- The VLCC market is seeing an increase in the nominal fleet size, but the effective capacity is growing at a slower rate due to older vessels being less efficient and many operating well beyond their typical lifespan.
- The rise of the “dark fleet,” where older ships are used in less regulated trades, is also contributing to fewer ship retirements, further hindering the fleet’s efficiency.
- Despite the expected delivery of 68 new VLCCs in the coming years, the ageing fleet will continue to constrain effective supply growth, potentially driving up freight prices.
According to Breakwave Advisors, the VLCC (Very Large Crude Carrier) market is undergoing significant changes. Although the overall number of ships in the fleet has increased due to newbuilds and the retention of older vessels, the efficiency of these older ships is diminishing, slowing the overall growth of effective fleet capacity. The emergence of the “dark fleet,” where older vessels operate in less regulated areas, particularly transporting oil from countries under sanctions, further complicates the situation.
The Rise of Older VLCCs Operating Beyond Their Lifespan
Traditionally, VLCCs were retired after 18-20 years of service, often scrapped or repurposed for storage. However, this pattern has shifted. Many older ships are now being used for sanctioned trades, allowing them to continue operating far beyond their typical retirement age. It is now common to see ships operating well into their mid-20s, with some even trading until they are 25 years old or older.
Efficiency Declines with Age
While these older vessels can still function, they are not as efficient as newer ships. VLCCs up to 18 years old typically complete around five voyages per year. These younger vessels tend to operate in the Atlantic Basin, where regulations are stricter and voyages are longer. In contrast, older ships often serve shorter routes, particularly between the Middle East and the Far East, allowing them to increase their voyage count to around six per year. However, after 18 years, their efficiency declines sharply, with vessels between 18 and 25 years old losing about 10% of their utilisation capacity each year. This decline is even steeper for ships not involved in sanctioned trades, with their utilisation dropping to nearly zero by the age of 20 due to a lack of mainstream charterer acceptance.
Impact on Effective Fleet Capacity
The ageing fleet’s impact on the market is significant. While the nominal number of VLCCs has increased by more than 100 units in the last five years, the actual increase in effective fleet capacity, taking into account the declining efficiency of older ships, has been much lower, around the equivalent of 60 ships. This highlights the importance of considering not just the number of ships in operation, but also their age, trading patterns, and operational efficiency when assessing the true state of the VLCC market.
Outlook: Supply Tightness and Potential Freight Price Increases
Looking ahead, the trend of declining effective fleet capacity is expected to persist. Even with the delivery of 68 new VLCCs in the next three years, representing an 8% increase in nominal fleet capacity, the actual increase in effective capacity will be much smaller, around just 1%. The growing age imbalance in the fleet means the VLCC market will likely experience a prolonged period of supply tightness. As a result, competition for available tonnage will intensify, particularly in the mainstream market, which could drive freight prices upward.
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Source: Breakwave Advisors
