Tanker

Light at the end

of the tunnel?
“Expectations are a form of first-class truth:
If people believe it, it's true.” - Bill Gates.

IRINI N. LEMOS
VLCC Tanker, 319,191 dwt delivered in 2019 by HHI in KOREA,
managed by ENESEL SA.

45
 TANKER
MARKET OVERVIEW

Tanker spot rates - TCE *TD3C at $300,000/day

in October 2019
$/day
$/DAY TANKER SPOT RATES -TCE
150,000

130,000

110,000

90,000

70,000

50,000

30,000

10,000

2018 2019

VLCC (TD3) Suezmax Basket Aframax Basket LR2 (TC1) LR1 (TC5) MR Atlantic Basket
Jan 2018 Jan 2020

VLCC (TD3) -TCE Suezmax Basket - TCE Aframax Basket - TCE LR2 (TC1) - TCE LR1 (TC5) - TCE MR Atlantic Basket

The expectations for a strong end-2019 and 2020 contrasted with the Other factors also combined to support rates towards year-end. In October, in China, leading refiners there to reduce crude imports,
MARKET OVERVIEW poor fundamentals which afflicted the market during the first half of the Saudi Arabia managed to successfully restore crude oil production which thus hitting tanker demand and freight rates. It remains
year. The weak spot market not only reflected seasonal factors but was had previously been disrupted by drone attacks in September. Refineries to be seen how long the virus will affect the economy
also driven by a steady drip of newbuildings into the market. Many large ramped up operating rates as they started producing increasing volumes but the longer it persists, the more negative its impact
2019 was a truly unique year for the tanker industry. crude tanker newbuildings were used to transport clean products from the of low sulphur bunker fuels. Furthermore, many tankers (especially large on tanker markets will be.
Since the end of 2018, most market players had Middle East and Asia to the Atlantic Basin during their maiden voyages. ones) went into shipyards to be retrofitted with scrubbers. Shipyards and
Finally, the new sulphur regulations on marine fuel
expectations of a stronger 2019 due to the build up to In turn, this took away cargoes from LR2s. This uptick in new deliveries owners underestimated the time taken to complete retrofittings which
will continue to weight on markets due to the many
IMO 2020 and the potential impact this would have on coincided with a slump in tanker demolition which itself was driven by led to significant delays, keeping more tonnage than usual in the Far East
uncertainties it has created such as a possible increase
oil flows. In the end, owners had to be patient as tanker the expectations for stronger freight rates in the second half of 2019 and where most of the scrubber-retrofittings took place.
in off-spec bunkers, a wide VLSFO - HSFO spread, the
freight rates would only start to firm at the beginning Q4. 2020. Moreover, this rebound in tanker fleet growth occurred amid the
This kicked off a period of elevated freight volatility. This first affected the availability of HSFO for scrubber-fitted vessels and
US-China trade war which reduced US crude oil exports to China. These
The new bunker regulation was viewed as the most VLCC market and then spilled over into other segments with the uptick in the associated, perceived risks of scrubber breakdown.
shipments have been replaced by increasing US exports to Korea, Japan
significant change in the tanker industry since the product tanker markets lagging the crude tankers. This saw 12 LR2s "dirty Indeed, IMO 2020 has added another layer of
and India. However, ton-mile demand would have increased by a higher
transition to double hull from single hull in 2000. The up" between October and November while strong crude tanker spot freight complexity in the market with tankers using different
increment had China imported more US crude. Global refining activity was
tighter sulphur cap on bunkers was expected to lead to rates discouraged VLCC and Suezmax newbuildings from transporting clean types of compliant fuels or different types of scrubbers
also weaker than usual in the first half of 2019 as many refiners performed
higher ton-mile demand on the increased demand for products during their maiden voyages and thus they instead sailed directly (open-loop, closed-loop or hybrid).
heavy maintenance in order to be ready to produce higher volumes of
low sulphur crude oil, sourced from the Atlantic Basin, to crude loading zones. Meanwhile, new crude tanker deliveries slowed
compliant marine fuels.
which would then be refined in Asia. At the same time, somewhat during the second half of the year. By December, tanker freight
the expected growing middle distillates deficit in the The weak freight rate environment occurred while owners gradually rates remained well-supported across all segments.
West was supposed to be met with growing imports implemented their plans to be ready for IMO 2020. These plans represented
Before the Coronavirus started to disrupt the oil and tanker markets,
from the East. This stronger demand for tankers was costs for owners ranging from the cleaning of bunker tanks to accommodate
fundamentals were looking supportive; fewer newbuildings are slated to
anticipated to coincide with slowing fleet growth. a cleaner compliant fuel, to the installation of scrubbers.
be delivered, the fleet is ageing as more vessels turn 15 years old while
Finally, October hit: the perfect storm. Spot freight rates soared to levels
beyond even the wildest of expectations. The rally was triggered by the
seaborne oil flows were increasing. Furthermore, the US and China have
now signed their Phase 1 trade deal which will see a significant increase
Shipyards
Spot freight US imposing sanctions on a COSCO entity on September 25th. This had a
significant impact as COSCO is one of the world’s largest tanker operators.
in Chinese imports of US oil and gas. However, there remain significant
downside risks. Notably, the return of the COSCO Dalian Tanker Co. fleet
and owners
rates soared to Some tanker segments saw spot rates surge by 1000% in a matter of days.
The market eventually cooled off but remained at elevated levels. However,
has boosted tonnage supply overnight, while geopolitical tensions in the
Middle East and North Africa could negatively weigh on tanker demand. At
underestimated
levels beyond these events were nonetheless extremely disruptive for market players. time of writing, the Coronavirus has already led to oil demand destruction the time taken
even the wildest to complete
of expectations retrofittings

