- The global tanker industry sees a surge in newbuilds in 2024, driven by high freight rates and robust oil demand.
- Tanker owners capitalize on positive market conditions, prompting an uptick in new vessel orders.
- An aging fleet, with one-third of 200,000+ deadweight tonnage tankers over 15 years, raises environmental concerns amid stricter regulations.
- Anticipated growth in US-Asia crude trade fuels demand, especially for Very Large Crude Carriers (VLCCs).
- Despite expanded Chinese shipyard capacity, insufficient new orders ensure a prolonged appetite for newbuilds, sustaining a robust market with high freight rates.
In response to the current positive market conditions, the tanker industry is undergoing a notable surge in newbuild activity throughout 2024. This surge is primarily fueled by the combination of high freight rates and a resilient global demand for oil and its derivatives.
According to a report from DNV, this trend is expected to persist in the foreseeable future, offering tanker owners a profitable environment. Catrine Vestereng, Business Director Tankers at DNV, highlights the industry’s mood, stating, “Most tanker owners want to take advantage of this positive market environment. However, they realize that they need more vessels to do so, and this is driving a big cycle of investment in newbuilds.”
Aging Fleet Raises Urgency for Replacements
One of the driving factors behind the surge in newbuild activity is the aging state of the current tanker fleet. Approximately one-third of the 200,000+ deadweight tonnage (dwt) tanker fleet is over 15 years old, presenting concerns regarding compliance with environmental regulations.
Vestereng emphasizes the urgency for new tanker orders, pointing out the industry’s need to replace aging vessels, particularly as environmental regulations become more stringent. She notes, “The fleet is getting extremely old, which is a growing issue as environmental regulations get stricter.”
Anticipated Increase in US-Asia Crude Trade Fuels VLCC Orders
The anticipated increase in US-Asia crude trade is contributing to the demand for Very Large Crude Carriers (VLCCs). As longer distances become a key consideration, new orders for VLCCs are expected to rise. Vestereng explains this trend, stating, “With US-Asia crude trade increasing, DNV expects an uptick in orders for very large crude carriers to cover the longer distances.”
Environmental Considerations and Stricter Regulations
Environmental considerations play a crucial role in shaping the industry landscape. Oil majors are imposing age limits on vessels, typically around 15 to 20 years, with a focus on safety and environmental impact. The preference for newer, more fuel-efficient vessels aligns with the industry’s commitment to meeting regulatory requirements and adapting to an evolving regulatory landscape.
Vestereng highlights this perspective, noting, “Most of the oil majors are putting an age limit on the vessels that they will use, usually around 15 to 20 years. Safety is part of this, but environmental considerations are more important.”
Supply Issues and Newbuild Appetite
Despite an expansion in capacity in Chinese shipyards, the rate of new tanker orders remains insufficient to meet the burgeoning demand. This inadequacy ensures that the appetite for newbuilds will continue as long as freight rates remain high. DNV predicts that supply issues will become more pronounced in the years ahead, especially as newbuilds struggle to keep up with an aging and less efficient fleet.
Vestereng notes, “Supply issues are expected to become more accentuated in the years ahead, especially as newbuilds struggle to keep up with a steadily aging and less efficient fleet.”
Rise in Dirty Freight Rates Reflects Market Dynamics
OPEC’s observation of a rise in dirty freight rates in January further underscores the market dynamics. Trade flow disruptions and increased tonnage-mile demand have led to significant month-on-month increases in VLCC spot freight rates on key routes. This reflects the resilience and strength of the current market environment.
OPEC reports indicate a 24% month-on-month increase in VLCC spot freight rates on the Middle East-to-West route and a 5% gain on the Middle East-to-East route. The rise in rates is also evident in suezmax and aframax categories, pointing to the tightening availability lists in these segments.
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Source: Baltic Exchange
