The Tanker market in 2000 (2)
The crude oil transport
Faced with such a radical reversal in transportation
charges, and mindful of the painful experiences of the past (when rate
increases rarely lasted long and gave rise to many undercutting
operators), one is bound to ask "How long can this last?"
Despite the past frequently proving that any forecast
is quickly overtaken by unforeseen events, several factors point to
freight rates remaining favorable to shipowners over the next two to
Recent events have brought tanker transport out from
the shadows and cuts the limelight. After accidents such as the 'Erika',
the 'Ievoli Sun' and the 'Westchester', the role played by the
politicians and the media has made the oil companies aware that even if
they are legally protected, they can not allow their public image to be
ruined by the fortunes of the sea. Consequently one can expect that
safety measures will be maintained and even extended. Chartered-in
tonnage is becoming increasingly supervised and selective, as the market
is tending to pay up for modern tonnage and not pay down for older
tonnage, as was still the case last year.
There are many more charterers today looking to
extend a part of their transport needs with terms contracts, and to
renew existing term deals. This is time for all sizes, and in today's
climate on the "spot" market, most shipowners are jealously
protecting their "golden eggs" ! for short term contracts (less
than two years), the levels proposed by owners of modern units are a
minimum $30,000 per day for a Aframax, $40,000 per day for a Suezmax,
$60,000 per day for a VLCC. However, for periods beyond 2003 making a
forecast is particularly dangerous and shipowners will certainly try to
optimise their rates for periods in excess of three years.
Taking as our base case that the current market is
predominantly influenced by vessels of less than fifteen years of age,
and given that the shipyards are fully booked up till the end of 2002,
we can then try to establish the available tonnage by size over the next
three years (and eliminating each year any vessel over 15 years) :
Thus, despite the rush of orders placed over these last months with the
different shipyards, the repercussion on the supply side (especially for
the Aframax) is not as strong as many might like to think, and supports
our predictions for 2001 and 2002.
Nonetheless, one can anticipate that there will be a new surge of
orders for deliveries starting in 2003. And this could have a major
impact on freight rates. Without dipping into the depths of past years.
It is more than likely that there will be a downward readjustment at
298,677 dwt, blt 2000, by Hitachi - Owned by Bergesen
The second-hand oil tanker market
Even if we didn't quite step into the next century
on the 31st of December 1999, the players in the second-hand oil tanker
market will always remember 2000 as the year of fundamental changes. All
the factors which contributed to a depressed market in 1999 have not
only disappeared, but have also become the factors which have fuelled a
stronger and more active market in 2000.
This year, there is no doubt that sellers and buyers needed to be
motivated to agree with their counterparts in order to benefit from the
year long lasting rise of freight rates. Each of the players had to
assess the duration of the good times, and the different conclusions
that have led to more sales. We noticed a good 40 % increase of the
number of transactions (aggregating VLCC, Suezmax, Aframax, Panamax
tankers and product carriers) compared to 1999 and between 15 to 40 %
increase of the values depending on segment and vintage. The more modern
and larger tonnage being in the upper part of the bracket and
- Newbuilding prices were low in 1999 and substantially increased in
- Oil companies and traders offered a larger number of
"long-term" time-charters to the owners in 2000 compared
- The appetite for FSO and FPSO conversion purchase inquiries, which
had dried up in 1999, made a remarkable comeback in 2000.
- The shy concentration of owners and tonnage seen up to 1999 turned
to be as of 2000 a key issue and even a primary motivation for asset
play for some participants.
- The m/t 'Erika' sank the 12th of December 1999. The
"ecologically and environmentally correct" shipping world
became, in 2000, the public's preoccupation and consequently their
- Last but not least, earnings of vessels turned from miserable in
1999 to memorable in 2000 from an owner's point of view.
|Three times as much ! It is the best way to
qualify the number of sales in 2000 compared to 1999. By mid December 2000,
if we include resale deals involving eight units to be delivered in 2002/2003,
we noticed that 32 VLCC have changed hands compared to 11 in 1999, 17 in 1998
and 20 in 1997.
Out of these 32 ships, about half were less than 10 years of age. No
owners of (trading) double-hull VLCC agreed to sell their vessels, and
the only double-hull ships sold this year, eight in total, were
newbuilding resales for forward delivery.
The logic behind the important number of transactions on modern ships
comes from the immediate need of fleet rejuvenation by owners, reacting
to the new oil Majors' restrictive chartering practices. At mid
December, two VLCC resales for delivery 2002 were taken by American
buyers, for a price of around US$ 72 m each, they were initially
contracted for US$ 68 m each, and will join the Tankers International
The other nine vessels sold were built between 1993 and 1990. We
mention the following sales of modern single-hull ships to illustrate
the price increase along the year:
Four units built in the eighties changed hands during 2000 including the
m/t 'Navix Seibu', 257,589 dwt, built 1989, achieving a healthy US$
34.5 m and the balance sales were seventies-built vessels, which were
mainly purchased for offshore or storage projects such as :
- m/t 'Izusan Maru', 264,301 dwt, 1992-built, was sold for about
US$ 34.5 m in February.