46 BRS GROUP - Annual review 2020 BRS GROUP - Annual review 2020 Picture: CASTILLO DE ARTEAGA, Tanker MR1, delivered by Chinese shipbuilder DSI (Shanhaiguan) to Empresa Naviera Elcano in 2019. 47
 TANKER
CHARTERING

September 2019. What is more, the sanctions imposed on COSCO Dalian Tanker Mediterranean versus last year is huge with 108 voyages
Co. and the subsequent uncertainty around the matter tied together with the in 2019 compared with only 35 voyages in 2018 (+209%)
aforementioned shortage of tonnage, propelled freight rates and earnings to and when VLCC’s and Suezmaxes became too expensive
record levels, surpassing the $100,000/day mark for a short period in October. to export to China, the Aframaxes became the tanker of
From there on, earnings across all regions have increased while gaining more choice to sail east. In 2019 we saw the highest number
stability, thus giving a brighter outlook for 2020. of Aframaxes fixed in the last 5 years from the Baltic to
China (10 voyages) and the overall increase in ton miles
The supply-side was an especially important factor in Q4. On a year-on-year
has contributed to the high freight rates of Q4.
basis, the available fleet of suezmax tankers has not changed much with the
global fleet (including shuttle tankers) at the end of 2019 comprised of 596 The North Sea underwent a significant change as well
units with an average age of 9.6 years, compared with 572 ships with an with Equinor’s Johan Sverdrup oil field coming online in
average age of 8.9 years at end-2018, thus equating with growth of 4.2%. This Q4. The full capacity will only be reached in mid-2020
change is explained by the 26 newbuildings which hit the water in 2019 net but we can already feel the increase in demand with
of the 7 vessels scrapped during the year. In view of IMO 2020 regulations, current export levels at 300 kb/day. Larger sizes have
not all ships which planned to install a scrubber had been fitted as of 1st so far been preferred since this grade appeals to Asian
January 2020. However, in the end, one third of the fleet - 34% to be precise refiners but it has also been processed by local refiners
- will be scrubber-fitted. This portion is no surprise considering the number thereby increasing regional Aframax demand and this
of ships regularly engaged in long-haul business and an expected bunker will only intensify in 2020.
price spread between HSFO and VLSFO of between $250 and $350/mt.
Overall, last year was a good comeback for owners. The
On the demand side, the prevailing trade dynamics noted over the last opening up of Libya gave some extra enquiry in the
couple of years will continue with Asian buyers having a healthy appetite Mediterranean market and certainly helped push hire
for West African, Latin American and US crudes. One should not forget the rates up.
sweeter blends from Europe or Russia, demand for which remained strong
The first half of Q1 had the expected "winter premium"
throughout 2019. When looking at volumes shipped into Europe, the main
with rates trading at WS100 levels for 100 ktons in the
outlet for Suezmaxes globally, crude sourced from West Africa remained
Mediterranean. Q2 was the most difficult for owners
stable while exports from the US Gulf have increased to a certain extent.
who had to accept very low TCEs of around $3,000/day
Crude Tankers One of the most significant changes for the VLCC market in 2019 came from Around one suezmax cargo per week in the US Gulf is now destined for
increased geopolitical tensions and the shift from tariff imposition to the in the Mediterranean but the following quarter proved
Europe and this trend is likely to increase at the expense of Middle Eastern
VLCC imposition of sanctions. The fourth quarter was the strongest quarter seen in to be very proliferous, trading at post WS200 levels.
crudes which are now largely destined for the Far East.
years and this came after the US administration imposed sanctions on COSCO
Interestingly enough, during the third quarter, we saw
As a whole, despite elevated newbuildings hitting the Dalian Tanker Co. which had the effect of immediately removing 26 VLCCs All the above factors and influences have made 2019 one of the best years
some CPC Suezmax stems broken into Aframax stems,
water, VLCC spot rates were more encouraging during from the global fleet and saw fleet fundamentals shift rapidly. Global oil since 2015 for owners. Average earnings registered during 2019 - roughly
which also helped propel Cross-Black Sea rates higher.
2019 than in previous years. 68 VLCC newbuildings were demand remained steady throughout the year but with new Chinese teapot $26,000/day - doubled compared with 2018 (average $13,000/day). Taking
The winter period had the expected weather disruptions
delivered in 2019, the highest figure since 1976. These refineries adding an additional 800 kb/d of new capacity, tonnage demand it from loss making to (some) profit, mainly due to the October spike and Q4
with ports closing and the Turkish straits delays reaching
deliveries were concentrated in the first half of 2019. remained strong to that effect. Changes in trade patterns also became more earnings. As for the first 8 months of 2019, the TCE was oscillating between
