In addition, VLCC ships, which ranked first in the highest ever with a total capacity of 15,900 million DWT entered the market. In line with this, the amount of tanker ordering experienced a growth of 17 percent in 2017, which consequently led to the temptation of owners toward the new proposed prices by the side of yards. Thus, they want to overcome the downturn in the industry, but the solution is not achieved appropriately and will affect earnings of 2018.
Intermodal Research in its latest report announced that sale and purchase of secondhand tonnages in 2017 (340 units) have been increased in comparison to 2016 (333 units).
The activity of tanker's demolition doubled by the end of Q4 of 2017, with a total of 169 tankers worth 13,193,150 DWT. The figure for 2016 was 88 tankers with a capacity of 5,229,788 DWT, which showed a significant leap in the volume of the ships' scrapping.
With regard to price, the demolition market faces challenges, especially in the case of tankers that have been operating for more than 10 years. Although renovation is in the top priority of the owners, scrapping of tankers is not supported by the global fleet to solve with oversupply.
In fact, considering the timetable of ships' delivery and the average life of new ones in the fleet, which exceeds the number of ships in scrapping queues, it is not surprising that in 2018, the rate of secondhand tankers will be more attractive. Third quarter of 2017 ended when the capacity of the tanker fleet dropped, and Clarkson declared the course to be the lowest cycle of tanker activity on the market. In contrast, Drewry predict an unfortunate state due to the implications of this trend in 2018 according to which freight rate will be shrinking this year, followed by China's crude oil storage. In the meantime, growth of the tonnage in the crude oil tanker market with a six percent increase in 2016 and 2017, would drop to less than 2.3 percent this year, and unfortunately it should be said that this rate aiming at an increase in freight rate and demand's growth at the same time is not enough.
LLI wrote in a 2017 report that growth in crude oil tanker fleet will be accelerated over the next five years, but it will lead to a drop in revenue and market downturn. Hence, those who believe this year as a year to improve revenue should keep in mind that during 2012-2017 the fleet experienced a total growth of 27.7 percent, indicating a doubling of the pace of expansion of the fleet in comparison to five years ago.
On the other side of the coin 702 crude oil tankers with a capacity of 133 million DWT will be delivered in a five-year plan from 2017, while during the same time 197 tankers with a capacity of only 28 million DWT were transferred to scrapping yards. Hence, due to the strong growth of the oil tanker fleet this year, the market is condemned to be defeated.
The tanker fleet is expected to increase by 7.5% annually in product tankers between 2017 and 2021. Therefore, tankers with the capacity of 60,000 DWT or higher than that will experience growth of 7.5 percent and smaller ones with the capacity lower than 20,000 DWT will take a downtrend direction.
The International Energy Agency predicted that by 2040 demand for South East Asian oil would increase from 6.4 million barrels per day to 6.6 million barrels per day in a way that it brings about hope among uncertainties caused by the decline in production of the region. The annual demand for oil is also increasing so that more than 250 VLCC ships will be needed annually.
Managing director of Frontline, the largest tanker ship operator and one of the largest shipping companies in the world located in Bermuda, has said that crude oil inventory's decline along with coupled pace of scrapping could be a turning point for the tanker market during the second half of 2018.
In 2017, 44 VLCCs and 50 Suezmaxes were delivered to owners. This year, the supply market will be limited so that demand for oil will be increased. In addition, nearly 20% of VLCCs have demolition potential in the coming years.
Owners and operators are also seeking to comply with the environmental regulations approved by IMO. They are interested in demolition of 20 years old tankers. Otherwise, ships over 20 will become idle and completely inefficient.
In the case that demolition follows a proper speed and loss of the global cumulative of oil continues, one can be hopeful to be witness of the balance in supply-demand and then tanker freight rates will be improving.
In the same vein, the managing director of the Belgian International Transport Company Euronav emphasizes that the root of distress and turmoil in the market should be considered in the very large fleet (high supply), but if demolitions increase, oversupply would be well controlled this year. Some analysts have predicted that new regulations on ballast water and sulfur restrictions will boost older ships by transferring them to the scrapping yards during 2018/19.
There are 35 to 40 of surplus tankers currently according to which the strong growth in demand for oil and long voyages from the United States to Asia would make break the record.
On the other hand, OPEC's cumulative of oil in September reached a billion and 500 million barrels a drop of eight million barrels. However, a total of 129 million barrels of a five-year average shows a better situation. In addition, when the crude oil crumbles to normal, global refineries will need to replenish their reserves, which will increase demand for tankers.
Development trend of refineries' capacity comes as the following:
Referring to the annual revenue of 2017, LloydsList analysts announced that the revenues gained by VLCCs would enhance from $24,48 to $26,240 per day in the current year. Moreover, an increase from $13,182 to $15,648 will be seen in aframaxes' revenues.
In the end, owners must keep in mind that fleet development by ordering new ships is not a way to improve the situation. As the market encounters with oversupply to create balance in supply-demand, it has to come up with some risks dominating the industry. With the focus on increasing demand and setting competitive prices on the market, we can see the boom of this segment in maritime transportation.