Newbuildings - a worrying trend

Jun 30 2017

There has been an increasing pace of newbuilding contracts in the tanker sector thus far this year.

Figures produced by BIMCO’s chief markets analyst, Peter Sand, show that up to June, some 22 tankers have been ordered, totalling 2.6 mill dwt.

For June, the crude oil segment ordering consisted entirely of Suezmaxes. Around 0.7 mill dwt of products tankers were also contracted during the month.

Sand said; “BIMCO expected newbuild activity to pick up, so the recent development is not surprising. It is, however, not what the industry needs given the present challenges in the market, as earnings give little incentive for adding more capacity.

“The low level of contracting, as seen in 2016, is necessary in order to restore the fundamental balance between supply and demand in the shipping industry.

“As the crude oil and product tanker shipping sectors are all struggling with very low freight rates, it is important that the recent development in contracting activity reflects a short term trend. A continuous high level of newbuild activity will halt the current slow progressing improvement in the shipping markets,” he said.

In the first half of this year, more than 60% of the contracts signed for drybulk and the tanker sectors were for crude oil tankers. A total of 11.8 mill dwt of tankers were ordered with VLCCs grabbing the lion’s share with 27 vessels of 8.5 mill dwt.

The 27 VLCCs were ordered between January and May, which was the highest level seen in the first five months of a year since 2008. In addition, 2.2 mill dwt of Suezmaxes and 1.1 mill dwt of Aframaxes were contracted.

The net VLCC fleet growth reached 8.1% in February of this year, which was the highest since September, 2009. The number of VLCC deliveries in the first five months of 2017 was the highest since 2011, while only two VLCCs left the fleet during the same period.

This surge in deliveries has affected the supply side, as demolition activity was close to zero in 2015 and 2016, thereby causing the fleet to grow.    

Sand added: “BIMCO continuously stresses the need for managing the supply in the crude oil tanker industry. It is essential to handle the supply side as demand growth will not support the market to the same extent, as it did in 2016.

“If the situation doesn’t ease off, we might see the same fundamental imbalance for tankers, as seen in the drybulk shipping industry, which will take years to overcome,” he concluded.   

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