The attacks on shipping in the Red Sea are the latest in a long line of trade disrupters that will produce extraordinary profits in the short term for tanker companies, but issues remain on how and when to re-invest in shipping
The attacks on shipping in the Red Sea are the latest in a series of tanker trade disruptors. Pre-Covid, there were the seizure of the 2018-built, 49,700 dwt chemicals and products tanker Stena Impero by Iran’s Republic Guards as part of a tit-for-tat exchange between Iran and the UK, which had detained an Iranian-connected tanker in Gibraltar.
This was during the tail end of the Somali pirate era, which saw vessels approaching the Strait of Hormuz and the Bab el Mandeb Strait being seized for ransom.
Now Iran’s proxies, the Houthis, whom it armed with drones, have managed to make an almost no-go triangle in the region. The Red Sea attacks, the Russian invasion of Ukraine, the low water levels in the Panama Canal and the attacks near the Suez Canal, are all short-term externalities that are creating a major driver for increasing freight rates and revenues for tanker owners.
“Fuel choice is the major inhibitor of orders, but engine designers and builders have responded rapidly”
Normally, cash-rich owners would have heavily invested in new tonnage, and at this point in a shipping cycle, the tanker orderbook-to-current fleet ratio would be at least double the current level of less than 5% and VLCCs would be even higher, perhaps double that, instead of languishing at 2.6% of the current VLCC fleet.
Fuel choice is the major inhibitor of orders, but engine designers and builders have responded rapidly, as have naval architects. The Deltamarin and BAR Technologies WindWings design for an aerodynamic LR1 tanker (the Aquilo project) highlights the most radical shift in thinking required to meet the new challenges to produce a 35% gain in efficiency.
These new challenges include the arrival of the EU Emission Trading Scheme, which is likely to provide administrative challenges for many small tanker companies, and is proving a challenge for country administrations, too. Apparently, only Denmark has adopted the necessary regulatory framework.
But it is not all doom and gloom. There are pathways to meeting these challenges. Banks are open to financing shipping and can provide advice on accessing the various green funds. It is a question of having a project that meets the various criteria, including being sustainable through the timeline of the ever tightening regulations, while weathering the shipping cycles. This requires better, more granular data to support investment decisions, such as the investor dashboard on offer from the Baltic Exchange.
There is also good news in the progress of technology. What was seen as rocket science only a decade ago is now becoming a reality on vessels. This includes onboard carbon capture, the progress of which was detailed by DNV at the Tanker Shipping & Trade Conference in Athens, Greece, in November 2023. It was at the same event that Alisha Fredriksson of Seabound, an onboard carbon capture start-up, was awarded Entrepreneur of the Year Award 2023. It is with pride that we can report that as the latest issue of Tanker Shipping & Trade went to press, Seabound completed its maiden voyage, capturing 78% of the trial subject vessel’s carbon emissions and more than 90% of its sulphur output.
© 2023 Riviera Maritime Media Ltd.