Overcapacity Threatens To Capsize Global Tanker Market

Overcapacity Threatens To Capsize Global Tanker Market


A young boy looks out at a tanker being scrapped at a Bangladeshi shipbreaking yard on April 29, 2015, near ChittagongBloomberg

Surplus tanker capacity still plagues the shipping industry, with weak oil demand in the second quarter of 2018, and a short-term view for shipping  rates that are plummeting.

Crude shipping from Latin America, Africa, and the Middle East is likely to increase slowly, while shipments to the US and Europe will diminish for the remainder of 2018.

Due to excess capacity, earnings are also incredibly low, with an average of $6,001 per day for Very Large Crude Carriers (VLCCs) and the Suezmax tanker earning $10,908 per day. Compare that with $60,000 and $40,000 (respectively) in January of 2017.  The underlying reason is far too many Very large crude carriers (VLCCs) in operation, owing to cuts in production by oil exporting nations, and lower U.S. import volumes, as local oil becomes more prevalent.

Oil Tanker EarningsHellenic Shipping News

Furthermore, the forecast for the remainder of 2018 looks negative, as the freight market is oversupplied, with a record low fleet utilization rate, according Peter Sand, the chief shipping analyst for BIMCO. Chemical shipping freight rates are also likely to weaken for the rest of the year due to the poor outlook for long-haul routes, according to analysis from the consultancy Drewry. Twenty seven tankers have already been scrapped this year — thirteen of them VLCCs — owing to low earnings, high scrap prices, and subdued oil demand.  It may not be until the latter half of 2019 that overcapacity is finally reduced.

Tanker OrdersBunker Ports News Worldwide

Another major concern is the decision by the U.S. to reimpose sanctions on Iran in May of this year, which could reduce tonne-mile demand owing to fewer long haul trips delivering the crude from Iran to Europe. While the EU is opposed to the U.S. decision, refiners in Europe have already begun to curtail the level of Iranian crude that they import, which has major implications for European energy security, the Iranian economy, regime survival, and the role Iran plays in the global energy market.

The epidemic of tanker overcapacity is closely tied to the volatile geopolitics of the Middle East and the U.S. strategic engagement in the volatile region. President Donald J. Trump, whose decisions on JCPOA and restoring the Iran Sanctions and have far-reaching implications for global energy markers. Furthermore, the increasing U.S. shale oil output and cuts in production from OPEC members will further exacerbate the tanker overcapacity crisis. In the short term, the scrap metal yards of South Asia are the only beneficiaries, serving as the final resting place for the mighty ships unable to make their long-haul journeys.

 



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