On the Right Side of History

CRUDE OIL FLEET GROWTH IN TERMS OF NUMBER OF UNITS

The above table takes into account expected additions and deletions to the fleet, and at a glance shows that both the Aframax and Suezmax fleets are expected to increase by approximately 20 percent during the next four years whilst the VLCC fleet will increase by a little less than 15 percent. 

But owners are living in the here and now, and let´s face it, it hasn´t been too bad being a tanker owner in recent years.  The year 2000 was the first year that the tanker market saw the cumulative effect of the clear out of 1970s built tankers, and it was the first year of sustained high tanker rates in almost twenty years.  Let us assume, for a moment, that you were lucky enough to be a shipowner with a fleet of Aframaxes, Suezmaxes and VLCCs which were delivered in June of 2000.  Given the going prices for newbuildings at that time, you would have needed a time charter equivalent daily return of about USD 17,300 on an Aframax, USD 21,300 on a Suezmax and USD 31,500 on a VLCC in order to amortize your investment.  Let us have a look at how our lucky owner probably fared on a time charter equivalent basis by trading his vessel in the spot market from the time of delivery until today.  If he had traded his Aframaxes in the Atlantic Basin, he would have averaged around USD 40,000 per day during the period, i.e. a profit of USD 22,700 per day for a period of seven years!  In the case of Suezmaxes trading in West Africa the average rate over the period was USD 51,500, which gives a solid profit of USD 30,200 per day over seven years.  And if you had purchased a VLCC for delivery in the middle of 2000 and traded it from the Middle East Gulf to the East, you would have earned a daily time charter equivalent return of USD 66,700, meaning an average daily profit of USD 35,200.  No wonder shipowners are not that sad even if the prospects for the future are not as bright as they could be.  With long term earnings like these under their belts, most owners can afford to be blasé about the prospect of a few lean years. 

Even for those who took later deliveries of vessels, it is quite clear that newbuilding values remained relatively reasonable through 2003.  It wasn´t until 2004  that newbuilding prices began to rise significantly.  A newbuilding VLCC ordered in 2003 or earlier probably cost about USD 75 million, whilst the same vessel ordered in 2004 and 2005 cost about USD 105 million and USD 120 million respectively.  Obviously, these increases in newbuilding prices changed the dynamic for those who ordered later tonnage and means that these will have to operate from a different point of departure.  Nonetheless, it does mean that most tankers delivered up to 2005 were acquired at prices which provide their owners with a significant upside potential.