VLCC rates typically begin a downward trajectory starting in late November. But this year rates have steadily climbed starting in mid-November and into December. Freight for the 270,000 mt VLCC US Gulf Coast-China route has so far averaged $11.4 million in December, up from $11.1 million in the second half of November and $10.2 million in the first., Platts says.
The VLCC market has acted as a freight fortuneteller for the smaller dirty and clean tanker markets going into 2020 upon the January 1 implementation of the International Maritime Association's 0.5% sulfur bunker regulation.
The first signs of the tanker trade pricing in 0.5% sulfur bunker costs in the Americas were obscured by a historic 165% spike in VLCC US Gulf Coast-China freight amid geopolitical tensions, including drone attacks on Saudi oil infrastructure and sanctions on COSCO Shipping Tanker (Dalian), at the end of the third and the beginning of the fourth quarter.
Also boosting prices in October were a reduction in available tankers due to US sanctions on Iran and Venezuela.
Ultimately, the short-lived spike elevated rates to a higher floor at lump sum $9.5 million from pre-spike levels of $7.9 million lump sum right around the time when VLCC charter parties started pricing in 0.5% sulfur bunker fuels. VLCCs typically fix tonnage 15-45 days in advance and hence require careful planning to capture compliant fuel cost that ranges $265-$295/mt over high-sulfur bunkers, S&P Global Platts data showed for the ex-wharf Houston market Tuesday.
Ships with scrubbers naturally have a higher earnings potential as they run on lower-priced high-sulfur bunkers.
Shipbroker reports show that this week alone, VLCC time charter equivalent earnings for tankers using VLSFO have been yielding $80,000/d, or 78%-86% of earnings on scrubberized VLCCs for the USGC-China voyage. Shorter voyages have been commanding less of a spread between the two means of compliance, with non-scrubberized Aframaxes on the Caribbean-USGC route making closer to 85%-90% of scrubberized ships.