During May and June 2020 Suezmax newbuildings were ordered at a wide range of prices, while a High Court ruling will require owners to re-think the demolition residuals model
The sale and purchase market in the first half of 2020 has been relatively firm, with 302 tankers sold in the second-hand market versus 244 in the first six months of 2019. Still, the first half of the year has been one of the strangest in living memory with a spike in tanker earnings, a rush to fix vessels for storage and the crude oil price turning negative.
The increase in overall tanker sales has been driven by a firmer market and a more favourable outlook. Looking specifically at S&P activity in May and June 2020, it is clear that canny owners took the opportunity to dispose of older tonnage that had been languishing at the bottom end of their long-term values.
A case in point was the sale of a pair of VLCCs for further trading by Ridgebury Tankers, a company with a fine reputation for operating well-preserved, older vessels. The 2000-built, Samsung constructed VLCCs Ridgebury Progress and Ridgebury Purpose were sold to unnamed Chinese buyers for a reported US$24M each (source VesselsValue).
Both of the VLCCs had been purchased in June 2015, for around US$34.6M each in an en bloc deal from Independent Tankers Corp, a Bermuda-registered company associated with the John Fredriksen group of companies; both had been on charter to BP Shipping.
The S&P market weakened sufficiently in 2018 for VesselsValue to actually quote the two Ridgebury VLCCs at demolition values for several months. Since then the market has firmed and it would seem that Ridgebury Tankers has struck an S&P deal at the right time to avoid the potential expense of demolition. The vessels have also been purchased with Special Surveys due, another financial saving in Ridgebury Tankers favour.
On the newbuilding side, four VLCCs were contracted in May and June 2020: two are for the account of Chinese buyers at a Chinese yard at a reported price of US84.5M. The other pair of VLCC newbuildings were ordered at Hyundai HI in South Korea by Evangelos Pistiolis’ Central Mare of Greece. Greek buyers were responsible for 12 of the 44 tanker orders placed in May and June 2020.
The main Greek interest was in the Suezmax sector, with CM Lemos’ Nereus Shipping placing contracts for four 160,000 dwt tankers split between Hyundai HI and Hyundai Samho. The reported price was US$61.45M.
Hyundai HI has also won an order for two firm and two options 157,000 dwt Suezmax tankers from Sonangol, the Angolan public sector energy company. The reported price is US$57M per vessel.
This contract came to light around the same time as it was reported that Anna Angelicoussis’ Pantheon Tankers had placed an order for a pair of 158,000 dwt Suezmax tankers at the privately-owned New Times Shipbuilding in China, for US$51M each.
“It seems hard to believe that in the 1970s Brazil was a major shipbuilding nation”
Viken Shipping placed a corresponding order at the same price at the same yard and fellow Norwegian operator Ludwig Mowinckels Rederi placed a contract for four similar units. Ludwig Mowinckel currently operates one Suezmax tanker and two bulk carriers and the new orders represent a resurgence for the 122-year-old shipping company.
The above contracts highlight the wide range of prices reported for the Suezmax tankers ordered. The reported price of US$51M from New Times Shipbuilding is markedly lower than the US$61.4M reported for the Hyundai vessels. The prices reflect differences in specification.
The May and June 2020 demolition market also featured some interesting sales. Transpetro of Brazil sold the 1997-built double hull MR2 tanker Livramento for recycling for a reported US$195/ldt. This represents a steep fall from the last conducted sale of an MR2 product tanker, which sold in February 2020 for US$360/ldt. The Covid-19 pandemic has clearly impacted the sale price, as have the ‘as is’ terms of the sale.
The Livramento’s claim to fame is that it is (or was) the last surviving tanker built in Brazil at the Japan/Brazil shipyard joint venture under the name Ishikawajima do Brasil Estaleiro. Ishibras, as the yard was generally known, was a joint venture between IHI of Japan and the Verolme shipyard in Brazil.
A blow to the demolition market
It seems hard to believe today, during the current era of shipbuilding dominance by the Far East, that in the 1970s Brazil was a major shipbuilding nation. At its peak in 1979, Brazilian shipyards employed 40,000 people. The decline was rapid and by the time the MR2 product tanker Livramento was constructed, shipbuilding in Brazil had contracted to less than a few thousand workers. Including Livramento, there are 10 remaining tankers that were constructed at Ishibras, all are owned and operated by Transpetro.
Elsewhere, the demolition market has been dealt an unexpected blow. European owners are now required under EU Ship Recycling Regulation to send ships for recycling to EU-approved yards (mainly in Europe), meaning tanker owners will have to re-think the residual value model. Traditionally, owners could expect a positive result from selling large tankers for scrapping in SE Asia. Scrapping in Europe is unlikely to yield a profit, and most will likely take place at a cost.
Fatal Ekta accident moves toward trial
In a judgment handed down on 13 July 2020, an English High Court judge refused to strike out a claim for negligence brought by a widow against Maran (UK) Ltd. UK solicitors Leigh Day represented the widow of Khalil Mollah who fell to his death on 30 March 2018, while working on the oil tanker Ekta in the Zuma Enterprise Shipyard in Chattogram (formerly Chittagong), Bangladesh.
Mr Justice Jay said: “The proximate cause of the accident was the deceased’s fall from a height, but on a broader, purposive approach, the accident resulted from a chain of events which led to the vessel being grounded at Chattogram.”
According to Leigh Day, the VLCC Ekta had been owned and managed by companies within the Angelicoussis Shipping Group, which included Maran (UK) Limited. In a transaction in August 2017, worth over US$16M, it was sold for demolition.
“I reject that submission on the straightforward basis that if standard practice was inherently dangerous, it cannot be condoned as sound and rational”
Mr Justice Jay said: “[The Defendant argued that] given that nearly all vessels ended up in south Asia, it could not be said that [Maran UK Ltd] was deviating from standard practice. I reject that submission on the straightforward basis that if standard practice was inherently dangerous, it cannot be condoned as sound and rational, even though almost everybody does the same.”
Mr Justice Jay held that Maran (UK) Ltd arguably owed a duty of care to the Bangladeshi worker killed on the vessel and dismissed Maran (UK)’s application to strike out the claim for negligence. The case continues towards trial.