A frenetic year of VLCC S&P activity ahead

April, May and June added to the impetus. June was particularly outstanding: over the last 10 years, five of those years did not see a single VLCC sale in June. The slack level of sales supported the accepted wisdom that the main players in the sale and purchase market, the independent Greek tanker owners, have completed business ahead of June and retreated from the market to spend time away on their associated islands.

At that point, the red-hot VLCC S&P market led to the speculation of the potential for VLCC S&P activity to reach 120 sales.

One of the driving forces behind the above average VLCC S&P activity was the state of the orderbook – it has become difficult to find a near-term slot for a VLCC newbuilding. The large vessel slots are now dominated by Capesize dry bulk carriers and LNG carriers.

As noted before, tanker contracting has virtually ceased.

According to Clarkson Research Services (CRS), the volume (M dwt) of dry bulk contracting (new orders) increased by 62% in 2021 and overall contracting by 77%, but tanker contracting actually fell by 13%.

Another factor is that newbuilding shipyards have not been slow to increase prices in line with increasing demand. VLCC newbuilding prices crossed the US$100M barrier in 2021.

According to CRS, VLCC newbuilding prices increased by 31% in 2021 from US$85.5M to US$112M. If a price increase of nearly a third in one year seems high, in some sectors, such as large container ships, newbuilding prices increased by 50% in 2021.

For those VLCC owners and operators with long-term commitments to clients and charterers demanding only modern tonnage (ie, less than 15 years old), the main alternative is to enter the S&P market.

One option is to buy VLCCs off-the-blocks as newbuilding contracts or while physically under construction as was the case in May 2021 with Frontline’s acquisition of six VLCC resales off-the-block, which was an early indicator of the direction of travel in the VLCC S&P market and by the end of 2021, VLCCs due for delivery in 2022 or later accounted for 14% of the sales in 2021.

For those owners and operators needing immediate tonnage, purchasing VLCCs already in the water is the main route.

This can be broken down to VLCCs in the water in 2021 but values have been increasing. As VesselsValue junior analyst George Delaney noted, “A generic five-year-old VLCC has seen its value increase by 14% from US$62M to US$71M from this time last year.”

The one year to 14 years old age range accounted for 37% of the VLCC sales in 2021. Including newbuilding sales, this accounts for half (51%) of the VLCCs sales in 2021. The post-15-year-old VLCC S&P activity saw a mixture of sales to well-known Greek and US operators famous for their abilities to maintain and run older tonnage while in full compliance and the somewhat grey area of tonnage sold to ‘Chinese interests’.

The common thread was the VLCCs had a fifth special survey due. Eneos Breeze (built 2003) was sold for US$22.8M and has a fifth special survey due in November 2021. Maran Castor was sold for US$22.0M and has a fifth special survey due at the end of March 2021. 2002-built siblings Eagle Vermont and Eagle Virginia had fifth special surveys due in September 2022.

Marion was sold for US$24.45M and had a fifth special survey due in June 2023 and Sino Macro had a fifth special survey due in August 2022. Tsurumi (built 2003) and Zin Trader (built 2000) had fifth special surveys due September 2021 and July 2023, respectively.

Speculation at the time suggested the creation of the grey fleet was a physical hedge against the exposure to high rates for floating storage that was evident in 2020. It should be noted that these are sales for further trading and not sales for demolition, and the presence of this grey fleet continues to dampen tanker earnings.

At this moment in time, there are no changes in conditions to suggest the high volume of VLCC S&P activity will slow down in 2022. Additional drivers to maintain the VLCC S&P flow in 2022 include investors seeking ‘bargains’ in the low freight rate environment, retrofitting VLCCs with LNG power to meet IMO greenhouse gas emissions reduction targets, and those with access to capital to increase economies of scale through mergers, which could be another feature of the 2022 VLCC S&P market.

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