Which Tanker to Buy? A Shipowner’s Conundrum

Investing in the tanker market is more than numbers these days. In its latest weekly report, shipbroker Gibson said that “tanker investments these days are not a straightforward decision. A prospective buyer is faced with a combination of price pressure, regulatory uncertainties, long term demand concerns and limited near term yard availability, all of which are making ordering newbuild tankers a complex undertaking. Thus far 2022 tanker orders have been limited. Between 2022 and 2023 59 VLCCs and 35 Suezmaxes are scheduled for delivery (90% of the current tanker order book). This will leave only 5% of outstanding VLCC and Suezmax orders for delivery past 2023. It is unlikely deliveries in 2023/2024 will increase beyond already scheduled deliveries as yard availability for larger tankers classes has been mostly booked up”.

According to Gibson, “on the plus side, this has contributed to a low outstanding orderbook, that will help keep future fleet growth constrained. Reduced investor appetite can be partly explained by the disappointing state of tanker earnings between June 2020 and February 2022 compared to other sectors such as containers, where shipyards have received a much higher level of orders and interest. At the same time, weak industry returns combined with ESG pressure from traditional financiers and capital markets has reduced the attractiveness of tankers, making financing newbuild projects both more expensive and in most cases harder than alternative newbuild investments, which are perceived to be financially more attractive with lower ESG risk profiles”.

“In terms of newbuild crude tanker prices, a standard VLCC is now estimated at $116m a Suezmax at $78m and an Aframax at $60.5m. This compares to $92m, $63m and $51m respectively in January 2021, showing the considerable increase in prices over the last 16 months. Demand for newbuild vessels in better performing sectors has reduced the overall availability of yard slots which has resulted in higher newbuild prices across the board. Also, higher profit margins for nontanker orders such as containers, LNG and dry bulk has reduced the incentive for many yards to offer newbuild tanker availability until at least 2025 delivery at the earliest in terms of VLCC tonnage. Additionally, higher commodity prices, in particular iron ore and steel are being passed onto owners through yard pricing. This has been made worse by the upward pressure on commodity prices following the RussiaUkraine war and is adding further inflationary pressure to newbuild prices”, Gibson said.

“Additionally, owners must find a combination of currently available solutions and technology that will meet upcoming EEXI and CII regulations, whilst leaving sufficient flexibility in terms of new fuelling options and regulatory developments. Dual-fuel (DF) LNG propulsion is one of the most viable solutions currently available to the market; however, this is more expensive than a conventionally fuelled tanker, with an DF LNG VLCC currently estimated at an additional $19m over a standard designed version, likewise an Aframax is estimated to have a DF premium of $13m over non-DF propulsion. The Russian crisis, which is seeing LNG prices skyrocket, also makes LNG bunkering economics less attractive, as operating in DF mode is currently uneconomical due to the spread between LNG and fuel oil bunkers”, the shipbroker noted.

“Overall, tanker owners do not have an easy decision with regards to future proofing their vessels from a risk management perspective. The only positive is the strong potential for controlled net fleet growth over the coming years, as limited orders and scrapping reduce the size of the global tanker fleet. For those keen to order today, the most fuel-efficient vessel with the option to retrofit in the future may be the best option, if they can find a yard slot and are willing to pay a higher price”, Gibson concluded.
Nikos Roussanoglou, Hellenic Shipping News Worldwide