The orderbook for MR1 tankers is one of the smallest in the tanker sector, and the live fleet is not getting any younger. Is now the time to invest in the MR1 tanker sector?
The MR1 tanker fleet falls in the Handy tanker category. It is generally regarded as those tankers that fall between 29,500 dwt and 40,999 dwt, although the size ranges and descriptions vary from broker to broker. There are currently 572 MR1 tankers in the live fleet, according to VesselsValue, with the fleet split between MR1 tankers whose specification classes them as product tankers, and those classed as chemical product tankers with IMO 2 and IMO 2 capability and having the required tank segregations, coating and pumps. There are 427 MR1 tankers classed as chemical product tankers, and 135 MR1 tankers classed as product tankers.
The remainder are an assortment of specialised tankers, including seven fruit juice carriers, seven fleet replenishment tankers, and three shuttle tankers. These 17 vessels are excluded from the trade analysis below because they may skew the results toward their particular bilateral activities.
One facet of the MR1 tanker fleet is the heavy reliance on the pool system. Of the 572 MR1 tankers in the combined simple tankers and chemical parcel fleet, 175 are in pools.
MR1 tanker pools and number of MR1s (VesselsValue, June 2019):
The standout aspect of the MR1 tanker fleet is the orderbook – it barely exists. There are only nine MR1 tankers on order and that includes any known options, letters of intent, or on spec (rumoured) orders. Even including just launched but not yet trading MR1 tankers, the sum is just 11 on order. This is only 1.9% of the live fleet and far below the 5.9% of the average of the tanker fleet as a whole for the ratio of vessels on order versus the live fleet.
In fact, only one newbuilding contract in the MR1 sector was recorded in 2018: Hyproc Shipping ordered a 40,000 dwt (42,000 m3) tanker from Hyundai Mipo for delivery in December 2019. Compare the specification of this vessel to that of Histria Atlas,\ (described on pages 10-13 in this issue), which has a deadweight of 40,000 dwt and a nominal capacity of 49,500 m3. The price of the Hyproc Shipping newbuilding was not reported, but VesselsValue is currently valuing the vessel at US$33.5M. So far, no newbuildings have been ordered in 2019.
The bulk of the fleet is in the 10-15 years old bracket, and nearly 40% of the fleet is over the age of 15. It will not be long until a large proportion of the fleet fails to meet the age requirements of some of the more robust chartering requirements. Adding to this is the expectation that older MR1 tankers may not be fitted with ballast water treatment systems, a necessary requirement in the coming years. Conversely, scrubbers are rarely fitted to tankers of this size because of the lack of space in the machinery rooms.
The failure to invest in new tonnage is a bonus for those with young assets in the fleet, whose value will rise. Against this is the investment opportunity the tiny orderbook represents. It is likely to attract speculators looking to order newbuildings and flip them for a profit before they even hit the water.
The ratio of newbuildings to live fleet is likely to diminish because there is a steady stream of vintage tonnage leaving the water. On the demolition side, 18 MR1 tankers were sold for recycling in 2018. Two Japanese-built 1980s vintage MR1 tankers and one 1990-built MR1 tanker were sold by Indonesian operator Waruna Nusa Sentana for US$360/ldt to US$407/ldt for dismantling in Bangladesh. The sale of the trio coincided with Waruna’s purchase of three secondhand MR1 chemical/product carriers from Offen Claus-Peter in Germany. Two of the vessels were built in 2004 and the third in 2001. All three (CPO Larisa Hestia, CPO Larisa Artemis and Larisa Athena) are believed to have been sold by a bank. Since then, Waruna has purchased two more MR1 tankers in the sale and purchase market.
Other MR1 tanker demolition sales of note in 2018 were two vessels built at the Admiralty shipyard in Russia. Dawn Dwarka and Nireas were built in 1998 and 1995, respectively. There are currently two remaining Admiralty-built MR1 tankers in the fleet, both valued at demolition by VesselsValue.
On the sale and purchase side, 50 MR1 tankers changed hands in 2018. The aforementioned Offen Claus-Peter company in Germany was the most prolific seller, with 11 MR1s built between 2001 and 2008 being sold in various tranches during the year. Tufton Oceanic (or its associated companies) was reported as the buyer of five of these vessels.
Norwegian companies were the most prolific buyers in 2018. Sole Shipping purchased four MR1 tankers, Valcadore, Valgardena, Valsesia and Valtellina from Montanari Navigazione for undisclosed prices. Similarly, Viken Shipping AS purchased three units from Rigel Schiffahrts of Germany. Indeed, German owners were the main divestors of MR1 tonnage in 2018.
An analysis of the trading activity of the 135 MR1 product-only tankers shows that the completed laden voyages were mainly intra-regional. According to VesselsValue data, just 28 MR1 product-only tankers made over 250 voyages in the Indonesian region in 2018, producing a work done of 10.04Bn dwt-nautical miles. The next highest level of activity was trading within Chinese waters (6.56Bn dwt-nautical miles), and India (2.83Bn dwt-nautical miles). These three regions accounted for nearly 30% of the product-only MR1 tanker fleet activity in 2018.
On the MR1 chemical product tankers side of the fleet, the picture in 2018 was completely different. Russia dominates, with eight of the top 10 most active country-to-country routes emanating from Russia. The highest level of work done was on the Russia to Netherlands route, which in 2018 produced 8.94Bn dwt-nautical miles. Novorossiysk in the Black Sea was the largest export port, with over 12M tonnes of cargo carried by MR1 chemical product tankers.
The top five port pairings by ton-miles in 2018 by chemical product MR1 tankers (source: VesselsValue):