- Cascading regulatory costs continue to weigh on the shipping industry, with IMO, EU, and regional rules raising compliance expenses.
- Crude and product tanker markets show mixed momentum, with Asia seeing Aframax strength while West Africa and the US Gulf remain subdued.
- Spot rates in several segments have rebounded, though regional differences and regulatory burdens add uncertainty to long-term earnings.
The shipping sector continues to grapple with an escalating series of environmental regulations, beginning with the IMO 2020 sulphur cap and followed by multiple new frameworks. Scrubber installations have provided financial benefits, particularly in Singapore where Eco VLCCs gained an average of $2.3 million annually since 2020. In Rotterdam, however, the advantage was lower at under $1.8 million, reflecting smaller spreads between high sulphur and very low sulphur fuels. Notably, the Hi-5 spread has narrowed to just above $50/tonne in Rotterdam this year, down from nearly $100/tonne in 2023.
Subsequent rules, such as the CII and EEXI introduced in 2023, forced owners to improve efficiency through slow steaming or vessel modifications, with costs particularly impacting older ships. In 2024, the EU ETS imposed further burdens, requiring shipowners to purchase allowances for voyages linked to EU ports. Costs are projected to rise from around $150,000 on a Houston–Rotterdam Aframax voyage this year to nearly $200,000 by 2026.
This year, both FuelEU and the Mediterranean Emission Control Area (ECA) were introduced. The Med ECA enforces sulphur limits of 0.1%, requiring expensive scrubber retrofits or reliance on low-sulphur fuels. Meanwhile, FuelEU tightens GHG intensity thresholds, with compliance costs for TD25 voyages expected to rise from $35,000 today to $250,000 by 2035.
The IMO Net Zero Framework, proposed in April 2025, adds yet another layer, introducing a carbon trading mechanism rewarding low-emission ships while penalising heavy emitters. If approved at the October 2025 MEPC meeting, costs for a VLCC running AG–China could reach nearly $1 million by 2035, with LNG itself becoming noncompliant after 2031.
Crude Oil Market Developments
East of Suez
The AG VLCC market opened the week sluggishly, with little fresh enquiry and rates holding flat before slipping back to levels seen 10 days earlier, assessed at AG/China WS61 and AG/USG WS35. In contrast, the AG Suezmax market retained strength, with early September demand pushing TD23 to WS60 and East runs quoted near WS120. Aframax activity surged in Asia at the end of August, with rates up by WS15 on TD14 and Indo/North assessed at WS122.5, supported by Chinese tax rebates stimulating fuel oil demand.
West Africa
The WAF VLCC market remained muted with few fixtures but steady rates, assessed at WS65 for WAF/East. Suezmax activity was equally quiet, though TD20 slipped to WS107.5 as ballasters provided charterers with options.
Mediterranean
Suezmaxes softened slightly, with TD6 around WS142.5 though CPC routes briefly hit WS145. Aframax rates fell early in the week but later stabilized after an influx of offers, with owners hopeful this marks the cycle bottom.
US Gulf and Latin America
The VLCC market in the US Gulf maintained a steady tone, with fixtures keeping sentiment firm despite limited enquiry. Rates held at $8.5m for USG/China and $3.8m for USG/UKC. In Brazil, exports remained flat with little momentum for improvement.
North Sea
Aframax owners maintained gains from last week, with steady fixing keeping levels around WS140. The market appears stable moving into September.
Clean Products
East of Suez
LR1s corrected lower early in the week, dropping to WS150, while LR2s remained firm, keeping TC1 stable at WS145 and later pushing TC5 back above WS160. A flurry of AG MR activity in the latter half of the week lifted TC12 into the 170s, while TC17 also climbed as tight lists supported owners.
UK Continent
Transatlantic CPP rates slipped to WS110, with ethanol at WS105, but levels appear to have found a floor. Handy owners in the North enjoyed stronger levels, closing the week at WS155 for XUKC.
Mediterranean
MR sentiment weakened slightly, with Med–TA down to WS120 and Med–UKC to WS130, though USG market pull could prevent deeper declines. Handies, however, saw rates rebound to WS145 on strong enquiry, with owners optimistic heading into next week.
Dirty Products
Handies in Northwest Europe softened to WS230 as enquiry dried up, while the Med saw similar weakness, slipping to WS215 by week’s end. MRs fared better in the North, with UKC runs fixing at WS167.5 and Baltic cargoes at WS160. In the Med, however, levels slipped to WS152.5, with looming Panamax availability adding pressure. Panamaxes in Europe hovered around WS105–110, while TD21 in the US held steady at WS155.
Rates and Bunker Prices
Spot rates rebounded across several segments this week, with VLCC AG–China at WS67 and earnings up to $51,250/day, compared to $38,750 last week. Aframax TD25 jumped to WS169, delivering $42,750/day. Clean product markets also saw improvements, particularly in AG–Japan and Singapore–Australia routes.
Bunker prices climbed modestly, with Rotterdam VLSFO up $13 to $480/tonne and Singapore at $500/tonne. Fujairah posted the largest gain, rising $21 to $506/tonne.
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Source: Gibson