up to 10 days north and 7 days south. The latter made
The average TCE for the Baltic Exchange TD3C route (Ras apparent in 2019. With purchases of Iranian oil now non-existent and with $15,000 and $20,000 per day on front haul voyages.
charterers either replace or cover their stems Cross-
Tanura to Ningbo, 270,000mt) in 2019 was $38,078/day Venezuelan oil now also under strict sanction, US exports have become
At the time of writing in early January 2020, the IMO regulations had already Black Sea for forward dates. We observed some increase
compared with $18,802/day in 2018. When analysed more important as a source of incremental ton mile demand. US crude
come into play and rates had increased drastically. However, the real impact in fuel oil enquiries, especially towards the east which
further, 1Q19 rates held up as the market rolled over oil production rose by an average of 1.2 mb/d in 2019 and according to
of a "bunker surcharge" on freight levels remains surprisingly unknown. On was driven by the impending new bunker requirements
from a strong end to 2018. Accordingly, the TCE average benchmark forecasters this is set to rise by a further 3.9mb/d by 2024.
the other hand, owners with scrubber-fitted ships are very satisfied with as well as a lack of VLSFO towards the end of the year.
for 1Q19 ($27,947/day) was significantly higher than
Overall, 2019 was a good year for VLCCs. The uncertainty which was felt their decision and investment, as the TCE difference between those fitted Lastly, certain owners ‘dirtied up’ their clean vessels
for the same period in 2018 ($8,147)
at the start in January diminished as the year progressed so that by the and not-fitted with scrubbers had risen to $15,000/day in favour of those at end-year as Aframax rates commanded a significant
From here on, rates lost some traction as demand start of 2020, owners appeared ready to face the sulphur cap regulation with a gas treatment system on board, making the return on investment premium versus LR2s. Nonetheless this only had a minor
contracted while 40 newbuildings were injected into while rates remain at healthy levels. As the cloud of uncertainty surrounding looking even better than expected! effect on the tonnage list and on Aframax rates.
the market during 1H19. Nonetheless, earnings were IMO 2020 lifts, prices of VLSFO are soaring and scrubber fitted VLCCs are
As we enter 2020, the largest shift since single to double
marginally higher than those seen in 2018 with an benefitting from bunker savings. The time has come and the market feels
hull is now upon us with the IMO 2020 regulations in full
average TCE of $12,522/day for 2Q19 compared with ready to face the future. However, by the time of writing, the outbreak of the Aframax swing. The momentum across all segments and sizes has
$9,106/day in 2Q18. coronavirus in China has the potential to derail the positive expectations of
sent shockwaves through tanker markets and if most of
owners, albeit temporarily. The expectations were certainly high for 2019 and what a year it has been.
When taking a step back to 2018, the market expected 2020 will be like this, owners are in for one of the best
that rates would strengthen during 2019 in the wake Various geopolitical and unforeseen events marked the past 12 months years over the last decade.
of tonnage supply being cut by vessels entering dry across all shipping sizes and one of the most important occurrences in
dock to be retrofitted with scrubbers. Despite 59 VLCCs Suezmax the Baltic was the chloride contamination in April 2019. This cut exports
entering yards during the year, it must be said that this
fundamental change in tonnage supply did not have the Again in 2019, the Suezmax market like all other tanker trades has been marked
from Ust Luga to one third of the usual program for the months of July and
August which hampered any hope of a good summer market. TD17 from
The largest
expected impact on rates. Retrofits were relatively evenly
spread with Q3 seeing the most retrofitting compared to
by geopolitical instability and action. One key element of such strengthened
earnings has come from tonnage supply, or the lack of such, for that matter.
April-September 2019 averaged TCE $10,139/day which wasn’t anything for
owners to rejoice over, but this would all change come Q4 2019.
shift since single
other quarters. The expectations for stronger rates also
led to a drop in VLCC scrapping with only 4 units sent to
The first 8 months were marked by relatively stable earnings which were
higher than during the same period of 2018, yet this stability would remain One important factor to consider over the last 4 months of 2019 is the difficulty to double hull is
for traders to sell Urals crude oil in North West Europe, which means other
the breakers last year compared with 32 in 2018. short-lived to some extent. The predicted delays linked to scrubber retrofits
around the summer months had reduced tonnage supply by around 10% by outlets needed to be found. The increase in deliveries from the Baltic to the now upon us

