough for the crude carriers.
In fact, the rate of tanker scrapping is extremely high to the level witnessed in two decades.
Latest report from Clarkson Research indicated that the number of tankers demolished in the first half of 2018 rose to 110, higher than any full year since 2013.
A total of 102 tankers were scrapped last year, 112 in 2013 and as many as 210 in 2010 and 230 in 1983.
This is even as Vessel Value predicted that Greek tanker owners are most likely to be affected by US sanctions on Iran.
Greek owners dominate exports, with 81 tankers moving Iranian exports since 1st January 2018.
Associate Director, Vessel Value, Claudia Norrgren in a report made available to The Guardian stated: “Given the volatile nature of the Iran-US relations following on from president Donald Trump’s threats to amend and then kill the Iranian nuclear deal, it can be observed that there is a significant drop in total ton mile exports towards the end of 2017, below that of the same period in the previous year.
“The largest export volumes from Iran have consistently been going to China, yet a significant drop off can be observed in December 2017, despite this Chinese imports rebounded thereafter and have been largely stable which falls in line with China’s declaration that it will ignore US sanctions and continue doing business with Iran.”
Considering these developments, a shift of tectonic proportions could be underway in crude and LNG trading, bringing equally big shifts in ton-mile demand for tankers.
Allied Shipbroking also said in its latest weekly report that: “With the “trade war” tensions between the US and China still ongoing and seemingly looking to be escalating over the past week, fourth quarter 2018 prospects for the tanker market have taken a serious hit.
“At the end of last week China’s state oil major announced that its trading arm had suspended oil imports from the United States due to the ongoing trade dispute between the two countries.
Although for the time being this seems to be a temporary halt, the indications are for a complete reversal of the trend we had been following since the start of the year.
Morgan Stanley estimates that the global fleet of called very large crude carriers could lack 100 million barrels of transportation capacity by late 2020.
Fotis Giannakoulis, a New York-based shipping analyst at the bank said: “The more you scrap, the more you bring the recovery forward and accelerate its speed.
The market will strengthen with high scrapping even with smallest growth in demand.”
The industry also faces a sharp escalation in costs.
In 2020, most merchant ships will start using fuel with a maximum sulfur content of 0.5 percent, down from the current 3.5 percent limit in most places, according to a regulation set in October 2016 by the International Maritime Organization, a United Nations agency.
Sulfur emissions are linked to acid rain and medical conditions such as asthma.
To comply, owners can either burn fuel that’s going to cost a lot more, or they can fit vessel engines with expensive exhaust cleaning systems known as scrubbers and continue using high sulfur fuel that’s cheaper.
There are also rules about how to deal with the water ships take on as ballast when they don’t have cargoes.
A scrubber and a new ballast water system cost $5 million to $6 million combined, according to Poten & Partners.
On top of that, mandatory surveys when ships are 15 years and 17 1/2 years old cost $4 million to $5 million.
With scrap steel prices surging, it’s little wonder there’s been a pick up in demolition.
Euronav’s Gallagher said: “Pressure on older large tankers increases as utilization after 15 years of age reduces materially.
This is reflected in even lower rates for this section of market compared to other age categories.”
Very large crude carriers, or VLCCs, are forecast to earn $16,509 a day this year before recovering to $29,750 next year and $38,526 in 2020, according to median estimates of shipping analysts in a survey.