Where Are The Five-year-old VLCCs?

Credit: Teekay Tankers

Vanishing act: what has happened to all the five-year old VLCCs?, intrigues a Riviera.

State of the VLCC orderbook

Charterers should be seriously concerned at the state of the VLCC orderbook, which suggests a near inability to charter a five-year old vessel in the years to come.

The lack of investment in the VLCC tanker fleet means there will be very few young vessels available in the latter half of the 2020s. Indeed, this year is the last to have a significant number of deliveries. So far, 11 VLCCs have been delivered, with another 15 expected to be delivered by the end of the year. In theory, this indicates there will only by 26 five-year old VLCCs in the fleet in 2028. Very few, if any, of the VLCCs due for delivery in 2023 are speculative orders and are likely to be fully employed.

Post 2023, the situation is even worst. No VLCC orders have been added to the orderbook since August 2022, when MOL contracted two VLCCs at Dalian COSCO. These are the only two VLCCs newbuildings officially scheduled for delivery after the end of 2023.

The reasons for this lack of investment in new VLCCs is well documented: a lack of readily available zero- or net-zero-carbon emission propulsion systems for larger ships; the lack of commitment from charterers; a lack of designs; and a fear of stranded assets. In its annual report, Teekay Tankers noted that it expected very low levels of new tanker deliveries over the next two to three years, with little scope to add to the orderbook during this timeframe as shipyards are largely full through the second half of 2025. This is due to the record amount of container ship and LNG carrier orders placed over the past two years.

VesselsValue estimates the VLCC orderbook is only 1.9% of the current fleet. Without a surge in newbuilding orders, the VLCC market of the late 2020s will be one of almost unimaginable earnings, with six figures per day being the norm and seven figures per day likely at peak periods.

If, by the end of the 2020s, the modern VLCC is as rare as a ULCC is today, the burden of the long-haul trades will fall on the Suezmax sector. Numerically, this appears healthier, with 30 tankers on the orderbook, but again, post-2023 the outlook is shallow: only nine are due for delivery in 2024 and 10 in 2025.

However, the picture may be changing. Between January and February 2023, seven Suezmax were added to the orderbook. Contracts were signed by Greek owners and operators Tsakos Shipping (two vessels at HHI at US$85M each) and Enterprise Shipping (two vessels at DH Shipbuilding at US$70M). The price difference reflects the specification. Swiss-based Advantage Tankers (Nazli Karamehmet Williams) placed an order for US$79M at Daehan, according to VesselsValue. The Suezmax tanker orderbook is now 4.4% of the current fleet.

January and February 2023 witnessed 11 Aframax-sized tankers added to the orderbook, split between uncoated and coated varieties. Of the uncoated vessels, Seatankers Management (John Fredriksen) of Cyprus placed an order for two Aframax tankers plus an option for one at Dalian Shipbuilding, for a reported US$59.5M; TMS of Greece (Economou Group) placed an order for three at COSCO Shipbuilding, at US$60M.

The five coated LR1 orders were all placed at Shanghai Waigao and consisted of three for Thenamaris (Nikolas Martinos) at US$63.5M each and two at the same price for commodity trader turned beneficial shipowner, Vitol.

Erik Thun

One of the most active contactors of tankers is Erik Thun, which announced a further six tanker contracts at Feris Smit, bringing the total number of vessels built at the yard for the company to over 40. The 7,999 dwt R-class vessels will be delivered from 2024 onwards.

Thun Tankers chief commercial officer, Joakim Lund said: “The scope for the R-Class series have been to build the most resource-efficient vessels available for the trade, with minimal environmental impact. Thun’s long experience of building high performing quality vessels has been used in the design process. We have been combining this with a number of new features to further widen the offer towards our clients, while reducing our climate footprint.”

Also apparent from the sale and purchase activity in January and February 2023 is that sales for recycling/demolition of large tankers have come to a halt. For shipping analysts this creates a dilemma – a fleet growth model incorporates an estimate for deletions from the fleet. These are usually based on the average age of vessels sold for scrap and adjusted around the expectation that a large percentage of scrapping candidates are removed.

But scrapping of large vessels is virtually zero at present, even though the current price of steel scrap in the Indian sub-continent is firm. Instead, the so called ‘Dark Fleet’ continues to expand. In January and February 2023, the average age of VLCCs sold in the second-hand market was over 17 years’ old, at an average price of US$50M. The majority of buyers were of the undisclosed variety; hence, the ‘Dark Fleet’ monicker.

It is noticeable that public listed companies in the shipping space are now distancing themselves from any future fallout that may come from dealing with the ‘opaque’ entities that are buying and operating tankers and servicing the movement of sanctioned crude oil, oil products and case.

The world’s largest shipbroker, Clarksons, noted in its 2022 annual report that it had spent a lot of time and money building a thorough Know-Your-Client infrastructure. Clarksons chairman Andi Case fired a warning shot to those brokers that have handled ‘Dark Fleet’ transactions, noting that one day they may “expect a knock on the door.”



Did you subscribe to our newsletter?

It’s free! Click here to subscribe!

Source: Riviera


This site uses Akismet to reduce spam. Learn how your comment data is processed.