48 Picture: SEAFAITH, Aframax Tanker, 111,964 dwt, 2020 built, owned by Thenamaris. BRS GROUP - Annual review 2020 BRS GROUP - Annual review 2020 49
 TANKER TANKER
CHARTERING CHARTERING

Product Tankers East and West Africa are likely to increase as we anticipate that the product As the market waits for this capacity to be commissioned, it speculates that, the ULSD and naphtha trade out of the Middle East Gulf
will be increasingly burned in the power generation sector. in order to benefit from improved economies of scale in transportation, the for around 2-3 months and still it is not clear whether
Fuel Oil new refineries have been complemented with larger berths to accommodate refining capacity has been 100% restored. Subsequently
larger vessels. However, for the moment little information on this is currently the imposition of US sanctions also impacted the LR2
2019 was similar overall to 2018 in terms of freight Vegetable Oils Soya & Sunflower Oils + Biodiesel available.
segment market by driving tonnage into the DPP segment
earnings. However, with IMO 2020 regulations getting
closer, Q4 was really positive and boosted owners’ The IMO 2020 regulations were a small beacon of light in the distance for and in turn improving earnings for a very short period. We
Vegoil exports from South America increased in 2019, with approximately
confidence moving into the new decade. 6.8 million tons shipped, 10% more than in 2018. Exports rose significantly owners to cling to. Overall we can say that the MR segment has fared better saw a few deals concluded whereby earnings hit levels of
during the summer period, due to seasonal higher production. Some 227 than in 2018 and going forward into 2020 one should expect a strong $60-70,000/day. However, this was short lived.
After a very weak summer in terms of volumes and beginning to the year despite having experienced a rather disappointing
MR1s and MR2s were chartered, of which 131 went to India, which remains
returns for owners in the Mediterranean and Black Q4 2019. The year finished on a fairly steady note as the
the main importer of vegoil. Biodiesel flows were volatile throughout the
Sea fuel oil market, several Black Sea players such as preparations for IMO 2020 kicked in. We will have to
year, with some months more active than others. A total of approximately
Trafigura, BP, Litasco, Newton and Solal were seen taking 1 million tons of SME (Soya Methyl Esther) was exported, almost exclusively watch this space regarding the impact on scrubber-fitted
ships on time charter, in order to cover themselves for the to Europe, of which 40% was shipped during the last semester. LR1 and non-scrubber-fitted vessels and whether we will
expected firmer market which was experienced during
Freight rates fluctuated in 2019 reflecting the volatility of the clean witness a two-tier market.
Q4. The Black Sea once again out did the Mediterranean, The LR1 segment fared better than during previous years despite an
as the largest exporter of 30ktons stems. Trafigura was petroleum tanker market. Rates for 32,000 tonne stems moving to India rose oversupply of tonnage. Earnings improved in 2019 to around $16,000 There is further optimism in the Middle East with refining
the biggest player followed by Litasco, BP, Petraco, UML, from $43/mt in June to peak in December at $63/mt. These rates produced - $17,000/day. In 2019, Cross Red Sea and Red Sea to Middle East Gulf capacity increases further in 2020 with the launch of Saudi
Newton and Solal. All the refineries in the Black Sea daily returns of between $13,000/day and $23,000/day. voyages on LR1s increased which was in the past dominated primarily by Aramco’s Jizan refinery in the Red Sea. A new trading group
continued to export high sul-phur fuel oil, whereas in In 2019, Black Sea sunflower oil exports remained strong and reached the MR2 segment. This has killed idle time for owners and sucked tonnage
that will handle a large majority of Adnoc refined product
the Mediterranean we started seeing shipments of very approximately 6 million tons. This market employed all sizes of ships away into a new trade. Moreover, we have seen more intra-Far East activity,
output will start trading in 2020 adding more players into
low sulphur fuel oil especially from the south of Spain, from small tankers to MR2s with cargoes being shipped to a multitude of driven by the commissioning of new Asian refining capacity, which took
Genoa, Sarroch and Israel. ballasting tonnage into different trades and thereby reducing the number of the Middle East chartering segment. Furthermore, there are
destinations. MR1s discharging in India were fixed for 30,000 tons around
vessels competing for Middle East business. However, the unfortunate attack also some rumors that Qatar Petroleum will follow suit and
It is no news, but the Mediterranean continues to have a high-$30s to low-$50s/mt.
on key Saudi Arabian oil infrastructure reduced the naphtha output from Ras set up its own trading platform. Overall, the Middle East
high percentage of MR1 and MR2 tankers which are older
Tanura and subsequently negatively impacted the LR1 market. is showing positive signs going into 2020 with additional
than 15 years old. The variety of players in the region
Palm Oils refining capacity and new trading partners that should
allows these old ladies to be easily tradable. Contrary to In Q4, the volume of both naphtha and jet being moved on LR1s increased.
the Mediterranean, the units trading in northern Europe This was mainly due to the price differential between the LR1 and LR2, solidify the area as a large refining and trading hub.
The palm oil market was again active in 2019 with around 300 MR2s and
are mostly below 15 years old, as some large charterers whereby the dollar/ton freight cost on the LR1 was more favorable to Moreover, there remains an appetite from charterers to
MR1s fixed into the Mediterranean, Northwest Europe, West Africa and
have age restrictions in terms of vetting. Total remains traders. This has been the unfortunate position of the LR1 segment and
the US. In 2019, 56 MR2 newbuildings fixed palm oils on their maiden take TC or COA coverage on all sizes in order to hedge any
the biggest player in the market, with a strong presence at times generates business on the back of a firm MR2 and LR2 segment.
voyage out of a total of 87 units being delivered. This was 17 higher than unforeseen market volatility and trade flexibilities going
not only in terms of cargoes, but also in terms of relets. A combination of new trades in the Middle East and the Far East short-
in 2018. Rates moved from $14,500/day at their lowest to $23,000/day into 2020; yet owners are reluctant unless the price is right
Litasco had a busy year especially from the Baltic, and long-haul is aiding owners to triangulate and increase earnings. Proper
at their highest.
together with BP, Shell and Pe-troineos. planning for IMO 2020 should have aided owners to increase their earnings. considering the positive sentiment for 2020.
Moving into 2020, volumes are likely to remain steady. We still expect This is due to the bunker price spreads and availability for the first half of
Overall, the fuel oil tanker market rose steadily during
approximately 80 newbuildings to be delivered in 2020 which will provide 1Q20, which in turn will force traders to limit the optionality required on
Q4: the MR1 levels in Black Sea to Mediterranean moved Crude and Petroleum Products Tankers
FOSFA tonnage to the market. Rates will most likely depend on the clean every deal thereby helping owners position vessels.
from 30kt at WS160 in early October to 30kt at WS350 Crude and petroleum products tanker
petroleum tanker market in Asia but we expect them to remain firm. Deliveries and Removals
in early December, where ships were earning around Overall, despite the natural trades on the LR1, this segment benefits as well deliveries
N° of Tankers and removals
$40,000/day on a TCE basis. from both the MR and the LR2 segments. With optimism of a bullish 1Q20 N° of tankers
on both the MR and the LR2, this should indirectly work in the LR1’s favours.
2020 is certainly going to be interesting in terms of fuel Clean Petroleum Products – East 450
oil demand and supply. We will surely see a re-balancing
MR2 400
of HSFO and VLSFO flows, but in terms of overall volumes
we don’t expect the DPP MR1-MR2 market to drop. There LR2 350
We saw a positive start to 2019, but as the year progressed, it ended up being
is already a nascent trade with VLSFO produced in the
rather turbulent despite everyone’s positive expectations. We witnessed an improved year on the LR2 segment with a steady flow of 300
central and western Mediterranean being shipped to the
Eastern Mediterranean and the Black Sea. Meanwhile, While cargo supply remained constant, despite the usual refinery maintenance cargos from both the Red Sea and the Middle East. New refining capacity in the 250

