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Why scrapping 15 year old VLCCs won’t happen

Why scrapping 15 year old VLCCs won’t happen

With large tanker earnings continuing at nightmare levels at a time when demand would be strengthening in a more normal market, commentators are turning their minds to possible solutions to excess tanker supply. Accelerated scrapping of older vessels is the obvious solution but no-one is holding their breath.

New York maritime services company McQuilling recently looked at what would happen if the market heeded John Fredriksen's call for vessels older than 15 years to be sent to the breakers. It reckons there are 59 such VLCCs or 10% of the trading fleet. If these vessels were removed this year, either by conversion or scrapping, the market would be back to the healthy position, from owners' point of view, of 2008.

That of course is not going to happen. Taking a more realistic view that 15 VLCCs a year could be scrapped each year through 2017, though only six have been scrapped this year so far, McQuilling the average effect on the three main VLCC routes would be a gain of 11 WorldScale points or $17,000 a day in earnings. It points out that the economic impact of shortening a VLCC's life from 25 to 15 years is not as great as might be thought - just $5,000 a day in required time charter earnings. McQuilling thinks that charterers should welcome such a move, despite the increased transport costs, because it will allay fears that owners will cut corners to save on operating costs.

However, even this level of removals may be unrealistic. London broker EA Gibson, in its latest report, points out that owner cannot be expected to shut up shop and demolish their vessels for the good of others. Demolition of VLCCs has actually fallen this year and demolition prices are nowhere near as attractive as they were a few years ago. In any case some 60 VLCCs are still on order.

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