LPG shipping freight rates are to deteriorate further through 2016, as a result of the fast rising fleet of VLGCs, a recent report said.
According to the latest edition of ‘LPG Forecaster’, published by shipping consultancy Drewry, the drop has already started to impact earnings of smaller vessel classes.
VLGC freight rates have been in free-fall since August, 2015, as fleet growth has continued to outpace demand. During this period, as many as 41 VLGCs have been delivered and as a result, spot rates for these vessels touched a six-year low of $25 per tonne in April on the benchmark AG/Japan route.
In line with falling spot rates, VLGC timecharter rates have also come under pressure, averaging $800,000 per month in April, 55% down on the same period last year.
However, the fast expanding VLGC fleet is now impacting LGCs and MGCs, as a larger share of the LPG trade is being carried on VLGCs.
As a result, demand for the two smaller vessel segments has been deteriorating leading to a decline in timecharter rates for these ships.
“At the end of April, 2016 there were 117 vessels on order with each having a cargo carrying capacity of greater than 25,000 cu m. This means that the fleet will continue growing at a rapid pace in the three vessel size segments.
“As demand is not expected to match fleet growth, freight rates are therefore expected to come under further pressure in the months to come,” said Shresth Sharma, Drewry’s senior analyst, gas shipping.