- Recent trends in the global shipping industry reveal a decline in VLCC (Very Large Crude Carrier) mileage due to reduced Atlantic Basin crude exports to Northeast Asia.
- Meanwhile, the Aframax sector in the Atlantic Basin faces challenges due to increased vessel supply and decreased demand on key routes.
- Let’s dive into the details of these developments and their potential impact on the shipping industry.
Declining VLCC Mileage
VLCCs are experiencing shorter average voyage distances due to a decrease in crude oil exports from the Atlantic Basin to Northeast Asia. This trend continued through March, with average voyage mileage dropping for the third consecutive month.
The decline is expected to persist in April, as VLCC departures from the Atlantic Basin to Northeast Asia continue to decrease slightly month-over-month. China is shifting its focus to Middle East crudes, with departures of mainstream Middle East Gulf (MEG) crude grades to China increasing by 15% month-over-month in March.
MEG LR Freight Rates
March saw a record high in Long Range (LR) voyages departing from the Pacific Basin to Europe, including rerouting around the Cape of Good Hope. This has led to increased tonne-miles and volatile freight rates.
However, as intra-Saudi and intra-Middle East flows on LRs decreased in April after the Eid holiday, LR freight rates in the region (TC1, TC5, TC8) faced pressure from reduced demand and high prompt vessel supply. Weakening naphtha margins in Northeast Asia further dampen demand, affecting the LR sector.
Aframax Challenges in the Atlantic Basin
The Aframax freight sector faces challenges in the Atlantic Basin, with rates currently below 2023 averages. Increased vessel supply from the Russian trade re-entering mainstream trade and a decrease in tanker demand on the transatlantic route from the US Gulf to Europe have contributed to the downturn.
The end of US refinery maintenance and increased domestic crude consumption have lowered demand for US crude exports to Europe. Additionally, Europe is importing more sour crude from the Middle East, favoring Suezmax vessels over Aframaxes.
TC2 Rates and Narrow Transatlantic Arbitrage
TC2 rates are capped by narrow transatlantic arbitrage opportunities. High European gasoline prices limit transatlantic gasoline exports despite the seasonal peak in US gasoline demand.
Lower freight rates have led to a limited supply of MR2 vessels ballasting into Wider Northwest Europe (WNWE), constraining overall fleet supply for gasoline exports. Many vessels already in the region are seeking opportunities elsewhere, with voyage counts from WNWE to the Wider Mediterranean rising.
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Source: Breakwave Advisors
