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How Fleet Growth Will Impact Crude Tanker Industry in 2017, 2018

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Headwinds

In the second half of 2016, tanker freight rates faced headwinds, especially due to fleet growth. In 2016, the VLCC (very large crude carrier) fleet grew ~7.0%, and the Suezmax fleet grew 5.0%. That was far better than the 1.3% and 3.0% fleet growth in 2014 and 2015, respectively.

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Orderbook

The orderbook tells us how many ships have been ordered and how many are under construction. A very heavy orderbook can pose a demand-supply imbalance, which can put pressure on tanker rates. On the other hand, if the newbuild supply is short of increasing demand, it could give a push to tanker rates.

Assessing the crude tanker industry orderbook is important in determining the outlook of companies such as Frontline (FRO), Nordic American Tankers (NAT), Teekay Tankers (TNK), Euronav (EURN), DHT Holdings (DHT), and Tsakos Energy Navigation (TNP).

Heavy fleet growth in 2017

According to Charles R. Weber’s tanker report, 26 VLCCs will be delivered in the next eight months of 2017, whereas only three are expected to be scrapped. The VLCC fleet has already grown by 17 since the start of the year. The expected net fleet growth for 2017 is 5.8%.

Similarly, 43 Suezmax vessels are expected to enter the market in the next eight months, while 13 are expected to be scrapped. A net of 16 Suezmax vessels have already been added to the fleet in the first four months of the year. The expected net fleet growth for 2017 is 10.0%.

The Suezmax orderbook is much heavier than the VLCC orderbook. The expected total fleet growth for 2017 stands at 7.0%, which will likely put pressure on tanker rates in 2017.

Anything better in 2018?

Currently, 43 VLCCs and 32 Suezmax vessels have been ordered for 2018. However, net fleet growth in 2018 is expected to be low, as scrapping activity is expected to increase. A total of 11 VLCCs and 29 Suezmax are expected to be scrapped.

Higher scrapping going forward in 2018, should be positive for tanker rates.

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