21st May 2010 - Double Jeopardy!

While 2009 may have been challenging for both shipowners and shipbuilders, this year has brought more promise for both of these crucial sectors to the tanker industry. It is not that long ago that many owners were struggling to finance their newbuildings and negotiated with shipbuilders for delays or cancellations. At the same time shipbuilders were wondering where the next tranche of orders was going to come from. Now we appear to be in a reverse situation with a fresh rush of new orders and we presume with ‘water tight' financing in place. Newbuilding prices are believed to have reached their base level and are in fact beginning to gain upward momentum because of rising construction costs and currency issues. At the same time the larger crude tanker market has remained relatively firm over a sustained period when it was expected to come under extreme downwards pressure.  As a consequence, new tanker ordering has been brisk since the turn of the year. Therefore it comes as no surprise that more than 80% of the tanker orders placed this year have been for Suezmaxes (23), VLCCs (20) and dirty Aframaxes (9). Conversely, orders for product carriers have been minimal, reflecting the relatively poor performance of this sector, which has at times struggled to cover daily operating costs.

After prices hit their peak in 2008, some owners are now reaping the benefits of current ‘low' pricing. However, caution remains the keyword as demand for tonnage is dependent on how quickly the economic climate recovers. While the developing Asian economies appear to have weathered the worst of the storm, and forecasts of US growth are strong, the economic environment in Europe and in particular the Eurozone could have a devastating effect. With so much tonnage owned or controlled in the Eurozone, will the cloud over Europe curb the enthusiasm for more orders over the remainder of 2010 or will the current flurry continue? Persistent pressure on the euro will undoubtedly heap even more problems on the banking system and could once again make finance difficult to obtain. Going forward, this current crisis may actually work in favour of the tanker market, once again slowing down the pace of ordering.