From January to October this year, the crude oil tanker segment composing of VLCC, suezmax and aframax ships, recorded a net fleet growth of 7.3%, equalling to 24.3m dwt.
The VLCC segment, with 20.7m dwt or net fleet growth rate of 11% took the lion’s share during the ten-month period, followed by the suezmax segment with 4.4m dwt of 5.5%. The aframax segment, however, decreased by 0.8m dwt or 1%, according to Bimco figures.
“The recent crude oil tanker fleet growth becomes increasingly troubling, and worsen the balance between supply and demand strongly, if demolition does not pick up,” said Peter Sand, chief shipping analyst of Bimco.
“In the past two years, specifically, less than 2.3m dwt of crude oil tanker capacity has been demolished, which in comparison to the 358m dwt of the current crude oil tanker fleet is a vanishingly small proportion,” Sand said.
“But there may be changes just around the corner. The demolition of the 1994-built VLCC Progress with 297,237 dwt by mid-October indicates a resumption of demolition activity for the crude oil tanker segment. In October 2016, this ship was the first trading VLCC since the 1995-built Hebei Mountain in October 2014 with 307,050 dwt was scrapped.”
Most recently in November, another VLCC with 281,434 dwt was demolished.
However, if the fleet in future expands by more than the growing need, it will throw off the demand-supply balance and result in decreased earnings.
“Decreased earnings of crude oil tanker since the start of 2016 is a clear sign of the mismatch between demand and supply. Something which is not fundamentally changed by the seasonal upswing in Q4 2016 as seen for VLCCs,” Sand noted.
“In addition to freight market uncertainties, the enforcement of the ratified ballast water treatment legislation and the IMO global sulphur cap at 0.5% in 2020, will be stimulus for demolition of inefficient ships and therefore could serve as a catalyst for an improving freight market,” he added.
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