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MAR140

Southampton Solent University

Q12371700

Maritime Business
A review of the VLCC market for 2015

Hand in Date: Monday 7th, December 2015
Number of Copies Submitted: 1
Word Count: 2097

Unit Leader:

Coursework Examiner:

Nicola Pryce Roberts

Dr
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Secondly, this paper will
assess in what extent 2015 have been rewarding for VLCC bulk owners
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VLCC tankers are the largest crude
carriers in the world, with exception of the ULCC´s (Rodrigue, 2015)
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VLCC´s typically measure 300-330m in length and have a draft of over
25 metres
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(EIA, 2015)

Regardless, the very size of these carriers are in fact also a limitation of the transport routes
available
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The majority of
seaborne tanker movements are from the Middle-East and West-Africa primarily to the
Asian markets and the US, but there are other destinations (EIA, 2015)
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This can be
explained by scale of economics which proves the potential for profitability when
maximizing cargo while at the same time minimizing the costs affiliated with operational
costs concerning these ships (DSF, 2015a)
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Maritime economics tries to explain the
theories behind the practice
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The volatility of the
industry relates to the undisputed existence of market cycles in which the stages thereof
include a through, a recovery, a peak and a collapse
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Meaning that at any given
time there is an element of unpredictability influencing the industry
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After a collapse, ships are only worth a fraction of what
they were in the peak thus creating an option to buy cheap vessels while waiting for the
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MAR140

Southampton Solent University

Q12371700

market to turn
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The vessels are cheap in a collapse because
they are not worth much
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At that stage
ship-owners must evaluate scrapping or lay-up
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A fourth option can be to modify the vessel into carrying another type of
cargo
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Ironically, the current situation
appears to be of the opposite
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According to Stopford, (2009) there are 10 key factors that are of particular importance in
which influences the shipping industry, hence also the VLCC bulk trade
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Firstly, factors affecting demand, is the world
economy, seaborne commodity routes, average haul, random shocks and transport costs
(Stopford, 2009, p136)
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The freight market is what links the two by regulating the
cashflow from one function to the other (Stopford, 1997, p114)
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In regards
to the limitation of this essay the most important factors subjected to the author's personal
reasoning will be further emphasized
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For example, a country, region or an industry that is experiencing economic growth
will depend on importing raw materials that it may not produce itself in order to develop
infrastructure which in turn will support future growth (WEO, 2015)
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The most
correct way to describe direct demand is ton miles as opposed to DWT because that is
subjected to the productivity of the individual carriers (Stopford 1997, p114)
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So far into 2015, the factor that has had the most severe direct impact on the industry is the
collapse of the crude-oil prices
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As illustrated by the North-American benchmark of oil
pricing, WTI (West Texas Intermediate), light crude oil has plummeted from value of well
over a $100/barrel in late 2014 to a rather melancholic low of values under $40/barrel as of
December 2015 (Bloomberg, 2015)
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1
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Barrel

Source: CNBC, 06
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This is of importance because crude oil is the only commodity carried by the VLCC fleet
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Albeit not being directly correlated with crude oil
pricing (Kavas, 2012), the cost of bunker fuel is significantly impacted by the drop in crude
prices and the fact of the matter is that for the most part of 2015 ship-owners most
significant cost has been sold at a discount
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The sellers are the ones
that are have been suffering in this ongoing situation
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MAR140

Southampton Solent University

Q12371700

Onwards, regarding supply factors in Stopford’s shipping market model, there is the world
fleet, productivity, shipbuilding production, scrapping, losses and freight revenue (Stopford
2009, p, 136)
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Details are not ignored, but one
must accept that too much information will cloud a clear analysis
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The current VLCC/ULCC fleet in its entirety consists of 649 carriers with a combined capacity
of 45,195,361 DWT as of December 7th 2015 (Clarkson’s, 2015)
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In a larger time perspective, 2014 marks the 4th consecutive year
where annual deliveries have decreased from 2011 (DSFa, 2015b)
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The
decreasing trend of delivered tankers in these years alleviates problems regarding
oversupply in the industry
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As shown in
(Tab
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1) the 2014 VLCC fleet growth is only a mere 1%
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Tab
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1: Development of Crude Tanker Fleet from 2005 - 2015

Source: Danish Ship Finance, 06
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15
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MAR140