HSFO flows from Europe and the Black Sea to the Middle and seasonal dips, there continued to be an oversupply of tonnage. We saw Far East coming on line took tonnage out that would have otherwise ballasted to 200
seasonal spikes throughout the year, notably centered around the East the Middle East market. Overall, increased refining capacity has helped support
150
Africa delivery tenders whereby tonnage was sucked into the trade around rates and maintain fixing levels across the globe. Notably, we saw Q1 earnings
a narrow fixing window which affected rates on all trades. Furthermore, we 100
at close to $24,000/day – 25,000/day on a TCE basis and a big spike in Q4.
saw additional voyages into South America from the Middle East which aided However, the average earnings for the year were between $18,000 to $19,000/ 50
the MR2 segment. Finally, the chemical market has certainly impacted the
day on the same basis.
We will surely see a
0
MRs by sucking IMO tonnage away from the CPP tanker segments. Earnings 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
have improved in comparison to 2018 with an average for 2019 of $14,000 The tense geopolitical climate in the Middle East was the unfortunate highlight
re-balancing of HSFO to $15,000/day. towards the end of the year. Attacks on vessels and Saudi oil infrastructure
created uncertainty and drove insurance costs and risk higher for all involved
Tanker Deliveries
Tanker
Tanker
Tanker
TankerDemolitions/Conversions
Demolitions/Conversions

Additional refining capacity in the Red Sea expected to come online shortly TankerFleet
FleetNet
NetGrowth
Growth
and VLSFO flows should complement the short-haul business which is mainly carried by MRs. on both the trading and shipping sides. The Saudi attacks adversely effected

50 BRS GROUP - Annual review 2020 BRS GROUP - Annual review 2020 51
 TANKER
FFA MARKET

to around $34,000/day. This led a number of LR2s to "dirty-up"’ at end 2019 market or would the time charter market fall back closer
and into early 2020 which has resulted in a reduction in the number of LR2s to the spot market? The spike in spot freight rates at
trading clean. the end of September and early October proved that TC
rates were not “wrong” with spot freight rates rising well
beyond TC rates and pushing the latter even higher.
FFA MARKET
Hire rates for 1 year time charter crude tankers increased
by 60% on average in 2019 when compared with 2018.
During 2019, the Tanker FFA market saw historic rises in traded volumes The Aframax segment accounted for the lion’s share of
to such an extent that during the month of October, the traded volumes crude time charter deals, followed by VLCC and then
exceeded those of the Dry FFA market, which has historically been a larger Suezmaxes. On product tankers, smaller sizes were able
market by a factor of approximately 2.5. There were several reasons for this to book solid rates on short-period time charters but
increase: in terms of volume, MR2s rose above other segments
translating the strong confidence in this market from
The gradual transformation of the traditional trading houses into becoming
major players willing to commit on numerous units
more hybrid ship owners and increasing their fleets on time charter which
for periods ranging from 12 to 24 months. Larger
have to then be optimized via the use of derivative markets. This in part has
sizes posted strong numbers with scrubber-fitted units
increased the use of paper contracts which in the past had been shunned
commanding impressive premiums. On the LR2s, by end-
by many traditional ship owners. With that in mind, we have also seen a
year, charterers were looking to venture into the dirty
recent positive move from some of the shipping pools and some owners to
market driven by solid rates in the Aframax sector.
enter the market as well as some additional oil majors from across the globe.
The increase in banks and hedge funds returning to market has also played
a significant role at certain points this year when we saw several options Time Charter Rates 2019 vs 2018
structures traded.
The table here below refers to modern non-eco tonnage,
The introduction of new routes covering US Gulf – China on a VLCC and a non-scrubber fitted.
Clean petroleum products - West in the west for a longer period, but this unfortunately never became reality
new Aframax route from the US Gulf to UK Continent. Both these routes
with the limited west to east trades. The expectations for 2020 have been
MR1 high all the way through 2019, but where it will end is still very uncertain are quoted on a Platts basis or a Baltic Index assessment. Thus, as the US
Category Period
2019 TC Rate 2019 vs.
emerges as an exporter it is now possible to cover your exposure. Also for (average) $/day 2018
despite the new IMO regulations this year.
Q1 2019 saw a disappointing ice season for Handies example the VLCC route could be traded in conjunction with the traditional
12 months 35,900 65%
preventing owners from absorbing the losses seen TD3C route to strip out west and east exposure for the first time. VLCC
36 months 29,700 15%
during the previous summer’s lull, which most markets
LR1 The imposition of sanctions, attacks on oil infrastructure together with an
12 26,450 65%
experienced. To spin it more positively, owners did on increasingly tense geopolitical climate culminated in the perfect storm to
months
SUEZMAX
average maintain a TCE of about $4,000 to $5,000/day send freight rates soaring in the latter half of the year. This saw ship owners 36 months 23,250 16%
The year saw the Hafnia and BW merger, resulting in 1 owner controlling
for a Baltic to Continent run during the summer months, trying to lock in high freight rates and charterers having to cover.
about 30% of the CPP tankers on this fleet size. The dynamics of this size 12 months 21,500 51%
compared with the $2,000 to $3,000/day seen in 2018. AFRAMAX
changed very little despite the volatility of freight, while it was still largely Finally IMO 2020 and all the surrounding turmoil drove charterers to seek 36 19,250 13%
This contrasted with a typically strong market when a Baltic months
dependent on the market movements of MR2s and LR2s. The first half of cover for the Q1 ahead of where you would normally see.
to Continent run can bring the TCE closer to $30,000/day. 12 months 21,000 50%
the year saw western positions drawn into much stronger eastern markets LR2
Throughout the year, Handies continued to see pressure and from here, the balance of tonnage between east and west was never 36 months 19,000 20%
from the bigger sizes, which took a share of the traditional really restored. Thereby meaning that owners enjoyed Western markets
30ktons business. Charterers looked at opportunities of much more in the second half of the year, particularly as delays through
TIME CHARTER LR1
12 months 16,500 25%

