Ships scheduled to dry dock after September of 2017 will have to be retrofit with Ballast Systems, as tanker fleet profile will start to deteriorate

The average age of the tanker fleet will rapidly start to go upwards as we edge closer to the end of the current decade, which, provided the proper circumstances could help alleviate any long-term tonnage oversupply concerns. This, coupled with the implications of the ratification of the Ballast Water Management Convention (BWM) could trigger even more demolition candidates. In its latest report, shipbroker Gibson pointed out that tankers which are able to dry dock prior to this date will not have to fit a BWM system until their special survey after September 2017 and are thus likely to continue trading for the time being. However, the focus has to be on ships which are due to dry dock after September 2017, and thus will be required to fit BWM systems.

Going forwards, Gibson noted that “the current tanker fleet age profile will start to change, with more vessels approaching scrapping age. Today, 85% of the fleet falls below 15 years of age, with 62% below 10 years. However, over the next 5 years we will see an increasing number of tankers becoming over 10 years old. By 2020, around 50% of the fleet will still fall below 10 years of age (vs. 62% today); however, the percentage of 11-15 year olds will increase substantially from around 15% currently (depending on the sector) to around 35%. There will also be a growing number of tankers crossing into the 15-20 and over 20 age brackets”.

According to the shipbroker, “whilst one might argue that the fleet will remain well balanced in terms of its age profile, one has to consider the drivers of scrapping over the period. Firstly, new regulations. From September 2017, the requirement for vessels to a BWM system at their next dry docking will create an additional and significant cost that will need to be recouped in the market. Equally there is potential for further regulations to be introduced towards the end of the decade. The IMO is expected to reach a decision regarding the Sulphur content of bunker fuels this October. Should the IMO decide to implement the specification change in 2020, then owners can expect fuel costs to rise substantially. The alternative is to invest in expensive and unproven abatement systems (scrubbers). This, together with the cost of installing a new BWM system may force many owners down the scrapping route”, said Gibson.

It added that “much could depend of course on the prevailing freight market conditions that coincide with owners having to make the investment decision. Our projections indicate that tanker earnings could bottom out over the next few years before recovering in the latter stages of the decade, therefore we may see a heavy period of scrapping in 2018/19. If owners believe that there will be a phase out of older, less fuel efficient tonnage, lacking ballast water systems, then it could soon become attractive to invest in replacement tonnage. However, nothing is set in stone. We are already learning of potential loopholes which could see owners avoid having to fit a BWM system until 5 years after implementation (2022). These holes could soon be closed and we need to wait for the outcome of the IMO’s decision regarding global sulphur limits. However, if both regulations are confirmed, with no legal loopholes, scrapping could rise to levels not seen since 2010, incentivising investment in new tonnage”, Gibson concluded.

Meanwhile, in the crude tanker market this week, in the Middle East, Gibson said that “VLCC Owners have had very little to play with this week as holidays in the East badly effected enquiry putting Owners on a more defensive footing. The over abundance of tonnage remaining in September will ensure Charterers starting on their first decade October positions will have little to fear. Current levels remain in the low ws 30’s on 270,000mt going East and in the low ws 20’s on 280.000mt for a voyage West. A fragmented working week for Suezmax tonnage has seen a build-up of vessels open off prompt dates. In turn levels have softened to 140,000mt x low ws 30’s for West discharge. With a firmer West market we are likely to see vessels ballasting out of the East. Aframaxes East of Suez saw an uptick in activity this week – but rates in AG and Far East remained range bound, even on replacement or challenged cargoes. Premiums only being seen for Iran business currently, although these are declining in value. The weak Suezmax makert in the East will block off any immediate hope Aframax Owners may have had that the larger sizes would help uplift the Aframaxes. Last done for a voyage AG/East is 80,000mt X ws 60.

Source: Nikos Roussanoglou, Hellenic Shipping News Worldwide