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Another Motivator for Ship Deletions

Sept. 4, 2020

We have been following the news of the VLCC New Diamond that suffered from a boiler explosion and was set ablaze in the Indian Ocean, near Sri Lanka.  Of course, the main tragedy has to do with the one crew member out of a total of 23 who lost his life in the accident, but we can’t help but also consider the potential implications for the environment as well as the economic ones.  In the center of this accident, often overlooked, was the fact that the vessel was reported to be a 20-year-old tanker that was still operating normally.

Due to their sensitive, flammable and pollutant cargo, tankers have always been the epicenter of rules and regulations that have to do with safety, especially after significant disasters. Perhaps the most well-known example is the Oil Pollution Act of 1990 that mandated all tankers that operate in US waters to be of a double-hull construction, something that eventually became the standard in the global tanker fleet.  The act came after the infamous Exxon Valdez oil spill in Alaska in 1989.

While, hopefully, there will be no oil spill or further damage from the New Diamond, we will not be surprised if it becomes another landmark for regulation revisions, especially ones that have to do with age.  In our most recent analysis, we found out that currently, there is a relatively large percentage of tankers in all sectors that is over the age of 15 -generally an age point where tankers become “too old” to fetch returns that are comparable to the rest of the market (Figure 1).

We have been discussing for some time that given the current fleet profile and the timing of scheduled drydocking or survey activities, we are likely to see a high number of ship deletions going forward and through 2022.  It wouldn’t be unlikely for the New Diamond incident to become another “motivator” for charterers to avoid fixing old tonnages and for owners to speed up the process of shedding tonnage that is over 15 years old.  We cannot predict if this will become even bigger to the point where new age regulations are put in place, but we are certain that an increased pace of ship deletions going forward will lay the groundwork for a tanker market that is aching to rebound from its current slump. 

Figure 1 – Current Tanker Fleet Age Profile

Source: McQuilling Services