Tanker S&P market thrives amid aging fleet concerns

Tanker sale and purchase and contracting activity in May and June 2024 revealed that strong freight rates and earnings are attracting investors. In total, 64 tankers changed hands, including seven VLCCs, two Suezmax tankers, five Aframax tankers and three LR2 product tankers.

On the VLCC side, four of the seven vessels were around the age of five years old, and sold for around US$116M each, a level that would have secured a newbuilding not so long ago. The buyer of the quartet was Bahri, which purchased the vessels from Korea Line Corporation (KLC).

Three times as old as the KLC sales is the Hyundai HI-built C Prosperity, which was sold by another South Korean company, SK Shipping to the Greek operator Kyklades Maritime. This 2009-built 313,900 dwt VLCC was reported as sold in June 2024 for US$53M. This was a firm price for a 15-year-old VLCC, especially one which is due a Special Survey in August 2024.

But it is not the price that makes the vessel interesting, it is its history – and what it can tell us about the future. In February 2008, just eight months before the Financial Crisis, it was purchased ‘off-the-blocks’ by SK Shipping for the extraordinary price of US$163M, having been contracted in 2006 at an undisclosed price, but certainly around US$20M less than the sale price.

As it turned out, 2008 was a slow year for VLCC S&P with just 18 vessels changing hands, but as the sale of C Prosperity shows, a profitable one. According to VesselsValue data, in 2008, 18 VLCCs traded for a total of US$1.3Bn. By comparison, so far in 2024, 54 VLCCs have changed hands – for only US$1.8Bn.

What does this tell us about the direction of the market? First, in 2008, the sale of C Prosperity for US$163M was not an anomaly – at the time, there were few new VLCCs available. This is a situation that in developing today. So far in 2024, only one VLCC has been delivered.

Eagle Veracruz was delivered to AET by Hanwa in January 2024. Being on long-term charter to Shell might preclude an immediate sale, but the vessel was ordered three years ago for around US$100M - the re-sale value estimated by VesselsValue as in the region of USD159M today.

Second, the low growth in the VLCC sector and the lack of sales for recycling is producing an abnormal fleet profile: 42.2m dwt of the VLCC fleet is due to reach 20-25 years old in 2027, according to Clarkson Research Services (CRS). Looking at the total tanker fleet, CRS noted that: “…the fleet has the potential to age substantially, 15% of today’s fleet is over 20 years old currently, but 35% will be over 20 years old in five years’ time and more than 80% in ten years from now.”

What does the next two or three years look like in the tanker S&P market? Those with vessels already on order could sell off-the-blocks for near record prices, as in the case of the C Prosperity sale in 2008. Based on past shipping cycles, the companies flush with cash but unable to secure short-term newbuilding slots are likely to look for the next best thing, the takeover of a company with a young tanker fleet and/or a substantial stake in the orderbook.

There are few candidates available among owners with large tankers (VLCCs, Suezmax and Aframax tankers) on order. Many of the companies with the largest orderbooks also have the characteristics of being well-capitalised, independent and privately-owned: Dynacom (19 tankers on order), Capital Ship Management (16 large tankers), TMS Tankers (13 large tankers), Seatankers (13 large tankers) and Maran Tankers (11 large tankers). More likely targets lie further down the list, such as public-listed companies Euronav (nine large tankers on order), which has been the target of a long, drawn out battle with Frontline. Alternates include DHT Holdings (eight large tankers on order) plus newcomer Magni Partners, which has four VLCCs on order, but none on the water.

On the completions side, Thun Tankers has been banking the air miles by taking delivery of a pair of tankers from Europe and Asia in the same week in June 2024. The first was the delivery of Thun Reliance, the second vessel in Thun Tankers’ Resource Efficient-class series and part of an eight-vessel series. The vessel is set to commence long-term employment with Preem.

Built by Scheepswerf Ferus Smit and managed by MF Shipping Group, Thun Reliance features an industry-first adaptive propulsion system designed to minimise energy consumption. Additionally, the vessel is equipped for shore electricity connections and includes a UPS battery pack, significantly reducing emissions and increasing operational reliability.

The latest hull design further enhances the vessel’s efficiency, contributing to Thun Tankers’ fleet renewal programme.

The 9,500 m3 capacity vessel’s main characteristics are a length overall of 115 m, a moulded breadth of 16 m, and capacity of 7,999 dwt. Additionally, the tanker boasts Ice Class 1A certification, enabling it to navigate challenging icy waters.

Second delivery of the week was Thun Vettern, a 17,999-dwt vessel built by China Merchants Jinling Shipyard in Yangzhou. This vessel is an upgraded version of its sister vessel Thun Venern, and is the latest addition to the Vinga series, which operates within the Gothia Tanker Alliance.

Thun Vettern is designed with an ice-class 1A, dual-fuel capability, and a battery-hybrid solution, making it one of the most environmentally friendly vessels in its segment and, according to Erik Thun AB, it has achieved the lowest Energy Efficiency Design Index (EEDI) value globally.

Mention should also be made of the two new 7,100-dwt stainless steel dual-fuel chemical tankers, Eberhart Essberger and Heinrich Essberger, also delivered in June 2024. These vessels were named during a celebration marking Essberger’s 100 years of operations and will be managed by the joint venture with Stolt Tankers – E&S Shipping.