36 months 15,000 4%
combining handy stems for cross-Baltic voyages and taking the Turkish straits caused havoc with Black Sea requirements and forced
MR2s and LRs at a preferable Dollar/mt rate. Nonetheless, charterers to quote dates as much as a month in advance. Rates in Q3 and 12 months 14,950 13%
2019 saw time charter rates firm across all segments, contrasting with 2018. MR2
the MR1 fleet still looks the most interesting segment as Q4 were supported in many ways by the overall short supply in the west During the year, major trading houses and operators increased their fleets 36 months 14,250 3%
the fleet is ageing fast due to the lack of newbuildings and as well as the bullish sentiment feeding through from the Aframax markets. via period charter and consolidations. Thanks to IMO 2020, a multi-tier TC 12 months 13,400 15%
the share of units older than 15 years likely to increase to However, 2019 saw a slowdown in West African runs as LR2s were ready to market evolved during the year. In essence, charterers were willing to pay a MR1
44% of the fleet by the end of 2020 from 38% at the end compete through Q2 and Q3; somewhat compromising the potential of this 36 months 13,000 6%
premium to secure scrubber-fitted and eco-tankers.
of 2019. size. In 2020, we can expect West African volumes to increase as the LR2s
are likely to be less competitive and more focused on the long haul east to The first half of 2019 was interesting as it was marked by a rare disconnect
west and west to east runs. between the spot and the TC markets. This was led on one hand by a
weakening spot market and on the other hand, by expectations for a stronger
MR2
market later in the year which propelled the time charter market higher.

2019 didn’t in general live up to the high expectations.

LR2 Indeed, time charter deals were priced according to their exposure to summer
2019 (negative) and to Q4 2019 and 2020 (positive). Accordingly, this led to
However, 2019 was still healthier overall than 2018. The
significant premiums for vessels delivered later in 2019 and/or with longer
lack of west to east trades made the tonnage availability Early 2019 saw TCE’s of about $23,000-24,000/day; well-supported after
in the west look oversupplied throughout the year, and the pre-Christmas rally of 2018. This quickly gave way to the usual seasonal
periods covering most of 2020. This strong contango was also reflected by
FFA markets which priced freight rates for end-2019 significantly higher
The Aframax segment
with owners refraining from moving away from the west trends into Q2 as earnings slipped into the high teens. However, this same
from Q3 onwards, has proven to perhaps be the wrong seasonal trend was not to follow into Q3, leaving owners heavily disappointed
compared with the first half of 2019.
accounted for the
decision as it made it very tough for the market to build as TCE's dipped into the mid-teens at a time which usually sees rates spike; The summer was even more interesting as the spot market remained low
momentum, let alone keep momentum for extended and was expected to be boosted by the initial stages of the preparation for while the time charter market strengthened. By September, concerns started lion’s share of crude
periods. The scrubber fitting of many MR2s in the fleet IMO 2020. Q4 has since dispelled any concerns that the IMO impact would be to arise with spot rates remaining broadly weak. Market participants were
worldwide was expected to create a shortage of tonnage minimal as strength spilt over from the Aframax markets and drove earnings asking themselves would the spot market catch up with the time charter time charter deals
52 Picture: IONIC ANASSA, Aframax Tanker, 114,718 dwt, delivered in 2016 by NAMURA IMARI in Japan, owned by IONIC SHIPPING. BRS GROUP - Annual review 2020 BRS GROUP - Annual review 2020 53
 TANKER
SECOND HAND MARKET

vessels’ earnings over the past year, which combined with a low recycling
SECOND HAND MARKET price from cash-buyers and demolition shipyards prevented more vessels
exiting the market.

Crude Tankers
New orders 2014 to 2019
“All that glisters is not gold” - Shakespeare.
N° of Ships 2014 2015 2016 2017 2018 2019

As much as this expression is famous and widely used VLCC 42 64 15 58 44 39

since the time of the Greek Aesop, it is with Shakespeare’s Suezmax 43 62 20 28 22 38
“Merchant of Venice” that it gained its current fame and
phrasing. This quote highlights that what might seem Aframax & LR2 44 109 19 37 28 56
good at first glance could require closer examination to
Panamax & LR1 28 33 3 8 8 1
be fully understood and its veracity determined.

