The dawn of 2022 promised to be glorious for the tanker industry, but the sector has had plenty of obstacles to overcome
There was relief as much of the world emerged from Covid lockdowns, and travel and trade began to resume. But at the end of January demand for VLCCs was low and time charter-equivalent earnings (TCE) for VLCCs were in negative territory (-US$7,000 per day). Across the large tanker sectors, only Aframax were close to buoyant.
Then in February, Russia invaded Ukraine in what we now understand was to be a 10-day operation to replace the democratically-elected leader with a puppet government. Ukraine resisted and the West was outraged, swiftly ejecting Russian banks from the SWIFT banking system, while the US blocked transactions and Russian oil imports.
Although traders were nervous over taking Russian cargoes, by the end of February the Aframax tanker sector saw some incredible gains, with TCE of over US$200,000 per day reported on the Baltic to UK Continent route.
Fast forward to the end of November, and the TCE for tankers is in boom territory. Average VLCC (eco & scrubber) TCE for 2022 is US$42,000 per day, versus US$14,000 per day in 2021. For Suezmax tankers (eco & scrubber) the difference is US$48,000 per day, versus US$10,000 per day in 2021. But the standout result is the Aframax sector (eco & scrubber), where TCE rates of an average of US$60,000 per day have been achieved so far in 2022, versus US$11,000 per day last year.
“Geopolitics impact all tankers, but some tankers more than others”
It is quite a result, and the first takeaway from 2022 is that geopolitics impact all tankers, but some tankers more than others.
The second takeaway is that, despite substantial gains in earnings for tankers, this is still not a favoured sector for investment. In the VLCC sector, the orderbook is 3.6% the size of the current fleet, and there are no VLCCs due for delivery in 2024 or 2025.
The Suezmax sector is even lighter, at just 2.1% of the current fleet, but there will be a constant trickle of vessels through to 2025. Speaking at the Capital Link’s 8th Maritime Leaders’ Summit in Greece during Posidonia 2022, more than one Greek shipowner with interests across a range of sectors (tankers, LNG carriers, dry bulk carriers) noted bulk carriers as a vessel type in which they would invest a spare US$100M.
The other takeaway is that tanker newbuilding prices are too high. The prices the shipyards require are inflated by the lost opportunities of constructing a relatively simple vessel like a tanker against the many, many LNG-carrier contracts on offer.
The return to travel and face-to-face meetings was also a feature of 2022. Nor-Shipping and Posidonia in one year was exciting, but the highlight of 2022 was the two-day invitation-only Donsö Shipping Meet. It was an opportunity to understand how important the preservation and enhancement of the environment is to the next generation of tanker owners. The takeaway is that tanker shipping is in good hands.
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