Owners are selling vintage vessels after several years of profitable operation at the original purchase price; the secret of their success is in the timing
The tanker sale and purchase (S&P) market of March and April 2020 exhibited some prime examples of how to make a fortune trading in tankers. For instance, the 2000-built, 218,100 dwt VLCC Marbella was purchased in December 2012 for US$28M by Giannopoulos Fotis’ Altomare Shipping of Greece from MOL of Japan. Altomare has now sold the vessel to an undisclosed buyer in the Middle East for US$29.5M. On paper, this is a profit of US$1.5M, but that is only part of the story. Almost certainly the capital in the vessel was paid off within five years of purchase in 2012, and the vessel has been trading profit since. Furthermore, the sale price of US$29.5M was substantially higher than the VesselsValue estimate for a generic 19-year old VLCC tanker of US$24.5M. Including the spikes in earnings at the end of 2019 and the recent boost to freight rates in early 2020, this appears to be a textbook example of timing in the S&P market.
Altomare is a private company and is unlikely to reveal the value the sale of Marbella brings to the company, but public company Euronav’s financial statements give some insight. In Q1 2020, Euronav sold the 2001-built, 160,000 dwt Suezmax tanker Cap Diamant for US$29.5M. The Belgium company purchased the vessel from Norway’s Grieg Star Shipping in 2005 for US$63.6M, seemingly a huge paper loss, but taking into account depreciation, the revenue and other factors, Euronav reported the sale in the Q1 2020 financial report as follows: “A capital gain on the sale of approximately US$13M will be recorded during the current quarter”.
It was a sellers’ market. A substantial number of the VLCC and Suezmax sales in March and April 2020 had reported prices higher than the estimates for the generic types reported in broker reports. In many cases, the reported prices were also higher than the long-term median values.
But sellers need replacements for vessels sold. Altomare was also a buyer in the March and April 2020 S&P market, taking the 2005-built Olympic Leader from Olympic Shipping and Management (associated with the Onassis family) for US$39.7M. This is a keen price for a 15-year old VLCC with a Special Survey due. At the time, VesselsValue estimated generic 15-year old VLCCs at US$34.5M. As demonstrated above, Altomare has a good track record of timing purchases in the S&P market and probably knew or guessed at something others fail to spot.
While the second-hand market has proven to be a comfortable place for sellers of large tonnage, overall, the number of tanker sales in March and April 2020 were fewer than in the same period 12 months previously. In 2019, just over 80 tankers were sold, compared to 50 in 2020 during the same period. The volume of VLCC sales also changed: 16 sold in the 2020 time period versus nine in 2019.
Back to work
On the scrapping side, the Covid-19 lockdown in India means there is no dismantling of ships taking place. An MR2 tanker (1996-built Prato) and two smaller tankers were sold for recycling in early March but the market has gone very quiet since then. Global cash buyer GMS has used the time to extend its GMS Responsible Ship Recycling Program (RSRP) and to plan for an emergence from the lockdown. The GMS RSRP team has undergone training under a World Health Organisation (WHO) programme: the first online training session was given to seven safety officers in Alang, India on 8 April 2020. The session primarily focused on the current situation, with emphasis on detailed risk assessments and also on understanding the ‘Plan Do Check Act’ cycle in ISO. Working in Alang slowly and methodically resumed employment on 21 April by strictly following all safety measures. Yards have ensured that adequate safety measures, such as social distancing, safety masks, daily disinfection, and handwashing facilities are complied with.
On the newbuilding side, a contract of note was by AET, the energy logistics and tanker operating arm of the Malaysian state-owned energy group MISC Berhad. It announced that Chartering and Shipping Services SA, a subsidiary of the French oil major Total, will charter two LNG dual-fuel powered VLCCs due to be delivered from an unnamed shipyard in 2022. So far, there is only one LNG dual-fuel VLCC on order – the COSCO vessel on order at Dalian. AET has significant experience in supervising LNG dual-fuel tanker newbuilding projects. It has three Suezmax LNG dual-fuel shuttle tankers on order at Hyundai Heavy Industries and four LNG dual-fuel Aframax tankers under construction or launched from Samsung. Two of the AET Aframax tankers are in service with Norwegian state-owned oil and gas company Equinor.
AET has stated the two LNG VLCC newbuilds will be among the most environmentally friendly VLCCs in the market. When in service, they will emit around 20% less CO2 greenhouse gases than conventional vessels, 85% less NOx and 99% less Sox; further, 99% fewer fine particles will be released. These vessels comply with IMO Tier III levels, the IMO 2020 sulphur cap and represent a significant step towards IMO’s ambition of reducing carbon emissions by 50% by 2050 from a 2008 baseline.
Making the announcement, MISC Berhad chairman of AET and president/group chief executive officer Mr Yee Yang Chien said: “As a Group, we took early and bold decisions to invest in LNG dual-fuel vessels and I am pleased to see the industry responding so positively to our strategy.”
Total Shipping & Trading senior vice president Mr Luc Gillet commented: “We have partnered with AET for many years and [this] signing is the next logical step in our continuing relationship”.
AET president and chief executive officer Capt Rajalingam Subramaniam, who is a past winner of the Tanker Shipping & Trade Industry Leader Award, said: “AET is investing to build efficiency in our partners’ energy logistics activities and this includes assisting them to meet their environmental targets. We were among the industry leaders in building and operating LNG-powered Aframax vessels and dynamic positioning shuttle tankers and these two new ships will be our first LNG dual-fuel VLCCs.”