Waiting for a fizzy orderbook to go flat could be a winning strategy for the patient tanker operator
Elon Musk, allegedly the world’s richest man, has raised US$44Bn to buy Twitter. For much less, approximately US$30Bn, he could have purchased the entire tanker orderbook, according to VesselsValue figures. That is over 700 tankers on order in a sector where the orderbook is falling and the supply demand balance is tipping in favour of those with modern eco tankers.
While Mr Musk’s focus is not on tankers, there are other well-funded organisations and companies that are beginning to take a keen interest in shipping. In the final session of the inaugural Chemical & Product Tanker Conference, held in London in April, delegates heard from a well-connected source that a major non-shipping company is looking to smooth the kink in the otherwise seamless delivery from manufacturer to the customer’s doorstep.
That logistical kink is evident from the masses of container ships waiting for berths in California. Not so long ago, at the start of the Covid-19 pandemic, the same waters were home to tankers being used as storage. The solution in the liner trades is to increase supply by ordering more container ships, buoyed by the boom in freight rates in that sector.
But this does not solve the immediate problem and for that the logical solution is to take over the supply side. According to media reports in China, the giant internet shopping and logistics company Alibaba is moving into vessel ownership after 10 months of chartering ships for its own purposes through Transfar, a related company.
Transfar’s stated aim is take control of this section of the supply chain for the long-term – a closed-loop dedicated network. How does this impact the tanker sector? The impact lies in the technological ambitions – to leap-frog the decarbonisation of an ageing fleet and build the lowest carbon fleet from scratch; could the tanker sector do the same?
The current state of play in the tanker market is, with the exception of some Scandinavian and Japanese operators, still one step behind – searching for ways to decarbonise the current fleet, not contracting low- or zero-carbon vessels.
We heard a lot about the different techniques and technologies available at the Chemical & Product Tanker Conference and one of the favourite questions posed by delegates was: which sector to invest in and why?
EA Gibson director Richard Matthews noted that tanker deliveries will dip in 2023 due to the lack of ordering and that prices were climbing, driven by the demand for the aforementioned container ships. There are only around 10 MR tanker newbuilding slots available in 2023 and prices have risen from a manageable US$32M each for a standard vessel towards US$50M for a dual-fuel, low-carbon emissions version.
This has led to the strange state of affairs of over-inflated prices from an over-active container ship orderbook (approaching 25% of the current fleet) forcing up tanker newbuilding prices when the tanker orderbook is just 6% of the current fleet.
History has shown that when a shipping sector looks overblown – like the container ship sector today – the fall will be rapid and hard. Then, as in the late 2000s, newbuilding slots will suddenly return, and the market and prices fall. The first movers ordering the latest technology tankers are the brave ones, but those tanker owners that sit and wait will be rewarded with lower pricing and newer technology.
© 2023 Riviera Maritime Media Ltd.