- m/t 'Cosmo Pleiades', 238,770 dwt, 1992-built, was sold for
about US$ 40.5 m in August.
However, as far as the demolition is concerned, the freight rates
increase has not prompted owners to scrap their older vessels since we
only noticed, at time of writing, 28 VLCC sold to the scrapyards
compared to 36 vessels in 1999. The healthy prices offered by the
scrappers did not compensate the returns obtained by owners for older
vessels trading them East of Suez.
- T/T 'Stena Continent' and 'Stena Concordia', 273,616 dwt,
1975 and 1973-built respectively, sold en-bloc for about US$ 30 m.
- T/T 'Amazon Eagle' and 'Amazon Falcon', 307,235 dwt, 1974
and 1975-built respectively, sold en-bloc for about US$ 18.0 m.
number of transaction for this category has been rather stable. So far
this year we saw 23 units changing hands which is the exact same number
as for 1999. Out of this total, 12 units were 10 years of age, this
follows the same logic as for VLCC. In addition, it has been interesting
to note that most of these ships (except three) have been part of
en-bloc deals. We will particularly remember the "tanker deal of
the year" for a reported US$ 320 m involving the sale of 10 units
including five Aframax and five Suezmax. The five Suezmax (m/t 'Nord
Horn' and 'Nord Hope', 160,000 dwt, both built in 1999 and the m/t
'Nord Jahre Transporter' / 'Nord Jahre Target' / 'Nord Jahre
Traveller', 142,000 dwt, built respectively in 1989 / 1990 / 1990)
were valued at an estimated US$ 208 m in that deal. Other en-bloc deals
of modern Suezmax included the en-bloc sale of two units controlled by
Euronav and three units controlled by Chevron.
As a matter of fact, only three units built in the eighties changed
hands this year, but this figure should be measured keeping in mind that
there are only 38 units built between 1980 to 1989 among the nearly 300
strong Suezmax active fleet. Suezmax vessels have often been a very
speculative floating assets and the prices for this vintage have
followed the trend of the nineties built ships. Values had dropped in
1999 to a severe low and made a very strong come back in 2000. One
should remember that the 1989-built m/t 'Ioannis', 150,000 dwt,
1989-built achieved US$ 38.5 m in April 1998. Her sister-ship m/t 'Knock
Sheen' could only fetch US$ 27.5 m in November 1999 and this year, we
have seen the m/t 'Inigo Tapias', 146,270 dwt, 1989-built changing
hands for about US$ 30 m in July.
Eight seventies-built Suezmax changed hands in 2000. The sales were
mainly concentrated in the second part of the year when asset players
realised that freight rates were high enough to sustain an extremely
prompt return to their investment and minimise their exposure towards a
downturn of the market. To illustrate this, we can mention that the m/t
'Montana', 132,207 dwt, 1979-built (one of the very few), was sold
for a high US$ 9.5 m in September 2000. However, this ship will not be
required to trade in HBL or SBT mode before 2004 as per present IMO
regulation, and the possible new IMO regulation would give her an extra
year up to 2005. With a lightweight exceeding 20,000tons the risk
is not that important in the conditions prevailing on the spot freight
market. Among these eight units, three of them were sold for conversion
or storage and this includes the m/t 'White Sea', 155,703 dwt,
1975-built sold for US$ 6.5 m.
On the demolition front, 16 vessels were sold (mid
December) and this gives us a negative figure in comparison with the one
from 1999 when we spotted 26 units disappearing. Even if it was getting
clearly more difficult to obtain approvals from the oil Majors on such
vessels and even if owners had to trade East of Suez, the return
provided by the spot market in 2000 gave no incentive whatsoever, to
sell such units to the scrappers.
If we consider the forced sale of the five Alandia
Aframax tankers as being a 1999 done deal, we had seen 36 Aframax
changing hands last year compared to a strong 50 units in 2000. Out of
these 50 units, 22 of them had less than 10 years of age, while 26 were
built in the eighties and only two seventies-built ships changed hands.
Noticeably, 15 double-hull ships were exchanged in this category, among
the most modern vessels and this can probably be explained by the fact
that the Aframax fleet age profile is more evenly spread over the last
30 years. One should always keep in mind that contrary to the Suezmax
and VLCC sector, the Aframax size does not suffer from the penury of
vessels built in the eighties, this permits to facilitate in the
exchanges between owners.
Sales of modern and double-hull ships have commanded
a very rich budget for the buyers, therefore only the significant and
experienced players were active, together with a few buyers motivated by
fiscal reasons, but always demanding long charter periods attached. The
prices have also increased to a large extent and we may illustrate this
trend with the following example for double-hull vessels: the m/t 'Stena
Concert', 96,828 dwt, 1992-built, was sold in November 1999 for a
price of US$ 20.2 m, while in March 2000 the m/t 'Nordpacific',
102,262 dwt, 1992-built, obtained US$ 25.3 m, then the m/t 'Colby',
97,045 dwt, 1993-built, achieved US$ 26.25 m in June 2000 and the m/t
'Torungen', 95,621 dwt, 1993-built was sold in September 2000 for a
reported US$ 32.75 m.
