Some tankers sectors are again facing a growing risk of oversupply, due to the increase in ordering seen last year, warned a leading London shipbroker.
The last time that there was significant fleet investment was in 2003 and 2008 when the fleet consisted of a number of single hull vessels, which needed replacing, said Gibson Research in a recent report.
In hindsight, too many tankers were orders and today we are suffering from poor earnings and excess tanker capacity, the broking house said.
At first glance, today’s oversupply is unlikely to be impacted by demolition activity, due to a relatively young fleet. For example, some 68% of the tanker fleet is under 10 years of age and a further 19% are between 11 and 15 years of age.
There is still 4% of the Handy/MR fleet which is of single hull construction. The 2015 cut-off date will see more double hull tankers replacing the remaining single hull units.
However, the prolonged weakness in rates across all the sectors has had the effect of pushing younger tankers towards the scrapyards, Gibson said. This change is most in evidence with VLCCs.
Between 2000 and 2009, the average age of tankers sold for demolition was 25 years. However, since 2010, the average age of vessels scrapped is around 18 years and in some cases, we have seen VLCCs as young as 14 years head for the beaches. The move to scrap younger tonnage is being helped by the drive for greater fuel efficiency.
For example, in today’s environment of high bunker prices and low returns, the first generation of double hull tankers are finding it increasingly difficult to compete with younger, more fuel efficient tonnage, Gibson explained.
Another factor that will have a significant bearing on demolition activity going forward is the impending ballast water treatment convention. Just one more major signature is needed to ratify this convention and once it comes into force, some 12 months following its ratification, owners with older tonnage will be faced with the dilemma of expensive refits versus early retirement.
Fuel efficiency, the scale of investment needed to comply with upcoming legislation and the money needed to put tankers through a special survey will all play an increasing role in an owner’s decision whether to recycle his, or her, ship.
Unless tanker earnings increase significantly, these issues will likely lead to a growing number of tankers taking an ‘early retirement’, especially if demolition prices continue at today’s high levels and continue to rise, Gibson concluded.