October 2, 2020
— Almost 30% of tankers are 15 years or older
— Recent incidents raise eyebrows, highlighting safety concerns
— Bumper H1 earnings for owners led to minimal scrapping
The global tanker fleet is the oldest it has been in years, potentially storing up trouble for an industry vulnerable to accidents, leaks and oil spills, industry experts have warned.
Recent mishaps have highlighted the risks. In July, the MV Wakashio in Mauritius spilled 8,450 barrels of oil into the ocean when it hit a coral reef near Mauritius. The incident was followed in September by a fire onboard an ageing VLCC carrying crude offshore Sri Lanka.
The accidents “raised a lot of eyebrows and for good reasons, but age itself doesn’t seem to stand out as the main cause for the disasters,” Peter Sand, chief shipping analyst at BIMCO, which represents shipowners, said. However, they have drawn attention to the ageing global fleet, with a large number of tankers now older than 15 years.
The average age of the global tanker fleet has reached its oldest in almost a decade, with 28% of the fleet 15 years or older, according to data from independent shipbroker Affinity Shipping LLP. The current average tanker fleet age is 11.5 years old, Affinity data showed. There are 1,488 oil tankers with 15 years of service and more in 2020 against a total fleet of 5,274, according to Affinity data. Secondly, almost two thirds of the total fleet are more than a decade old.
This year began with a boom for the tanker markets as coronavirus routed oil demand, pushing more and more oil barrels on water, with large tankers such as VLCCs earning six figures as daily earnings. But freight rates have since crashed back to earth, and the market now has a considerable number of older ships. Orders for new tankers have slowed substantially as the plunge in tanker rates “tempered enthusiasm for new tonnage,” according to S&P Global Platts Analytics.
The order book in 2020 has dropped to its lowest level in more than 10 years, with just 373 tankers currently on order, Platts Analytics data showed.
Fragile tonnage
Tankers over the age of 15 years are considered risky and these ships find it tough to get vetted or regulatory approvals due to safety concerns. But there are several charterers that are flexible, and manage to use such tanker on some key routes.
“Age is very important for tankers though it is always terminal dependent,” said a Londonbased shipbroker. “Some terminal owners won’t look at ships that are 15 years old or older, while others are more relaxed and take ships up to 20 years old.” Also older tankers tend to demand much lower freight rates, which encourages some companies to use them.
The market has been set up to handle quality of tankers systematically with classification surveys held regularly, BIMCO’s Sand said. “Obviously, ships do get maintained very differently in some cases,” he said. “Tankers in general nevertheless are among the best maintained in the industry.” Charterers and terminals in each region have different preferences.
Terminals in Europe and the US are less likely to accept tankers older than 15 years while those in Asia are more flexible. “Old ships go to die in the Arabian Gulf,” the shipbroker said. “Ras Tanura in Saudi Arabia and Mina Al Ahmadi in Kuwait tend to take old ships. The younger age thrive in Europe. The average age of tankers in the Arabian Gulf is around 15/16 years. You even get some 2003-built ones.”
Similarly, Indian charterers and terminals are known to be more flexible than their counterparts in Europe, according to shipping sources. But the incident involving the New Diamond VLCC catching fire off Sri Lanka is likely to convince the industry to be stricter with their use of older tonnage. This almost 20-year old tanker was chartered by Indian Oil Corporation and was carrying 2 million barrels of Kuwaiti crude at the time of the incident, according to Platts trade flow software cFlow. “No one should really lift a 20-year old ship,” the broker said. “But the thing is once you charter or use 2000-03-built ship you can do whatever you want with it but you know that it won’t trade in the West.” “That said, some of the 20-year old ships are good for storage as you just anchor them off.”
Scrapping or demolition of older tankers has been very sluggish this year due to the lucrative business of floating storage. “The fleet is definitely aging, with a big chunk of the fleet being 15 years old or more,” said Ioannis Papadimitriou, a shipping trade analyst at Affinity. “The average scrapping age this year has also increased as it is around 28 years old,” he said. “This is because of the opportunities that occurred to the owners during the spring of 2020, which made them reluctant to scrap.”
Recent incidents
The last few months have seen a few incidents involving tankers and ships causing oil spills,which brought up the issue of maintenance and safety of ships, especially for older tonnage. The bulk carrier MV Wakashio ran aground on a reef off the coast of Mauritius in late July, leading to a spill that was bigger than the total loss from oil spills for all of 2019, according to the International Maritime Organization. The ship was on its way from Singapore to Brazil to collect an iron ore cargo when the accident took place, according to cFlow data.
It is not always old tankers that are prone to oil spills. The infamous Exxon Valdez incident in 1989 is a prime example. The tanker was only three years old when it collided with another ship in Prince William Sound in the US, causing some 11 million gallons of crude oil to spill into the water. A few years later, the Exxon Valdez tanker returned to the spot market and was actively used by oil companies, and was later converted into an iron ore carrier. It was never allowed to sail to the US and did business in Europe and Asia, and mostly only Asia in the last few years of her life until she was scrapped in 2012.
There is also the case of the FSO Safer, which has been offshore Yemen for over five years.Houthi rebels have held the ship hostage as part of the Yemen civil war. Saudi Arabia has asked the UN and other international bodies to take immediate action over Safer, which was in danger of exploding or sinking, and causing a major humanitarian, environmental catastrophe.
Eklavya Gupte
eklavya.gupte@spglobal.com
Claudia Carpenter
claudia.carpenter@spglobal.com
Edited by Jonathan Fox,
newsdesk@spglobal.com
