Tanker rates are expected to bottom out in 2013 and flatten thereafter according to an analysis from DVB Bank. The analysis warns though that any increase in time charter rates won't be in the form of a steep spike, rather than a gradual process and in any case rates aren't expected to reach the high levels of 2007-2008 any time soon, regardless of the fundamentals of each specific sub-sector of the market. Tonnage oversupply is the main reason for this projection, despite the expected increase in oil demand which isn't going to be able to offset the fact that during 2013, fleet employment is going to decrease to the lowest levels since the late '80s, according to the analysis.
DVB said that 1 year time charter rates will decline further throughout 2013 and are expected to remain flat at least until the end of 2014. Also, with charterers these days looking to hire vessels younger than 15 years old, especially for cargoes heading West of Suez, it looks like we're heading for a two-tier market. "A number of new regulations (EEDI, scrubbers, anti-fouling systems) that either just took effect or will take effect in the next few years are expected to lead to another type of two-tier market. Although some of the regulations do not apply to older tonnage, Charterers will use the extra features of the new tonnage to negotiate lower freight rates for the older tonnage" DVB said.
Ship prices will also decline even further, in line with freight rates, as they did in 2012. The difference for the new year is expected to be an even steeper rates of price reduction, while in 2014 prices are predicted to remain flat in low levels. As a result, owners with high leverage are going to face cash flow problems for the next couple of years, which means that cash reserves will prove to be a major factor, if those owners are going to survive. In terms of newbuilding prices, the low level of activity in the past couple of years has already led to a decline of 40% in terms of prices, compared to the 2008 levels. But, older second hand tonnage has practically crashed, with ship of this kind now trading at levels 70% lower than they were back in 2008. For these vessels, recovery isn't an option even after 2014.
DVB expects contracting of more newbuilding vessels to be the main trend of the next 12-18 months, as tanker owners will seek to take advantage of low newbuilding prices and order new ships with delivery times from 2015 onwards, in an attempt to catch the turn of the market.
The main culprit of the tanker market's demise is of course tonnage oversupply. According to DVB Bank, during 2012 an expected total of 178 crude tankers entered the tanker fleet during 2012, with an additional 107 to hit the water by the end of 2013. This means that the current imbalance between supply and demand will still be an issue for at least the next three years. Demolition is the main way to reduce this imbalance, with a total of 60 vessels been scrapped during the first 10 months of 2012. Over 60% of those were older double-hull tankers. This trend could very well be the dominant one during the 2013-2014 as well, as a result of poor market fundamentals. After all, the current crude tanker fleet stands at 2,334 vessels, up 20% since October of 2008. At the same time, the tanker fleet is quite young in age, with almost 70% of it consisting of ships under 10 years old, while only 3% is older than 20 years old. As a result, only 1% of the fleet is now single hull. During 2012, the average scrapping age was 21 years old, but there have been cases of scrapping of ships just 14-15 years old.