testata inforMARE
03 de febrero de 2023 - Año XXVII
Periódico independiente sobre economía y política de transporte
04:01 GMT+1
FORUM de lo shipping y
de la logística

Shipping and Shipbuilding Markets in 2001


The Liquefied Petroleum Gas shipping Market in 2001

A serious knockout on all markets


Significant events 
Situation by ship size: 
- Mid-size

  - 8 000/23 000 cbm
  - 8 000 cbm and less
The second-hand market
Significant events
Whereas the year 2000 saw a strong increase in the price of oil products including LPG and derivatives, and a substantial rise in freight rates in all segments of the shipping market, we thought that the gas sector, not having encountered the same upward thrust in rates as other categories, would somehow behave in a more stable manner and be less affected by a possible market downturn. We were too optimistic! What is the situation now at this year-end, when many certainties and expectations have been shattered, or even dramatically swept aside?

Globally the year 2001 has been marked by a strong slowing down in all industrial sectors, either upstream in terms of raw materials or downstream in the demand of by products and their distribution, with as a natural consequence a strong impact on the freight element.

We should take a look at last year's tables illustrating the price variations of several key products and up date them for the past twelve months period:

market prices
...and another look at the levels of the average freight rates achieved on the spot market and the equivalent time charter rates for short periods in the various size categories of ships. We must however remember that these average rates exclude any eventual idle time between voyages and any transactions for longer periods (two to five years).

average freight rates

Those negative variations are impressive, as much in the price of products as for the freight rates, regardless of ship size.

We can summarise the main reasons as follows:

' The world economy has been running out of breath with all signals going from amber to red, principally in the U.S. which has been the driving force and where a slow-down in consumption was to be feared for quite a time after the easy days of the last few years. Unfortunately the turnaround had to come sooner or later and though everyone tried to cling on to a few sectors which were still on the boil, the decline had already set in as from the beginning 2001. OECD statistics for the 30 member states published successive GDP growth figures each lower than the preceding, to end up with a level near 1 % for the year, and forecasts wildly dispersed for 2002 given the actual recession in the U.S. and in Asia, where levels have now gone into the red. We are a long way from a level of over 3 % which was predicted at the end of 2000, and the tragic events of 11th September only accelerated the trend which was already well established, if often ignored.

' A general surplus capacity of production in all industrial sectors, whilst demand was weakening. Even though the old adage "more tons equals more freight" is often true, too big an imbalance between the development in production and the consumption level can undermine a solid basis of economic exchanges. One thereby exceeds the limits of practical hedging between different geographical zones such as have been frequently developed in the product market. Crude oil, naphtha, LPG, chemical gas and ammonia have all been hit by such restrictions.

' The limits and consequences of mergers among operators: although the majority of ships in the LPG fleet above 8,000 cbm is split and run by the three 'Major' owners, Bergesen, A.P. Moller and Exmar the effect of freight optimisation on certain movements hits a barrier when a substantial reduction in traffic comes up. The addition of idle times no longer allows a pool operator to obtain the appropriate average return on his fleet, whereas a smaller size operator does not suffer from this same handicap. The "Major" owner Bergesen decided to change his policy and approach towards the spot market partly for these reasons but this did not stop the very low demand conditions reflected in 10 units of his VLGC pool (75,000 / 85,000 cbm) currently looking for employment in the Middle East. Although difficult to quantify, the mergers and groupings realised over recent years in the product side have become operational and have now allowed a full optimisation of logistics in several markets which previously were more competitive but less efficient, with inevitable consequences in the volumes exchanged.

' Delivery of newbuildings ordered since 1998: within a market with limited growth, deliveries of new units create exponential availability of capacity. At the end of November, there have been 28 newbuildings delivered since January 1st 2001, with capacities ranging from 1,000 cbm to 84,000 cbm for a total of 578,000 cbm! It should be said however that six VLGCs (78,000 / 84,000 cbm) are included in these deliveries.


lpg carriers deliveries and orderbook

Situation by ship size


  • VLGC (very large gas carriers): 70,000 to 86,000 cbm

lpg 24/85,000 cbm tc rates

The year 2001 witnessed a wild fluctuation in this sector, still fragile and highly exposed to the structure of "contract prices" compared to spot prices of butane and propane. Despite a strong rise starting in mid 2000 with the help of the clean product market (naphtha and jet) which led to nearly record historic highs at the beginning of the year at levels of $50 per ton for voyages MEG / Japan - an equivalent monthly time charter rate of roughly $1.6 million - a sharp drop was experienced already as from February.

The pressure of American imports was no longer felt and the clean product options diminished whilst opportunities for LPG employment became more scarce.

The proportion of the fleet employed in the clean product market in January 2001 went from twelve ships down to five or six at the end of the summer and back to eight at the end of November, despite a lower income return. Although not being as firm as at the start of the year, this market still offers freight levels above those in LPG, namely an equivalent monthly time charter rate of about $450,000 as against below $300,000 for LPG, also affecting the percentage of idle time to 8 % in October 2001.

A limited number of time charter transactions have recently been concluded on the basis of three to 12 months, well below previous levels, in the order of $450,000 / 475,000 monthly.

There is a serious question mark hanging over this segment of tonnage, supplemented by a further 13 units under construction which are due to be delivered in the next two years, mainly for the account of Japanese and Korean conglomerates, one oil Major operator already tied up with the Bergesen pool, and a few independent owners. Seven of these ships have been delivered during the course of 2001, thus representing a large additional cbm capacity within an already depressed market.

The drop in activity in this size category was not as important as that affecting the VLGCs. This smaller segment accounts for 27 ships being spread between two distinct product markets, ammonia and LPG, of which 22 are controlled by Bergesen.

We were already questioning this issue in our previous reports and we now see this sector has registered four new units ordered for delivery in 2003, a fairly inevitable step in an attempt to improve the average age of this fleet: 14 of them are still over 20 years.

The monthly returns of these ships have substantially fluctuated over the last twelve months following the variations on imports of ammonia and LPG into the U.S., with a pronounced dip in the last quarter, and currently achieve on the spot market about $675,000 monthly, always excluding all idle time between voyages.

A certain stability and therefore less volatility can be expected in this sector over the next few years with the prospect of a few old units being withdrawn from the market.

Amongst the different sizes of ships, this segment is nearly exclusively controlled by Exmar following the big reshuffling by sizes which gradually took place over the last few years, and turned out to be the one least affected by the downturn in the market. The concentration of such a fleet of more than 25 ships, combined with the flexibility of switching from ammonia to LPG and vice versa, means that the rates concluded varied little both on term business as well as spot.

However the idle time for this fleet, roughly 15 % for the first nine months of 2001, has considerably increased in the last two months to close to 22 %. Certain trades like the imports of ammonia into the United-States have been severely affected by the sudden plunge in the price of natural gas. While the time charter rates for a period of one to three years fall within a monthly bracket of $475,000 / 575,000 for a 24,000 cbm and of $670,000 / 750,000 for a 35,000 / 39,000 cbm, voyage rates achieve the same levels on time charter equivalent basis and sometimes even more when employed in the ammonia business. Nonetheless the sector is vulnerable given that they can face competition in the spot market from both the larger and the smaller sizes. Four new units of 35,000 / 37,000 cbm are currently on order for the account of Bibby, Mitsui, Geogas, and Carbofin, for delivery end 2002 and 2003, but the latter ones should not have too bad an effect on the evolution of this sector, given that several units are due to be withdrawn in the next few years on account of their age.

LPG - Jane Maersk Jane Maersk 
35,639 cbm, blt 1990 by Hyundai, operated by Exmar and time-chartered by Petrobras


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