Any benefits from the steady stream of VLCC sales for scrapping has been countered by new additions to the fleet
The current VLCC fleet consists of 736 vessels with a total capacity of 226M dwt and an average age of nine years old, according to VesselsValue. A further 115 VLCCs with a capacity of 36M dwt are on order.
In the first half of 2018, 28 VLCCs were sold for recycling, compared to just one in the same period of 2017. Under normal circumstances, one would expect to see something of a boost in rates from such a large number of vessels removed from the fleet; however, as the BIMCO tanker market report shows, other forces have been at play.
The average age of those sold was 19 years old, which is only around twice the average age of the live fleet. The average age quantum also includes four VLCCs of only 17 years old. The oldest, the Mitsubishi HI Symeon 2 was probably designed for a working life of 30 years, rather than being sold for scrap at 24 years old.
Two features standout from the list of the 28 VLCCs sold for recycling. The first is the number of VLCCs sold by the same owners. DS Tankers of Germany sold four VLCCs which had an average age of 18.5 years, whose presence in the fleet can be traced back to the KG financing boom, of which the emission house Dr Peters was one of the few to offer portfolios consisting of large tankers. The KG finance scheme - and indeed large tankers ordered, financed, owned and operated by Germans - is coming to an end, but like all things in shipping, it may re-appear in another guise and in another shipping cycle.
The other multiple seller was the Polembros family of Greece, which is a traditional buyer of secondhand tonnage from Japanese buyers; it then trades the vessel to scrap.
Polembros business model is buy old, trade short and sell when the scrap price is high
Together, Polembros Shipping and Adam Polembros’ company New Shipping sold a total of five VLCCs in the first six months of 2018. One of these included the aforementioned Symeon 2 which had been built as a single hull VLCC and converted to double hull in 2009.
Symeon 2 and three other VLCCs scrapped in the first half of 2018 were powered by variants of the two-stroke large bore Mitsubishi UEC LSE type engine. The UEC had first been produced in Japan in 1955 and constantly upgraded, with the LSE variant produced in 1988.
The Mitsubishi UEC LSE has a long and distinguished history
According to VesselsValue, there are still 22 VLCCs in operation with Mitsubishi UEC main engines, all built in Mitsubishi yards. The youngest are 305,000 dwt VLCCs built for MOL between 2011 and 2013.
VLCC sale and purchase activity
Not surprisingly, New Shipping was active in the sale and purchase market for VLCC to replace those being sold for scrap. It purchased two 15-year old VLCCs, Rokkosan and Vega Trader, from MOL.
However, the largest single VLCC deal this year occurred when Norway-based Ocean Yield agreed to purchase four VLCC newbuild vessels from the Alafouzos family’s Okeanis Marine Holdings, managed by Kyklades Maritime Corporation.
The VLCCs are under construction at the Hyundai Heavy Industries shipyard in South Korea, set for delivery in Q2 and Q3 2019. Then valued at just over US$82M by VesselsValue market data, the 319,200 dwt vessels were said to be worth approximately US$84M, according to Ocean Yield at the time of sale.
The deal is part of a 15-year sale and leaseback bareboat charter agreement to Okeanis Marine subsidiaries and includes a five-year sub-charter for all four VLCCs to the shipping arm of a “large industrial conglomerate”, according to an Ocean Yield statement. The contract includes acquisition options, with the first available seven years into the charter agreement according to Ocean Yield.
Ocean Yield chief executive Lars Solbakken said “The investment is done at historically low asset values and will increase our EBITDA charter backlog by about 16% to US$3.4Bn.”
At the beginning of the year, it was widely believed that the VLCC fleet would be approaching equilibrium towards the end of 2018 – if no further orders were placed.
However, deliveries have almost equalled scrapping sales. In total 24 VLCCs entered the fleet in the first six months of 2018, not the two or three required to slide the fleet toward profitability. Some of these deliveries were simply part of the regular cycle, such as Japanese operators replacing tonnage at 15 years old.
“Every VLCC that enters the Bahri fleet displaces an independent owner’s chances of winning some Saudi Arabian business”
K Line took delivery of the 311,979 dwt VLCC Tedorigawa, the first in a series of new-generation VLCC and Aframax tankers. Its most outstanding feature is the lack of a bulbous bow.
According to a statement released by K Line, Tedorigawa’s plumb bow, coupled with an ultra-long stroke, low-speed main engine and highly-efficient large diameter propeller will achieve a 20% reduction in fuel consumption compared with similar vessels. The VLCC newbuilding is also fitted with a ballast water management system.
The tanker was constructed at Nantong COSCO KHI Ship Engineering in China and is classed by ABS. It was ordered in 2016 as part of a contract for three VLCCs and two Aframax tankers.
Other deliveries spoke of ambition; Bahri, the national Saudi Arabian operator, took delivery of five VLCCs and is building a fleet of VLCCs to deliver its own crude oil. Every VLCC that enters the Bahri fleet displaces an independent owner’s chances of winning some Saudi Arabian business.
Indeed, now that Saudi Arabia is committed to building its own shipyard, the shipyards in the Far East are likely to see a fall in demand, too.
In what could well be a world first, Almi Tankers of Greece has taken delivery of a VLCC newbuilding, Almi Atlas, that comes complete with a Tier III engine and a SOx scrubber as standard. Most VLCC newbuilding deliveries this year have been fitted with an older, less environmentally friendly Tier II-compliant engine design, with the possibility of a SOx scrubber to be fitted at a later date.
The 315,221 dwt Almi Atlas is the first of two VLCCs from its newbuilding project at Hyundai Samho Heavy Industries and was delivered to its owners at the Mokpo shipyard.
Among other environmentally-friendly technologies on board, Almi Atlas is equipped with the HYUNDAI-B&W 7G80ME - C9.5 - EGRTC (Tier III) Green-type engine and is one of the first vessels of its size with a Tier III engine.
The G-type is an ultra-long stroke engine, which, in conjunction with a larger diameter propeller, is said to offer significant fuel savings and produce less emissions than engines with the same output, thus classifying it as one of the most environmentally efficient propulsion systems.
The vessel is also equipped with the Hyundai HiBallast HiB 6000ex ballast water treatment system.
Almi Atlas flies the Liberian flag and is classed by DNV-GL.