Orderbook impasse is turning tankers into ‘cash machines’, say owners
Tanker owners enjoying their most profitable period in 30 years challenge oil companies and traders to provide financial backing if they are to invest in new ships at investor forum in New York
Executives from nine of the world’s largest tanker-owning companies say they will not order expensive new ships amid regulatory uncertainty
SOME of the largest tanker-owning companies have no plans to order expensive new ships amid regulatory uncertainty, prolonging an unprecedented boom in rates that is turning their assets into “cash machines”.
“At some point, we’ll all become just cash machines,” Ardmore Shipping chief executive Anthony Gurnee said, referring to market conditions and rates that he described as “never been so high or sustainable”.
“We may have a lot of cash for as long as this goes on and that’s great.”
The fleet-to-orderbook ratio for the global fleet of more than 6,000 international trading tankers is at a record low and forecast to be at 3.6% by the end of the year, according to forecasters.
Shipowners are not ordering high-cost new tankers while regulations that set greenhouse gas emission reduction targets have yet to be decided and technology for alternative, cleaner fuels is not fully developed.
Chief executives speaking at an investor forum in New York challenged the oil companies and traders who chartered their vessels to back investments in new tankers by agreeing longer-term leasing deals.
Otherwise, they said they would extend the life of their existing, older ships to them trading on the spot market, where tanker demand is outpacing supply.
Spot rates, during the typically slowest time of the year, are more than triple the average cash break-even costs of $13,000 daily for the smallest medium-range product tankers, and more than $100,000 daily for the largest ships.
“The fundamentals are extremely strong,” said Christian Ingerslev, chief executive of Maersk Tankers, which manages a fleet of 150 product tankers. “The (tanker) orders you see today are because people have a tax incentive to do so, or somebody gets a backing from a charterer to do a longer-term charter, typically with some sort of dual fuel. If you look at tankers, it’s sort of a double whammy. We don’t know what to sail on, but we also don’t know what to sail with.”
The rebound in tanker markets started last April as Russian’s invasion of Ukraine recalibrated oil trade flows and extended distances sailed, alongside post-pandemic demand growth in crude and refined products.
The top-10 listed tanker companies posted profits exceeding $1.5bn last year following a loss-making conditions in 2021 which International Seaways chief executive Lois Zabrocky told the forum was the worst in 30 years.
“Everything’s flashing green here,” according to Ted Petrone, vice-chairman of Navios Corp, whose fleet of 175 ships includes 47 tankers. “This happened 15 years ago, and it was not supposed to happen again. But here we are. It’s a cyclical market, and this one has some legs.”
Unlike other cyclical shipping markets, cashed-up tanker owners are paying down debt and distributing profits via dividends rather than investing in new tonnage that typically leads to oversupply and falling rates.
In the container sector record profits spurred investment in hundreds of boxships with options to use alternative fuels such as liquefied natural gas and methanol.
The fleet-to-orderbook ratio for containerships topped 30% late last year.
But panellists on the New York panel said it made no financial sense to invest in tanker newbuildings.
“It’s not in our own best interest to order expensive ships without certainty about propulsion systems,” said Ridgebury Tankers chief executive Robert Burke.
There was a two-year “capital drag” between placing the order and the ship’s delivery, “with a high price... with a propulsion system that you don’t know is going to last very long,” he said. “So, without a charter from an oil major who may actually need an order, or be virtue signalling, or both, it’s really hard for shipowners to go out and (order).”
Mikael Skov, chief executive of Hafnia Tankers, the product tanker owner with 113 ships and operator of a further 112, said during prior booms, shipowners had “ruined” the market by going out an ordering new ships.
“The reality is that we have never had a demand problem in our sector, however, we’ve had a supply problem that has been dragging us down. Now we don’t have that.”
Mr Burke said shipowners could trade ships beyond the expected shelf life of 20 years and criticised oil majors and traders that had 15-year age limits on the tankers they chartered, saying older ships remained in good condition.
The average age of the crude tanker fleet was 12.3 years, he said, with no orderbook and an “installed asset base on the water today”.
“We talk about ESG constantly, and we talk about 2030 and 2050,” said Mr Burke. “We should think about what can do tomorrow, and not tomorrow as in next year, but like on March 21, 2023. These assets last 25 years, and there’s not a reason on the good earth that they can’t last, if we’re allowed to by the charterers.”
Mr Petrone said oil companies and traders now sought to charter tankers for longer periods rather than single voyages as freight costs rose.
“We all look out the window and realise is that there’s more grass to feed the sheep, and we’re not going to put any more sheep out there. They have to step up and do something,” said Mr Burke, referring to the oil companies and traders that chartered the company’s tankers.
Oil company Shell’s order for 10 dual-fuel tankers that ran on liquefied natural gas were the only recent orders seen by oil majors or traders, said Ms Zabrocky. “The customers need to see that I’m not going to be spoiled for choice unless we work together to find some solutions,” she said.
Mr Ingeslev said his company’s consultancy division had identified about 20 immediately available technologies that could be applied now to reduce emissions by between six and 18% and would repay their investment in less than three years. He was “bullish for the next several years” about the market.
“It’s a bit surreal to sit on this panel and talk about being cash machines but you know, I guess we have to enjoy as long as we can. And it seems it is going to last a while.”