During 2019, the market’s anticipation of changes

to trade flows had the effect of steadily increasing The evolution of second-hand crude tanker prices in 2019 saw the previous
charter rates in the crude segment. A confirmation of year’s trend maintained as prices firmed across all categories and ages (see
this general feeling was demonstrated by the return of vessel value changes from January to December 2019). Prices for yard resales
various international oil companies and traders to the gradually equalized with, and then surpassed, with newbuilding prices across
time charter market, after they had only focused on the all segments. By end-2019, VLCC and Suezmax resales were fetching 6-7%
spot market during the last few years. premiums versus newbuildings as owners remained keen to have units entering
a firm market. Premiums decreased slightly for Aframax and LR2s while resales In 2019, the total volume of second-hand transactions (demolition and further current orderbook, 44 ships should theoretically hit the
The most disruptive element that impacted tanker stood level with newbuilding prices for LR1 and Panamaxes. Furthermore, the trading sales combined) diminished by 32 units compared with 2018. However, water in 2020 over a total of 79 firm orders.
prices was the imposition of US sanctions on VLCCs same drivers saw prices for 10 and 15 year old units strengthening significantly the number of transactions for further trading increased significantly. This
operated by COSCO Shipping Tanker (Dalian) Co. which in relative terms. was fueled by a combination of different factors creating favorable conditions
removed 26 units from the market. The ensuing chain of for both buyers and sellers. Some shipowners strengthened their positions Suezmax
consequences initially affected the VLCC spot chartering on modern tonnage; others who ordered during previous years decided to
Vessel value changes from January 2019 to December 2019 The Suezmax market sailed in similar waters to VLCC.
market. This disruption swiftly brought chartering lighten theirs and take advantage of high resale prices. Furthermore, investors,
Out of the 41 sales for further trading, 22 deals involved
discussions to levels above $300,000/day, ignoring any leasing companies and banks came to the table with interesting schemes for
vessels built in 2005 or earlier. An augmented demand
matrix or previous calculations, before stabilizing around Re-sale 5 years 10 years 15 years financing or refinancing of existing tonnage.
for older units brought notable increases in values. For
$100,000/day. Subsequently, activity and demand for
VLCC 13.33% 13.53% 17.65% 33.33% During the year, charterers agreed to enter into longer term charter deals and example, in December 2019, Teekay sold their Ashkini
Suezmaxes increased, positively affecting the rates for
even to take on older units. This explains why more than half of the transactions Spirit (165,000 dwt, built Hyundai Samho Heavy in 2003)
large clean vessels. This convinced many shipowners to Suezmax 7.87% 21.84% 35.85% 41.54%
concerned vessels built in 2005 or earlier. for an astonishing $19.4 million. Several of these vessels
‘dirty up’ their LR2s to take advantage of the market.
Aframax & LR2 13.17% 24.26% 20.22% 32.74% went to Greek, Middle Eastern, and Indian buyers.
Thereby mechanically reducing supply on the clean side.
S&P activity (vessels for further trading) On the modern tonnage resales side, Frontline's activity has
While the general demand for crude tankers increased, Panamax & LR1 4.71% 9.40% 16.92% 33.33%
been remarkable with the acquisition of 10 vessels from
the actual overall supply of ships has also increased N° of Ships 2014 2015 2016 2017 2018 2019 Trafigura's order at Hyundai. This deal alone represented
with scrapping slumping to its lowest level in 11 years.
Tanker second-hand prices two thirds of the 15 resales transactions last year.
VLCC 51 55 28 48 48 59
Units sold for scrap per year Tanker second hand prices In the 1 to 10-year-old segment, activity remained quite
$m Suezmax 34 38 19 29 28 41
$m limited with one refinancing deal, one sale for conversion
N° of Ships 2014 2015 2016 2017 2018 2019 100 Aframax & LR2 67 52 39 42 66 76 and only two Hyundai Samho Heavy-built 2018 units being
sold for $62.5 million each at the beginning of the year.
VLCC 11 1 2 16 32 11 90 Panamax & LR1 22 18 8 12 20 33
The Suezmax fleet saw 30 units delivered in 2019 (versus
Suezmax 10 1 1 14 23 8 80
a forecast at end-2018 for 31 vessels) while only 8
Aframax units were scrapped. By end- December 2019, the total
& LR2
27 3 9 31 45 5
70
VLCC Suezmax orderbook was standing at 73 units, with 34 of
60
Panamax
14 8 3 8 10 6 VLCC sales activity in 2019 exploded with a total of 59 ships changing hands. these expected to hit the water in 2020.
& LR1 50 Out of these, 32 units were built during 1999-2004, representing more than
40
50% of all VLCC transactions. The growth in sales volume for vintage tonnage
was driven by higher demand in the Far East both for trading and storage.
Following the trend of recent years, 2019 brought a 30
very moderate increase in newbuilding prices for most Transaction volumes for ships younger than five years old suffered, with only 7
20 sales reported. Owners of very modern tonnage who had been waiting several
segments except for Panamaxes which remained at the
same level as 2018 and Suezmax which registered a
slight year-on-year reduction.
10 years for a general market recovery preferred to bet on trading the ships
themselves as opposed to a quick asset play. One notable exception was the Hull
More than half of the
Last year saw 134 units were ordered, an increase of one
0
2010
2010
2011
2011
2012
2012
2013
2013
2014
2014
2015
2015
2016
2016
2017
2017
2018
2018
2019
2019
DAEWOO 5457 which was sold for a healthy $98 million against its ordering
price of low $80s million. Several of the other transactions in the 10-year-old
transactions involved
third compared with the 102 units ordered in 2018. Orders
were skewed towards Aframax, LR2s (56 in 2019 versus VLCC
VLCC55years
yearsold
old
Panamax 5 years old
Aframax 5 years old 5 years old
Suezmax
Suezmax 5 years old
segment, were driven by lease-financing.
vessels built 2005
28 in 2018) and Suezmaxes (38 in 2019 versus 22 in At the beginning of the year, 80 VLCC’s were expected to hit the water but 68
2018). The persistent tense geopolitical climate has helped
Aframax 5 years old Panamax 5 years old
units were actually delivered, against only 11 sold for scrap. According to the and earlier

54 BRS GROUP - Annual review 2020 BRS GROUP - Annual review 2020 Picture: HAFNIA GUANGZHOU, Product/chemical tanker LR1: 74,999 dwt, built by Chinese shipbuilder GSI for HAFNIA in 2019. 55
 TANKER TANKER
SECOND HAND MARKET SECOND HAND MARKET

