Tanker rates expected to fall as capacity increases

By: | Issue #624 | at 10:00 AM | Channel(s): Energy News  Maritime  Liner Shipping  

Tankers are currently the most profitable vessels in shipping, with freight rates higher compared with other sectors. Four factors led to the big leap in tanker earnings in 2015, according to Drewry, the London-based maritime consultancy: strong growth in oil trade, sluggish expansion of the fleet, a sharp increase in floating storage, and lower bunker prices.

IHS Maritime and Trade predicts rates will stay steady for the next 18 months despite a delivery boom scheduled for late 2016. IHS experts believe the industry can absorb the extra tonnage and that fleet growth will not outstrip demand in the next eight months.

But Drewry predicts that tanker rates will fall later this year as tonnage increases. Drewry accepts tanker-shipping rates to remain firm during the first half of 2016, but with the influx of tonnage these rates are expected to soften towards the end of the year.

“Fleet growth in the third and fourth quarters of 2016 is predicted to rise sharply,” said Devlin McStay, a data analyst at IHS Maritime and Trade. “Already this year significant growth has been recorded.” January saw nearly 40 tankers come into service, ranging from bunker, bitumen, and asphalt carriers of a few thousand tons to the 300,000 dwt Chinese-built crude oil tanker Gener8 Supreme.

Product, chemical, and chemical/product tankers accounted for 24 deliveries, totaling 894,000 dead weight tons. The largest vessels delivered other than crude oil tankers were two Navig8-owned panamax vessels. The smallest in the group was a Chinese-built Handysize of 17,000 dwt owned by Eurotanker Maritime Management. Ten MR2 tankers totaling 486,000 dwt were delivered in January, while very large crude carriers (VLCCs) accounted for 1.8 million dwt.

“Korea dominates the tanker newbuilding sector,” noted McStay, “with China and Japan coming in second and third respectively. China’s single VLCC accounts for nearly half its total delivered tonnage.”

Tonnage supply, which has increased at a slow pace in recent years, is expected to accelerate in the next two years with deliveries of product as well as crude tankers. Tonnage demand is expected to increase only at a modest pace in the next two years, as the growth in oil trade will be sluggish, according to Drewry. As a result, tonnage utilization in the tanker market is expected to decline from the highs seen in 2015 with stronger growth in vessel supply than in demand.

The high freight rates the tanker market has seen in recent times are therefore likely to decrease beginning this year, according to Drewry, as vessel demand is forecast to decline.

“Low crude prices resulted in high refinery runs and stocking activity, which in turn caused a surge in both crude and products inventories,” said Rajesh Verma, Drewry’s lead analyst for tanker shipping. “Soaring inventory is expected to curb trade growth in 2016, as it will reduce the needs for imports.

With the resultant decline in tonnage utilization, freight rates are expected to fall in the next two years.”

“We may now be at the high point for tankers within a seven-year cycle,” said McStay. “But it could be downhill from now for the best part of a decade.”

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American Journal of Transportation

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Peter Buxbaum has been writing about international trade and transportation, as well as security, defense, technology, and foreign policy, for over 20 years. Besides contributing to the AJOT, Buxbaum's work has appeared in such leading publications as [em]Fortune, Forbes, Chief Executive, Computerworld, and Jane's Defence Weekly[/em]. He was educated at Columbia University.