Southampton Solent University

Q12371700

The fleet development is subjected to four factors
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Clarkson’s Shipping Intelligence have the updated numbers for these variables as
of October 2015
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What this tells us is that for the first three quarters of 2015 the fleet is growing even less
than expected and while some oversupply in the VLCC market appears to be evident the gap
is closing in, assuming Q4 will not differ significantly from the previous quarters
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If any, they will most likely continue to remain
strong
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That is taken in consideration that actual deliveries realistically will be
less due to cancellations and postponements (Waldergrave, 2015a)
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In 2 or 3 years’ time several
new carriers will enter the fleet while relying on high freight rates and high demand for oil
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While not forecasting a direct future collapse in this
research a more competitive tanker market in 2016 appear to be the consensus amongst
maritime economic experts (Waldergrave, 2015b)
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As previously mentioned freight rates is the link that regulates the flow of cash from
demand to supply (Stopford 1997, p115)
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Put simply, a price for the freight
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Meaning, the time it takes from a ship
being ordered to the date of delivery
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2) spot-market freight rates have
remained relatively profitable at high levels in 2015 mostly due to the drop in oil prices
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1
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12
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1
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Albeit these tankers slightly vary in DWT capacity and
length of route they all have a fairly similar movement pattern due to the supply and
demand market forces
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Lloyd's List published an article in August (Lin, 2015) that wrote about how
Chinese refineries were drastically cutting down on their crude oil imports due to poor
profits and seasonal maintenance of machinery
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1
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Nonetheless, as oil prices continue to remain low these refineries soon began importing
crude oil and yet again freight rates increased towards the end of 2015 before another slight
drop occurred in November
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This can be supported by reported
daily freight rates for eastbound VLCC´s from the Middle-East Gulf of above $100,000
(Pierce, 2015)
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The reasoning behind this thought is that the combination of a marginally low increase in
combined fleet capacity, reasonable high freight rates, low bunker fuel costs caused by low
oil prices that appears to have stagnated at a historical low spread thus are increasing
overall economic activity and therefore demand for crude oil
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On a final note, I would like to take this opportunity
to wish our professors a very merry Christmas and a heart-warmingly happy new year
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Energy - WTI Crude Oil (NYMEX)
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com [Accessed: 29
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15
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bloomberg
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, 2014
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Forbes
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[Accessed: 01
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15
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forbes
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WTI crude oil - stock summary
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com
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12
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] Available at:
http://data
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com/quotes/@CL
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Fleet - Tanker - UL/VLCC Tanker
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clarksons
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12
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]
Available at: https://sin
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net/Register#/Fleet/Fleet/VesselType/documentId/100464

Danish Ship Finance, 2015a
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shipfinance
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12
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] Available at: http://www
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dk/en/SHIPPINGRESEARCH/Introduktion/Fragtrater-udbud-og-efterspoergsel

Danish Ship Finance, 2015b
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shipfinance
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12
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] Available at: http://www
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dk/en/shippingresearch/~/media/PUBLIKATIONER/Shipping-Market-Review/Shipping-Market-Review--May-2015
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Oil tanker sizes range from general purpose to ultra-large crude carriers on AFRA
scale
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gov
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12
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] Available
at: https://www
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gov/todayinenergy/detail
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China is now the worlds largest net importer of petroleum and other liquid fuels
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gov
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12
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] Available
at: https://www
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gov/todayinenergy/detail
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Asia tankers VLCC rates to hold steady after
hitting a new 5 year high
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com [Accessed: 01
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15
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hellenicshippingnews
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, 2012
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com
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12
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]
Available at: http://www
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com/what-is-bunker-or-baf/

Lin
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Benchmark VLCC Spot Rate Lowest in Eight and a Half Month
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com
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11
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] Available at:
http://www
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com/ll/sector/tankers/article466150
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, 2012
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Historyinanhour
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11
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] Available at: http://www
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com/2012/10/08/a-brief-history-ofmaritime-shipping/

Stopford, M
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Maritime Economics, 2nd edition
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, 2009
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London & New York: Routhledge

Rodrigue, S
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Tanker Size
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[Accessed: 01
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15
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hofstra
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html

Pierce, A
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VLCC spot market sees new high in 2015
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com [Accessed:
01
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15
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tradewindsnews
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, 2015a
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Teekay Marine Markets
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12
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] Available at: http://www
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com/tankers/378023/vlccspot-market-sees-new-2015-high

Waldergrave, K
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Tanker update, November 2015
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[Accessed: 01
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15
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youtube
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World Economic Outlook - Short and Long- term factors
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org [Accessed:
01
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15
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imf

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