Tanker Fleet Supply Overview

In the tanker market, much of the column inches and presentation time has rightly been spent analysing and explaining the huge impacts that the Russian invasion of Ukraine, and resultant policy changes and trade dislocations, have had on the market.

Tanker Fleet Supply Overview

Of arguably equal significance for the health of tanker freight is the story surrounding vessel supply, and this is where we will focus our attention in our latest monthly feature, as we delve into the main themes of fleet development so far this year.

The most obvious place to start is with scheduled deliveries. This year is the starting point for a period of lower scheduled deliveries over the next few years. This is particularly true of crude tanker deliveries, with a total of 10.8m dwt expected to hit the water throughout 2023, which even if no slippage occurs, will represent the lowest total volume of tonnage coming into the market since 2015 and the third lowest level seen in over two decades. Within the segment, Suezmaxes lead the way as the fleet with the lowest deliveries scheduled, with only 6 scheduled, compared to a total of 33 delivered during 2022. Whilst not as severe, scheduled deliveries in the products and chemical fleets are also under pressure this year, with lower-than-average total deliveries compared with average levels. The products fleet is seeing 6.3m dwt delivered this year, with the chemical fleet adding a further 1.2m dwt; both compared to a long-term average level (since 2000) of 8.6m dwt and 1.7m dwt respectively.

The dearth of new tonnage is a product of very limited new orders seen during recent years, with the tanker tonnage being ordered trending downwards from 2019 to 2022. A combination of extremely elevated newbuild prices (at the time of writing a VLCC newbuild is priced at US$ 130m), limited yard slot availability (as other segments have tied up both investment and spare slots), increasingly limited & expensive financing and the fundamentally unanswered question surrounding the most viable propulsion system to install on your new tanker. Even the exceptionally healthy market of 2022 failed to tempt too many owners to order new vessels. As an example, 2022 saw only 3 VLCC’s contracted, down from 30 the year prior. This lack of new orders stretched across various tanker segments but was particularly prevalent amongst the larger crude tankers. This year has seen something of a reversal of this trend, however, with significant orders being placed already in the first five months. Product tankers have been leading the way, with a total of 8.8m dwt ordered in only five months, already the highest annual orders since 2015. The vast majority of these have been LR2 orders, with significant interest in this segment on the back of expected ongoing health and tonne-mile developments long term, as the profile of refinery supply shifts eastward, a trend conducive to long haul LR2 trades. Crude tankers orders have also already matched full year 2022 levels, with 3.1m dwt ordered, whilst chemical tanker orders lag behind, with 0.44m dwt ordered so far this year, compared with 0.95m during 2022. All told, the tanker fleet orderbook sits at a margin over 5% of the currently trading fleet, roughly half a percent higher than its low point seen at the beginning of this year and still amongst the smallest relative orderbook size since the mid 1990’s. Even with some higher levels of ordering this year, this points towards some significant supply tightness over the coming few years.

Whilst scheduled deliveries have been reducing, the existing fleet continues to age, and at an increasingly dramatic rate. Older tonnage across the tanker fleet has been able to continue to trade, often in lucrative ‘off-market’ trades, which has elongated the lifespan of vessels that in any conventional market were likely to head to the recycling yards. The net effect has been a significant lack of deletions in the past twelve months, despite the healthy demolition prices on offer. 2023 has largely continued this trend; for example only a single Afra/LR2 has been removed. Despite the limited removals, the size of the sub-15yr fleet, a key metric for available market tonnage as many charterers have max age restrictions of sub-15 years, is shrinking. The vast numbers of vessels delivered during the late 2000’s are all tipping over into this category, helping to shrink the pool of underage tonnage even in the face of limited removals. A prime example of this is within the MR segment, where deliveries across this year are scheduled at 48 vessels, whilst a total of 127 are tipping into the ‘overage’ segment.

Overall, tanker fleet supply is expected to remain tight over the coming years, with this supply side squeeze coming at the same time as demand for tankers has shifted upwards on the back of crude and product dislocations. This all points towards continued strong returns across the tanker space over the coming years.