Experts assess volatility in the tanker industry

Mr Kazantzis offered a review of the statistical data on tanker ordering, noting that statistically, there have been consistent seven- to nine-year cycles. The question now is, will owners follow the patterns of the past? The McQuilling model sees support for lang-range and mid-size product tankers, and lower demand for VLCCs, and ordering in 2023 reflects this.

The evolving logistics and favourable market dynamics favour long- and medium-range product tankers over VLCCs, but Mr Kazantzis noted the LR1 tanker is likely to be the biggest beneficiary.

His presentation offered a deterministic investment analysis of the required breakeven for a five-year old VLCC. McQuillings analysis reports a required breakeven of US$49,000 per day to achieve a 10% return on equity.  

He then compared this to a stochastic analysis of the probability distribution of earnings; the model reports a less than 30% chance of achieving a 10% return on equity. But, he noted, similar results were produced for the other tanker size ranges. Why? Current prices are too high compared to the historical data, producing high breakevens.

“We remain comfortably below average [stock] levels”

In conclusion, the deterministic model indicates that Aframax tankers, LR1s and MR2s are the sectors to invest in. But when to invest and will prices fall? He noted two drivers for vessel prices – yard capacity and steel prices.

Yard capacity constraints in 2024 and 2025 are higher than average, according to Mr Kazantis, but the opening up of yard capacity constraints in 2026 and a projected lowering of steel prices in 2024 could see more competitive prices emerging, compared to the high prices on offer today.

Seaborne Shipbrokers head of research & valuations, Eva Tzima, noted: “Right now, there is this perfect storm helping tankers.” However, Ms Tzima cautioned that there was one element that could dampen the general positive outlook – the outcome of the US elections, especially the return of a Trump presidency.

November 2024 will see that outcome, and a Trump administration may have a very different view on sanctions.

Ms Tzima agreed with Mr Kazantzis on his assessment of the investment potential of LR1 tankers and also highlighted the attractiveness of smaller and older capacity vessels as secure investments, due to low ordering rates and significant value increases. However, Ms Tzima noted market reluctance towards non-conventional engined vessels, due to high premiums and industry uncertainties.

With regards to the influence of alternative fuels and charter markets, Ms Bartels emphasised the competitive advantage they can provide, but the panel agreed that the industry’s reluctance to adopt renewable or dual-fuel ships without significant benefits, such as long-term contracts or substantial financing incentives, would remain a feature.

Mr Kazantzis offered a solution to the dilemma, pointing out that in Europe and in California, there are regulations in place banning the sale of gasoline and diesel cars after certain years. This has shifted the burden of which fuel to use away from car owners; he suggested a similar process should be applied to shipping. It would remove one of the uncertainties in ordering new vessels if IMO were to set a mandatory date for the phasing out of conventional internal combustion engines in newbuildings.