There is a growing consensus among tanker owners that 2013 was a turning point in the tanker market. Cautious optimism was a common theme throughout the annual reports of some of the largest tanker owners, but despite general agreement that freight rates are rising, opinions differ on how companies should navigate the recovery.
High freight rates prior to the global financial crisis drove an ordering spree in 2006, which led to a glut of deliveries hitting the water at the peak of the crisis in 2009. Freight rates plummeted and, some volatility aside, have remained low ever since. Data from London-based shipbrokers Gibsons show there were 45mn dead weight tonnes (dwt) of new tankers delivered in 2009, compared with just over 20mn dwt in 2013, the lowest level in 12 years.
The return to lower fleet growth and a positive outlook for crude and products demand has given owners confidence that the tanker markets are on the path to recovery.
Among crude tanker owners the positivity stems from the rise in rates across all crude tanker sizes towards the end of 2013 leading into 2014.
Belgian-based tanker owner Euronav is one of the more bullish. The very large crude carrier (VLCC) and Suezmax owner bought all 15 of Maersk tankers VLCCs in January, saying the dirty tanker market is stronger than at any time since 2010.
Greece-based Tsakos Energy Navigation (TEN) is also confident about the prospects for the crude tanker market. It expects Chinese and Indian oil demand to rise, offsetting the drop in seaborne crude movements as a result of the reduction in US imports.
“We always believed crude tankers would and will continue to play a significant role in world energy trade,” TEN said.
While optimism around the crude tanker market is a relatively new trend, the product tanker market has been the subject of intense enthusiasm for over a year. Expanding refining capacity in the Middle east and India, sustained demand for naphtha imports into Asia and an increase in trade to west Africa and South America have boosted expectations for product tanker demand.
Bermuda-based Frontline 2012 and New York-based Scorpio have been some of the main proponents leading the ordering spree in late 2012. There were 268 medium range (MR) 42,000-59,999 dwt and long range two (LR2) 85,000-119,999 dwt tankers ordered in 2013, the two most popular tanker sizes among owners according to shipbrokers Banchero Costa. Almost all of the largest product tanker owners have MRs on their order books.
The impact of this is that expected product tanker deliveries for 2015 in dwt will exceed crude tanker deliveries for the first time.
“To date we have seen more interest in product tankers, while orders for crude tonnage have been comparatively limited,” Gibsons senior tanker analyst Svetlana Kourmpeti told Argus.
“It is unlikely that product tanker deliveries in dwt have exceeded crude tankers deliveries before,” she added.
The change is particularly significant since the majority of the product tankers due to be delivered in 2015 are MRs — significantly smaller than average crude tankers — meaning significantly more units are needed for the total dwt product tanker order book to exceed that of crude tankers.
As tanker orders have resumed over the last year, a new strategy from some owners has been to streamline activities through the sale or separation of certain vessel segments. This has been achieved in a variety of ways. Danish firm Maersk Tankers is in the process of selling off all its crude and LPG tankers to become a pure product tanker owner, while Scorpio transferred its order book of very large gas carriers (VLGCs) to Dorian LPG in exchange for 30pc ownership and Frontline 2012 followed a similar path in selling eight VLGCs currently on order to Avance Gas, in which it is a shareholder.
Other owners have adopted contrasting strategies and continue to diversity their fleet. Sovcomflot are actively moving away from its reliance on its largest segments - crude and products – to become a more “diversified owner” through investing in LPG tankers and supply vessels.
Products tanker and dry bulk carrier owner Norden is looking to maintain a diversified fleet. It has four MRs on order but said in its annual report that it will not be seeking new product tanker orders and is now looking to invest in the dry bulk sector where it anticipates greater opportunities.
The mixed approach towards fleet development was similarly evident in owner’s outlooks on the tanker market.
In the period of sustained low freight rates caused by the oversupply of tonnage, restructuring, higher impairment costs and the adoption of survival strategies pervaded tanker owner’s annual reports. But the tone has shifted, with some owners detailing a renewed, less conservative approach.
Danish owners Torm and Norden are two firms that are changing to a more opportunistic strategy. They intend to reduce the number of their tankers employed on time charter contracts, which guarantee a steady income over a fixed period to allow greater spot market coverage. This is a more risky approach as the spot market is subject to greater volatility in rates. If spot market rates continue to rise they will benefit from higher freight rates than they would otherwise get through time charter contracts. But if rates fall, they are vulnerable to rates below the cost of operating a tanker.
TEN and Sovcomflot by contrast are good examples of owners which, although optimistic about the prospects in the tanker market, are not willing to take the same level of risk. Both companies remain committed to conservative chartering strategies and aim to keep more than 60pc of the year booked up with fixed-term contracts.
Although owners have plotted diverse courses going forward, there is a tentative and general agreement that tanker rates are set to rise, which will reap greater rewards remains to be seen.
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