More tough times lie ahead for the international oil tanker industry, warns Drewry Shipping Consultants Ltd., London.
In a new study looking at tanker supply/demand and profitability to 1996, Drewry arrives at these main conclusions:
- Tanker freight rates will be depressed in 1992-93 as replacement tonnage is delivered to offset the expected increase in scrapping of tankers built in the mid-1970s.
- The pressure on newbuilding prices should be relieved by the peak in vessel deliveries expected for this year.
- The modest growth in tanker demand expected during 1992-96 depends heavily on increased crude and products shipments from the Middle East.
GROWING UNCERTAINTY
Drewry contends the tanker market is entering a period of growing uncertainty that encompasses an increasingly older fleet of very large crude carriers and the growing influence of the 1990 U.S. Oil Pollution Act.
"Thus, recent prosperity now looks set to be overtaken by a further difficult spell caused by a substantial increase in replacement tanker tonnage," the consulting firm.
During 1985-91, chartering volumes in spot and period markets jumped sharply against a backdrop of growth in crude oil and refined products movements, Drewry noted.
The widespread improvement in freight rates brought about a corresponding improvement in cash flows for vessels of all sizes. However, the net contribution to capital-on the basis of fully built-up costs-has remained quite steady since 1988 because operating and capital costs also have risen sharply, Drewry noted.
Based on the current orderbook, Drewry forecasts an expansion of the fleet by more than 10% in 1992-94.
It said, "This in itself would be sufficient to ensure that freight rates are depressed during 1992-93 and only show real improvement by 1995-96, provided some ordering restraint is seen and mid-1970s built tonnage is widely scrapped."
At the same time, Drewry predicts tanker demand will grow by an average of only 1%/year in 1992-96.
CHANGING TANKER SURPLUS
About 40% of the total tanker fleet was built in 1974-76, according to Drewry.
In theory, if a tanker's working life were assumed to be 20 years, then ignoring life extension-that portion of the fleet would be scrapped in 199496.
Drewry said, "Although this will not happen, the tanker orderbook has risen strongly and in December 1991 stood at 51.5 million dwt, or 20% of the fleet, of which about 80% is scheduled for delivery by the end of 1993."
The theoretical tanker surplus, taking into account projected scrapping and delivery patterns, will rise to almost 30% in 1993 before declining sharply in 1995-96 to 23% as scrapping rates are stepped up, Drewry said.
A typical vessel is expected to be able to maintain a breakeven position in the spot market-essentially covering operating and voyage costs -a situation that has prevailed since 1987, Drewry said. "Furthermore, there is reason to believe that nominal freight rates will rise, reflecting underlying pressure from rising operating and capital costs."
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