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Maritime CEO Forum Monaco: Why tankers can withstand a recession

Why this tanker cycle is different and how even a global recession might not knock the sector off kilter were the central thrusts of the tanker panel at last week’s Maritime CEO Forum held at the Monaco Yacht Club.

Getting proceedings underway, moderator Robert Clancy, the managing director of Arrow Shipbroking, set the scene, telling delegates how the orderbooks for VLCCs, suezmaxes, aframaxes and MRs are only 5, 4, 8 and 6% of the existing fleet, respectively. Moreover, the number of ships in each sector over 20 years of age now exceeds the size of the orderbook in each sector.

Our industry will face underinvestment at some point

“It’s possible the tanker fleet might even shrink,” Clancy said, adding: “What makes us optimistic about the tanker market today is that the current situation has almost all the drivers that catalysed the previous cycles – they are all converging on the market now.”

Global oil trade routes are being redrawn, leading to higher tonne miles and stronger tanker demand, while there are just weeks to go before a series of environmental regulations come into force, which Clancy said would ultimately restrict tonnage supply.

Turning to his high-level panellists Clancy then sought their take on the markets – and like the Singapore forum two weeks prior – the mood was decidedly bullish.

Quizzed on the potential demand destruction as Europe shivers and suffers from rising energy prices this winter, the assembled tanker owners suggested the freight markets could easily absorb this.

During past recessions, demand falls, but the effect on freight market this time will not be felt as the tonne mile demand will “by far” exceed this drop in demand, argued Mikael Skov, the CEO of Hafnia, the world’s largest product tanker owner. When it comes to looking at the overall tonne-mile picture, Skov told attendees it was important to keep in mind growing ballast times. Hafnia’s ballast times were 40 – 45% longer between Q2 and Q3 this year.

“Trade on the big ships into Europe has increased over the past few months, and this is just the beginning of it with VLCCs trading over a longer distance,” said Svein Moxnes Harfjeld, the CEO of New York-listed DHT Holdings, discussing the looming December 5 EU ban on Russian crude.

Echoing what Harfjed said, Emanuele Lauro, CEO of Scorpio Group, told delegates tonne miles will be impacted when it comes to product tankers and a further EU product ban due in February.

“We will have to find a million barrels a day that had been coming from Russia. It will be tough to source,” Lauro said, pointing out that voyages from Primosrk and St Petersburg to Rotterdam take 10 days, while they take four times longer from the Middle East and two and a half times longer from the US Gulf.

The Middle East is not just serving Europe, but Asia too where inventories are low, Lauro pointed out. Likewise, the US Gulf is serving a “very thirsty” South America market, making for very tight markets that are overall more tonne miles-wise.

“It is a different recession we are facing,” suggested Burak Cetinok, Arrow’s head of research, speaking from the floor. As energy prices have been so high for so long, reserve inventories have been hit and they will need to be replaced soon, he pointed out. Even in the event of energy prices easing, refining margins are way above their historical average, which will incentivise refiners to keep running above normal despite what happens in the world economy, Cetinok said, painting a favourable demand picture for the coming 18 months.

Marco Fiori, CEO of Premuda, argued that the imminent arrival of the EEXI legislation will be “very beneficial” for the tanker markets as it will increase tonne-miles due to ships going slower.

Quite so, concurred Hafnia’s Skov, who reckoned EEXI would push product tankers towards full utilisation, pushing up rates, and importantly the bottom level of rates.

On CII, the other big IMO regulation coming to shipping soon, DHT’s Harfjed suggested its impact would be limited to begin with, given the three-year introductory phase of the new rule. Nevertheless, he predicted that eventually older ships would struggle to power down to meet CII requirements.

“Our industry will face underinvestment at some point,” Harfjed said pointedly, with all owners present keen not to add to the low orderbook at present.

“If we look at the last cycles in shipping, even the down cycles, demand has never been an issue – we always have to focus on supply,” said Scorpio’s Lauro, who hit out at politicians for failing to invest properly in hydrocarbons in recent years, leading to today’s energy crisis. Nevertheless, oil and gas projects are now massively expanding, Lauro said, especially in the Middle East where notably oil and gas assets such as liftboats and accommodation barges are being absorbed on long term contracts for the first time with these assets being taken in the Gulf for up to five years.

Maritime CEO Forum Monaco 2022 was sponsored by Arrow Shipbroking, Cambiaso Risso Group, CTM, Danica, Dualog,, Liberian Registry and Ocean Technologies Group.

The next Maritime CEO Forum takes place Singapore on April 24 next year with a return to the Monaco Yacht Club confirmed for October 12.


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