The Aframax vessels built in the eighties consists of
189 units which represents 33 % of the active fleet; therefore, it is
obvious to see a large number of vessels of this vintage changing hands.
Buyers have paid particular attention to the quality and technicality of
the vessels and, as realised last year, vessels with SBT features
attracted more interest. Patient sellers have been rewarded in this
category as values for early eighties-built vessels have followed the
upward trend, even though they had a slower start compared to more
modern units. For example, at the beginning of the year, the m/t 'Mendana
Spirit', 81,283 dwt, 1980-built obtained about US$ 4.5 m, while the
m/t 'Silver Iris', 88,389 dwt, 1980-built got US$ 9.2 m at the end
of October. Late eighties-built vessels were also very popular and
benefited from a serious demand from the buyers. The m/t 'Maersk
Virtue', 110,000 dwt, 1988-built obtained a very firm price of close
to US$ 25.0 m in October.
Although they still represent 100 units out of the
586 units of the active fleet, only two Aframax built between 1970 and
1979 were sold this year (as of mid November 2000). This is clearly a
low result. However, purchasing seventies-built Aframax, for asset
players, was a tougher bet to make this year in the light of the large
number of existing eighties-built units. This low activity might be
explained by the assumption that buyers felt that an unavoidable drop of
the chartering market would jeopardise the earnings of the
seventies-built Aframax very quickly, and probably much faster than for
VLCC and Suezmax. It will be very easy for the charterers to favour the
next decade generation since there are 189 units built between 1980 and
1989 in the active fleet.
As far as the Aframax segment is concerned, 18 units
were sold for scrap as of mid December, if we exclude the Panamax
tankers and stay below 120,000 dwt. Last year the figure was 30 vessels
and the phenomenon described for Suezmax also applied to this category.
Panamax tankers have made a noticeable comeback in
the sale and purchase scene of this year with 15 units sold, this
represents three times as much as last year's figure. The only
double-hull vessel sold was the prompt resale of the m/t 'Four Cutter',
72,500 dwt, 2000-built, for US$ 39.0 m. All others transactions were
done with vessels built between 1977 and 1988 except for the m/t 'Maersk
Marlin', 69,999 dwt, 1990-built, sold for US$ 19.3 m.
The event of the year in this category was the sale
of the BT fleet including the six vessels, the m/t 'BT Nimrod', 'BT
Navigator', 'BT Navarin', 'BT Neptune', 'BT Nestor' and
'BT Nautilus' all of 64,900 dwt, built between 1977 and 1979, for
US$ 28.5 m between February and June.
In contradiction to the larger size, there were more
Panamax tankers scrapped in 2000 compared to 1999. Eight units were sold
against three last year, but three of them were either American or
Brazilian flag built in 1960, 1960 and 1970 respectively.
During this year, we noticed a similar number of
units sold compared to 1999 (twenty against nineteen). The activity in
2000 was equally balanced between the trading sales and the demolition
sales. Ten combined carriers changed hands and 10 went for scrap, while
one may remember that the activity in 1999 was concentrated on the
All the units sold for scrap were built between 1973
and 1979, reducing again the active fleet of this category. We estimate
it at about 173 vessels, out of which 50 are older than 20 years. On the
trading side, out of the 10 vessels sold, two were built in the
seventies (including the o/o 'Marshal Zhukov', 103,307 dwt,
1973-built, sold for US$ 3.8 m in April) and six in the eighties
(including the obo 'Waasland', 164,100 dwt, 1986-built, sold for US$
18.5 m). The last two units sold were the 'SC Horizon' and 'SC
Breeze' both 1992-built and 96,027 dwt, and achieved a very healthy
price of US$ 54.0 m on an en-bloc basis.
It is a common belief that tanker values for 2001
should remain strong. The 'Erika' phenomenon is here to stay, making
life easier and values higher for modern vessels.
The risk of oil pollution has been remembered all
year long by the public and governments all over the world, together
with the consecutive accidents of the m/t 'Natuna Sea', m/t 'Ievoli
Sun' and m/t 'Westchester'. Amendments to the IMO phasing out in
spring 2001 can only speed up the elimination of the older tonnage. So,
now the "age before beauty" prevails, even if
"beauty" is sometimes questionable. Major charterers are now
the hostages of basic public thinking, giving more credit to youth than
The sinking of the m/t 'Erika' at the end of 1999
had a tremendous and immediate impact on freight rates for the good of
modern ships. Ironically this trend also benefited the older vintages
for the less demanding trades at the end of the year, and despite a good
start, scrapping level has been rather slow.
It should be repeated that signs of a slowdown in the
Western growth are starting to worry some economists. The oil
consumption should therefore be affected at some stage having direct
consequences on transportation demand and thus on oil tankers prices. If
this is confirmed, every trade, whether in the West or East of Suez,
will be able to afford to be more restrictive in terms of vessel's
age. Values for seventies up to mid eighties built vessels will be
abruptly affected then.
Shipping and Shipbuilding Markets in 2000
I N D E X