Home' Ships and Shipping : November 2009 Contents Under the International Convention for the Prevention of
Pollution by Ships (MARPOL) 73/78, several types of cargoes are
classified by the IMO and in the list of the International Maritime
Dangerous Goods as "materials possessing chemical hazards". The
various types of such materials include flammable solids;
flammable solids or substances which are subject to spontaneous
combustion and can emit flammable gases; oxidizing substances;
poisonous substances; radio-active substances; or corrosives.
Review of the tanker market's performance
The phenomenal growth of the tanker trade in the last few
years was halted by the global recession as demand for the cargo
they carry is scaled back. This coincides with the impending entry
of huge new capacity joining active tonnage in the trade which
exerts considerable pressure on the trade.
Although capacity in the trade is still growing, ordering activity
has slowed down markedly in 2008 compared with recent years.
According to Drewry Shipping Consultants, there were an
estimated 120 newbuilding orders for these vessels in 2008, a mere
one third of the total orders commissioned in 2007.
Demand is expected to slow further but the impending arrival
of new tonnage into the market over the next few years, as a result
of the ordering frenzy between 2006 and 2007 just before the
global economic crunch began, will provide balance to the
It is, however, unreasonable to take a generalist view of the tanker
trade, no more than it is fair to view the shipping industry using
broad lenses without taking into account the various trades therein.
Although the short-term prospect for the large tanker trade,
most notably in the VLCC segment, looks rather discouraging
given faltering global demand for oil there are some silver linings
elsewhere in the tanker trade. Most notably, the small tanker trade
is set to remain robust on the back of strong demand for product
cargo, especially among developing economies which do not have
terminal reception facilities to handle huge tankers.
Although several developing economies have invested in
enlarging their oil refinery capacity, their new capacity will only
come on stream between 2010 and 2012. In the meantime, they
will continue to depend on small tankers for their oil shipment.
Owners of small tankers providing services in coastal waters and to
countries which have not signed up as yet for IMO's mandatory
phase-out of single hull tankers will continue to reap the benefit
from the demand for such tankers.
The global economic slump affected all shipping trade
including the tanker market, although it has not suffered the kind
of near-collapse of sectors such as container and bulk.
Having plunged from a record US$147 per barrel in July 2008 to
as low as US$35 per barrel in February 2009, crude oil prices have
gained ground steadily in these last few months, trading at around
US$70 per barrel at the time of preparing this report. Concerned
over low prices, OPEC members have cut down production to
maintain decent levels of oil prices, and the stimulus packages of
giant economies such as US and China are bearing fruits, injecting
bullishness into the oil market.
That said, fundamentals in the global economy and the oil
market remain generally weak and no sharp upside potential is
expected in oil price anytime soon.
Weak demand for products has led refineries to cut down
production, thus affecting demand for product tankers. On the
back of this, the near term outlook is not promising for the large
tanker segment. The double-whammy combination of low global
demand for oil amid the economic woes and the impending arrival
of huge new tonnage in the market is expected to depress
sentiment in the large tanker trade.
At the height of the performance in the large tanker trade,
many huge tankers were deployed as floating storage units to
make up for the shortage of onshore storage tanks in the product
trade. However, there is now excess supply of these offshore
storage facilities as demand for oil slumped amid the global
As a result of this, Drewry Shipping Consultants expected short
term (less than six months) charter rates to remain poor due to the
lack of incentives to store products offshore.
Outlook for the tanker trade
At the end of 2008, IEA downgraded its projection of oil
demand from the US and Europe, but China's oil imports are
expected to recover. This is positive news for long haul trades such
as West Asia -- East Asia.
Fleet growth is expected to grow overall this year and as
demand for bulk cargo has declined sharply, there should be few
conversion activities from tankers to bulkers. The verdict is that
the tanker market should recover more quickly than other
shipping trades, but should owners decide to re-route their service
to avoid hot spots such as the Gulf of Aden, the balance in the
market could very well tilt.
In contrast to the woes faced by large tanker owners, the
chemical tanker markets have remained stable thus far this year.
The strength of the biodiesel market is especially noteworthy,
and there are signs of recovery for other chemical trades. The
prognosis for small tankers within the chemical trade in certain
routes looks promising: for example in Latin America, which has a
long coast where these tankers provide invaluable coastal transport
services for a range of fuels. Other promising markets for small
tankers include Vietnam, where the first refinery is only set to
come on stream in 2010, and China and India, where new refinery
capacity will only be ready between 2010 and 2012.
Until then, these markets will continue to rely on small tankers
to transport oil and other types of fuels domestically along their
coasts in and out of those countries.
Various shipping reports and analysts project the growth in the
small tanker trade at markedly slower pace than the growth registered
in the trade in the years prior to the global economic recession.
However, the current steady performance of the small tanker
trade, at a time when many shipping trades have collapsed amid
the devastation wrought by the global recession, is commendable
and puts it in good stead to chart decent growth in the
Barring unforeseen circumstances, the outlook for the small
tanker trade should be buoyant, given its indispensable role in
facilitating the transport of oils and chemicals especially to
developing nations. As the small tanker trade is closely related to
the oil trade, there is every reason to bet on a winning outcome of
this trade, given the seemingly insatiable demand for oil,
petroleum products and chemical products from fast growing
Admittedly, the fall in demand for oil and chemicals amid the
global economic recession, the credit crunch and the surplus
capacity in tanker tonnage combine to weigh down heavily on the
small tanker trade.
However, upon careful and objective assessment of the trade
using a long-term perspective, it will become clear that the small
tanker trade has the potential to provide a silver lining amid the
cloudy forecast in the shipping industry.
There is every reason to believe that once the gloom of the
global recession clouds lift, the global demand for oil and chemical
products, which are almost indispensable in our daily lives, will
pick up again, and so will the attendant demand for the small
tankers to transport them.
SHIPS AND SHIPPING November 2009 15
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