The LR1/Panamax sector has seen a significant decline in investment and demand, with only nine vessels ordered between 2016 and 2022. Despite an aging fleet, future investment remains uncertain due to competition from other vessel classes such as Aframaxes and LR2s, which have shown substantial growth in tonne miles, according to Gibson.
Declining Tonne Miles for LR1/Panamax
Over the past five years, tonne miles for clean LR1s have decreased by 2.5%, while dirty Panamaxes have contracted by 42%. In contrast, clean LR2s and Aframaxes have seen growth, driven by expanding refining capacity in the East and supply chain disruptions from the war in Ukraine.
Impact of Refining and Port Infrastructure
Refining capacity shifts from West to East have favored LR2s, which offer better economies of scale. Additionally, port infrastructure restrictions do not play a major role in LR1 trade, leaving them with few captive markets. Changes in refining and fuel oil flows have further reduced demand for Panamaxes.
Ageing Fleet and Future Supply
The LR1/Panamax fleet is aging, with 16.5% of vessels turning 20 years old by the end of 2024 and a further 33% by 2028. Despite falling demand, the supply side outlook remains supportive of investment, with a large portion of the fleet set to retire soon.
Regional Demand Differences
Demand for Panamaxes has declined in Europe, but Latin America remains a key market, accounting for over 60% of total tonne mile demand for the sector. The expansion of the Panama Canal has also made Aframaxes more competitive for reaching the U.S. West Coast.
Competitive Pressures from Other Vessel Classes
While LR1 and Panamaxes face reduced demand, competition from Aframaxes and LR2s is intensifying. These larger, more efficient vessels are increasingly favored for long-haul voyages, further challenging the relevance of the LR1/Panamax sector.
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Source: Gibson
