Viewpoint: Fleet growth, IMO to drive Suezmax, Aframax

Suezmax and Aframax tanker deliveries quickened and scrapping levels stalled in 2019, and this additional supply and an ample order book is likely to weigh on freight rates for the two classes in 2020, particularly as the production-cut extension by Opec and its partners will again limit tanker demand.

But, increased bunker costs and other aspects arising from the International Maritime Organisation (IMO) sulphur cap could push rates higher for both tanker classes.

Around 26 new Suezmaxes have been delivered in 2019, and perhaps as many as five more due before the end of the year are likely to be deferred into 2020. Only around seven were scrapped, which would mean net fleet growth of around 3.5pc — a relatively modest increase but up from 2018, when around 33 were delivered and as many as 27 scrapped. A further 60 are on order, equivalent to 10pc of the existing fleet, split roughly evenly between 2020 and 2021. Scrapping might accelerate in the next few years as around a quarter of Suezmaxes are aged 15 years or more, an age where they become candidates for the scrapyard.

The Aframax delivery-scrapping balance is less clear, as some operate as Long Range (LR) product tankers. But net Aframax deliveries accelerated in 2019, with roughly 25 delivered and seven scrapped, compared with a net gain of around five in 2018. Around another 70 are on order — equivalent to 6.5pc of the global fleet — but fewer than 20 are due in 2020. The Aframax fleet is younger on average than the Suezmax segment, with around 20pc approaching scrapping age. That might help the Aframax segment log greater net growth in 2020, which would pressure rates.

The uptake of exhaust scrubbers has been less of a factor in these tanker classes. The technology, which enables vessels to run on high-sulphur fuels beyond the IMO ruling, offer best returns and efficiencies for larger tankers. But scrubbers could still lift or undermine the Aframax and Suezmax sectors in 2020. Tankers taken out of the market for scrubber fittings effectively limits supply but tankers with scrubbers installed should to be able to undercut competitors that have to burn low-sulphur fuel or marine gasoil (MGO). This assumes that supplies of high-sulphur fuel oil (HSFO) do not become constrained and push prices to a premium over compliant product.

A glut of tankers making significant fuel savings could act as a drag on the sector. Also, there are concerns about the availability and compatibility of compliant bunker fuels. Any delays or diversions to secure suitable supplies would constrain tanker availability and could support rates. Shipbroker Clarksons said that 18pc of Suezmaxes are fitted with scrubbers now, and 26pc should be by the end of 2020. Scale efficiencies mean that scrubber installations and orders are lower at 12pc in the Aframax segment. Clarksons estimates this at 19pc by the end of 2020.

IMO 2020 stipulations are likely to support demand for Azeri crude, and with it demand for Suezmaxes and Aframaxes in the Black Sea region. Similarly, demand for CPC cargoes in east Asia could give an additional tonne-mile demand boost for tankers — a busy CPC schedule helped drive regional freight rates significantly higher in the final quarter of 2019. US Gulf demand for tankers is likely to continue to sustain rates going into 2020.

Political uncertainty, sanctions and security concerns — particularly around the Mideast Gulf — had a particularly disruptive impact on the tanker market in 2019, not just in the very large cure carrier (VLCC) class. The entire tanker market remains vulnerable to such shocks and attendant rate spikes and volatility.

By Simon Ferrie