Aframax and Panamax OBO Last year saw

Activity in 2019 for Aframaxes and LR2s was also Very much in line with the activity and trend of previous years, the OBO
concentrated on older units, with 63 of the 76 transactions fleet showed a limited but continued rejuvenation with Klaveness taking a progressive
involving vessels built before 2011. Of the modern delivery of the three 83,500 dwt Cleanbu combination carriers from Jiangsu
tonnage, 12 transactions involved vessels built in 2018 New-Yangzijiang. The new vessels on the water followed the exit for green and constant
or later. Among the newest tonnage, Trafigura lightened recycling of two 109,000 dwt Hyundai Heavy-built vessels in the first
their asset position by selling four 110,000 DWT New quarter of the year (at $425-430/ldt). Activity is anticipated to remain very improvement
Times Shipbuilding-built vessels to Scorpio in a bigger limited with only three more vessels scheduled for delivery in 2020.
deal also involving 15 MR2s. On the financial side, four in the second
additional scrubber-fitted 2018- and 2019-built LR2s were
purchased by Ocean Yield in a structured deal including 9 hand values for
years of bareboat to Navig8. The activity in the 10 year-
old area was impacted by Brightoil Petroleum’s bankruptcy MR2 tankers
and ensuing auction of 4 vessels for below-market prices.
The two Aframaxes, Brightoil League and Brightoil Lucky
Crude S&P outlook for 2020
(115,000 dwt each built in 2009 in Hanjin, Korea) faced
2020 presents itself with shining potential and even glistering glory.
a low $21-22 million valuation each, while other vessels
Current market trends are set-up by a combination of unpredicted past
such as Virgo Sun and Jupiter Sun (115,00 dwt Sasebo Clean tankers
short-term events and long-term drivers that have not drastically changed
Heavy-built in 2007) were sold for about $26 million each.
over the past year. MR1/MR2
Out of the 61 Aframaxes (LR2 included) that we were
The US administration’s sanctions have certainly helped tanker owners
expected to be delivered during 2019, we only saw 55 Following very similar dynamics to 2018, last year saw a progressive and constant
which had large smiles on their faces in 2019 and we anticipate that they
hit the water last year. In 2020, we should see another improvement in the second hand values for MR2 tankers. From the beginning of
will continue smiling into 2020. The tightening of VLCC tonnage has benefited
27 vessels delivered while the total orderbook stood at January to end of December, the BSPA moved from $26.8 million to $29.5 million,
earnings and values across all segments. However, our view is that it is all very
101 units as of late-December 2019. maintaining growth at close to 10%, level with the previous year.
fragile as it could only take one tweet to reverse sanctions and see markets
Sales activity for Panamax tankers drastically increased undergo a serious negative shake. Activity was evenly distributed across all age segments with notable peaks
as a total of 33 transactions took place in 2019. However, for extremely modern tonnage (0 years old) with 16 transactions, on the 9-10
IMO 2020 fuel changes and subsequent adjustments to trade patterns as
the number of those involving modern tonnage was years old segment with 37 transactions, and 15 years old segment with 23
refineries tweak their crude intake and fuel export requirements will be
extremely low. Only one 2019 built LR1 (the 75,000 dwt transactions. All told, there was an average of 7 transactions per year of build
positive for the tanker market. Finally, the ongoing retrofitting of scrubbers
Hyundai-Vinashin) was the object of a Japanese Operating with a total of 197 transactions taking place including 22 sales for recycling.
will play a key role in limiting the supply of ships. Accordingly, this will also
Leases with Call Option (JOLCO) in the beginning of the
benefit the market over the short and medium term. On the very modern tonnage, there was a notable sale of fifteen MR2s all built in
year for $38.6 million.
Hyundai Vinashin in Vietnam between 2019 and 2020 from Trafigura to Scorpio
Scrapping activity has plummeted considering that vintage tonnage is now
Among the less modern units, Zodiac sold after a lengthy (jointly with four Aframaxes previously mentioned) for a total of $803 million.
able to secure employment and attractive returns with Capex paid-off long
tender their Kings Road and Abby Road (75,000 dwt This deal involved a finance lease arrangement with a bareboat contract.
ago. As long as demolition values don’t pick up and support recycling activity,
built in 2012 and 2013 at STX, respectively) to Pakistan
the fleet won’t benefit from a relief valve; with many vessels still slated to be A significant volume of the activity in the MR2 sector was also related to
National Shipping Corporation for $60.7 million en-bloc.
delivered, tonnage supply will increase, with a negative effect. sale and leaseback finance with at least 25 vessels being sold to different
The rest of the activity was dominated by the 10-15
investors/banks for bareboat charter back to the sellers. Increased asset
year-old segment with 19 transactions recorded. Among A two-tier market could develop, considering scrubber-fitted vessels and
values, supported by the better performing chartering activity, helped different
these, several were driven by fleet renewal plans and non-fitted units. Owners, charterers, banks, brokers and financers will have
shipowners to find new refinancing opportunities both in Japan and China.
a couple by sale and leaseback schemes, which given difficult calls to make when deciding how to value the impact of a scrubber
the increased asset values, helped owners with their as the spread between VSFO and HSFO remains volatile, although varying In the newbuilding market, 75 MR2s were ordered during 2019, equal to about
refinancing needs. substantially according to time and place. 3.7 million deadweight. This is very similar to 2018, when the market saw
some 3.5 million deadweight ordered.
For the Panamax (LR1 inclusive) fleet, we saw 11 vessels Considering this, the new normal for 2020 should be prudence and reflection
enter the fleet in 2019 against an anticipated number combined with optimism. Nevertheless, a cautious eye should be kept on the In the MR1 sector, a significant portion of the activity came in the 10-15
of 17 units at 31 December 2018. The total orderbook difference between positive short-terms drivers on the one hand and the years old segment which accounted for 32 of the 71 total reported completed
at end-2019 consisted of 15 units, of which 11 are due unchanged long-term fundamentals market forces on the other. transactions for further trading.
in 2020.
As in 2018, last year saw no MR1s ordered, leaving the orderbook with four
units to be delivered in 2020 and one last unit in 2021.

2020 presents
itself with shining
potential and even
glistering glory

56 BRS GROUP - Annual review 2020 BRS GROUP - Annual review 2020 Picture: TORM SUCCESS, MR2 Tanker, 49,976 dwt, Delivered in 2019 by GSI in China, managed by TORM. 57