The US-China trade war, US sanctions, emissions regulations, shipyard amalgamation and digital gains from pooling operations will be the main themes in the tanker market in 2020
The main driver of the tanker market is supply and demand: the supply of tankers available to work and the changes in world trade that drive that demand.
In 2020 world trade will hinge on the agreement, if any, between the two biggest economies; China and the USA. The USA may also be the driver of more short-term spikes in the market through its imposition of sanctions. Another theme emerging at the end of 2019 and likely to carry on into 2020 and beyond is unilateral action by countries to impose their own regulations on emissions from ships. We may also look back at 2020 as the starting point for a shortage of tanker options due to the amalgamation of the largest shipyards. Finally, tanker operations may take on a fundamental change in 2020 with digital gains from pooling commercial operations outweighing the physical.
As 2019 draws to a close, the latest announcement on the tariff negotiations between the USA and China has been delayed yet again. World trade depends on these two these economies operating efficiently and the tanker trade depends on world trade. If world trade is being artificially pegged back, then demand for crude oil and products will be similarly affected. The reports of a massive outbreak of swine flu in China and the loss of millions of tonnes of home-grown pork means the Chinese are desperate to source protein from the USA. This was expected to boost the revision of the tariff list, and ultimately release the brake on world trade. Some observers even report the US is deliberately spoiling the process to induce food price inflation to put internal pressure on the current leadership. President Trump’s demands for more concessions is likely to be a theme throughout 2020.
One diversion in 2019 was for the US Treasury’s Office of Foreign Asset Control (OFAC) to place some COSCO tanker companies on the sanctions list, creating a rush for open VLCCs and a surge in tanker rates. This action, and others against Iranian, Venezuelan and companies and individuals that OFAC believes are aiding these regimes will couple with the falling orderbook and lower scrapping to produce short-term spikes in VLCC earnings. The next spike is likely to be when shippers in China rush to fulfil orders before the long holiday of Chinese New Year, commencing 25 January 2020. The direct impact on tankers could be if a malignant actor in the Middle East makes another move on tankers passing through the Straits of Hormuz.
We have already seen Singapore move ahead of the global regulations to impose its own regulations on the use of open loop scrubbers and other regional authorities have followed suit. The pressure from each port’s own hinterland to produce an environmental statement is immense and the outsider – the ship – is the easy target. This theme is likely to develop during 2020 with emissions from ship exhaust, ballast water, lubes and fouling release the likely targets. As one shipowner at the 2019 Tanker Shipping & Trade conference noted, each regulation is now accompanied by a ’pop-up’ industry of compliance advisers, testers and equipment providers seeking to profit from the pain imposed on owners.
At the end of 2019, the EU stated it was examining the competition aspect of the merger of Hyundai Heavy Industries and Daewoo shipyards in South Korea. It is highly likely that in 2020 the merger will win approval, as will the merger of the huge state-owned shipyards in China. The impact will be felt by the tanker operator looking to order the next-generation tanker to meet IMO greenhouse gas targets. The merger is said to be required to optimise R&D but the outcome is likely to be a reduction in available designs – will these designs meet IMO’s greenhouse gas targets? Will this include developing hydrogen power and fuel cells or will shipyards focus on LNG as the main alternative fuel? In the short-term there remains the issue of retrofitting scrubbers, which now seems to be delayed into 2020 and beyond, although roughly half the public tanker companies have opted for this technology.
2019 saw product tanker pool operator Hafnia produce an IPO following its earlier merger with BW Tankers. In a similar vein, 2019 Tanker Shipping & Trade award winner Maersk Tankers attracted another fleet to join its pool of commercially operated product tankers. Some pools are reaching a critical stage of development where the digital assets of greater market data and having the scale to exploit that information is as important as the physical assets. Could 2020 be the year pools start to profit more from the data than the physical carriage of crude oil and products?
Not included on the above list is an emerging safety theme that hopefully the whole of the tanker industry will adopt into standard operating practice. In 2019, I was impressed with the use of spectrometers to analyse the washwater from the cargo tanks of the Waterfront newbuilding Mari Couva. This is a major step forward in avoiding tank entry for inspection, and hopefully in five to 10 years’ time this will be standard practice. But there are reactionary forces. At the Tanker Shipping & Trade conference, one serving chemical tanker captain related that some charterers still insist on the wall wash practice because “that’s how it is always done.”