Gibsons argues Baltic Exchange VLCC benchmark is no longer relevant

UK shipbroker Gibsons has argued that the Baltic Exchange’s VLCC benchmark is in need of an urgent update to better reflect the makeup of today’s supertanker fleet.

Spot VLCC earnings were in the negative territory for most of last year, with the key benchmark TD3C averaging minus $250 a day on a slow steaming, non-scrubber, non-eco basis. So far this year, returns have been equally disappointing, only creeping up to zero last month.

With benchmark earnings so low for so long, some tanker analysts have wondered why the sector has not seen meaningful increases in demolition activity.

In part, an answer to this lies in a high uptake of the scrubber technology in the VLCC sector, Gibsons suggested in its latest weekly report. According to Gibson’s database, around 42% of existing VLCCs have been fitted with exhaust gas cleaning technology, with a standard scrubber-fitted 10-year-old tanker earning on average just over $6,000 a day more than a similar non-scrubber vessel last year. The scrubber premium has increased in 2022, in line with increases in bunker prices and the widening gap between HSFO and VLSFO prices. So far this year, scrubber-equipped VLCCs have earned around $11,000 a day more on the spot market, a premium over a non-scrubber tanker wide enough to cover opex.

Apart from scrubber equipped VLCCs, another 11% of internationally traded VLCCs are built in 2015 or later, meaning that those vessels are likely to be of an eco design, hence being able to generate higher returns due to lower bunker consumption. Furthermore, there are also quite a few non-scrubber fitted tankers, mainly around 20 years of age, trading sanctioned Iranian and/or Venezuelan barrels. These vessels account for 11% of the existing VLCC supply and operate outside the international market, at a notable premium compared to mainstream industry earnings.

“Evidently the majority of the VLCCs trading on the spot market are capable of generating higher returns than the benchmark Baltic Exchange VLCC description,” Gibsons observed.

Furthermore, with more newbuilding VLCCs to be delivered and some ships yet to retrofit, going forward the trading fleet will increasingly become eco and/or scrubber fitted.

“So, this begs the question, is it now time to assess benchmark VLCC earnings on a different basis?” analysts at Gibsons mused.

Sam Chambers

Starting out with the Informa Group in 2000 in Hong Kong, Sam Chambers became editor of Maritime Asia magazine as well as East Asia Editor for the world’s oldest newspaper, Lloyd’s List. In 2005 he pursued a freelance career and wrote for a variety of titles including taking on the role of Asia Editor at Seatrade magazine and China correspondent for Supply Chain Asia. His work has also appeared in The Economist, The New York Times, The Sunday Times and The International Herald Tribune.
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