Prospects for Increased Scrapping Threatens Tanker Market


Last year shipbuilders around the globe received orders for 50 million dwt/tonnes, just shy of the total of 51 million achieved in the heady days of 2008.  Thankfully, for the tanker market, orders placed so far this year amount to a mere 50 (25,000 dwt & above) equivalent to 7 million dwt and this is in a record low newbuilding price environment. However, we are also aware of several owners who are considering placing orders either as an investment opportunity or just part of their fleet renewal programmes.


Over the first eight months of this year, deliveries of new tonnage have amounted to 20 million deadweight and according to our records we are scheduled to see 19 million deadweight over the remaining four months.  We do expect to see some slippage; however, slippage just means delayed.  So the delivery profile hangs over the tanker market like a very dark cloud which could remain overhead for some time to come.  The tanker market is scheduled to see a further 37 million deadweight delivered in 2017.  Since the start of the 2016 we have seen a mere 1.4 million deadweight of tanker sales for scrap, hardly surprising given the strength of most tanker markets over the first half of the year and the poor lightweight values on offer.  Another recent support for the VLCC sector has been “operational” storage for both crude and fuel oil which was as high as 38 units in May but has subsequently diminished to 22 (excluding Iranian storage).

So it is difficult to find many positive things to say about the tanker market in the short term.  The announcement yesterday that the Ballast Water Management Convention will finally enter into force from September 2017 will have an impact on the older ships where many may not be considered viable to retrofit in terms of costs versus age and earnings potential.  In all probability, next month we will learn from the IMO the timing of the implementation of the new global sulphur cap for marine fuels.  Many stakeholders believe the global maximum permissible sulphur limit on marine fuel will be 0.5% (lower limits for the ECAs) and implementation will be brought forward to 2020.  Both these pieces of legislation will impact on owners in terms of the expenditure required to comply with these regulations.


The impact of both directorates will enhance the prospects for increased scrapping.  Once again legislation will have a huge impact of fleet numbers going forward, similar to the impact of the introduction of double hulls in the 1990’s.

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Source: Gibson


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