Tankers in a slump
02/09/2016

Tankers in a slump

The change of fortunes in the tanker market has been swift, with demand side of things looking to be trailing behind the increases in tonnage supply, while the crude oil and product markets have been finding it difficult to find a strong foothold from which to spur further demand growth. Much discussed has been the issues being faced in this market on the demand side, most of which have been lingering around for over 6 years now, despite the fact that over the past 24 months these have been overshadowed by the change in pricing policy in both the raw resource (crude oil) as well as in its by-products. The large scale increases in production may well have more than halved the commodity prices we were seeing back in 2014 and may well have boosted temporary consumption and demand as a consequence, yet they have had little success in revamping oil dominance in the energy mix globally and has made limited change in generating new sources of demand. What’s worse is that it has also had very limited slow down effect on efforts that are being made for further progress in energy saving technologies, which moving forward will inevitably cause a compounding dampening effect on future demand growth.
But despite all this it is the fleet growth that may well have overshot the actual prevailing demand prospects, just like in the dry bulk market and as the fleet supply grows further so does the pressure on the market. In the year to date the tanker fleet of vessels above 25,000 dwt has grown by an average of around 3.32%, while this growth has been spread almost completely evenly between the different size segments of the market. It is indicative that between 2011 and 2014 the total tanker fleet had remained relatively unchanged noting an only marginal increase during this time frame, while from November 2014 till today we have seen the fleet growth rapidly increased once again and grown by 6.24% since then. At the same time the orderbook, which was until 2014 on a dropping trend, started to rise, peaking at an orderbook to fleet ratio of 19.34% in January 2016, up from a ratio of 15.87% that it stood back in November 2014. Of course some size segments have seen these trends amplified, with crude carriers such as VLCCs and Suezmaxes noting a larger portion of new orders being placed and a faster paced rise in their respective trading fleets over the past couple of months.
Of course when you put these figures in relation to historical figures of the tanker fleet, they are small in size and un-impressive to say the least. This is to no surprise given the fact that the market had faced considerable issues over the post-financial crisis period and as such had created a large group of owners with a cautious approach to any market upturns. As it seems however, most would likely criticise that tanker owners were not cautious enough. That’s not to say that the supply issue is as immense as that seen in the dry bulk and containership markets, yet it’s not as easy to disregard either. The underlining fact is that in the years between 2009 and 2014 there had been an immense amount of scrapping of older age tonnage that took place in the tanker fleet, which consequently led to a fleet which is very young in age and has limited (if any in the case of the large VLCCs) vessels which are close to or above 20 years of age. This means that if an over excessive oversupply is created it will be very hard to counter and as such is likely to create a longer term dampener on the markets and more extensive losses in earnings.

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