In the midst of a tanker market down-cycle, pressured by over-ordering in prior years, DPP freight rates have surged to the highest levels observed since the winter season of 2016/17. Spot rates on the VLCC TD3C trade began September in the low WS 50s before gradually trading up towards WS 60.5 towards the conclusion of the month. Through the first half of October, the market surged to the WS 80s, peaking as high as WS 88. Many market participants will look to this as sign of a cyclical reversal; however, we view this as a temporary shock to the market influenced by various underlying dynamics.
As we approach one of the most impactful marine environmental regulations in history, leaders of the shipping community have addressed the International Maritime Organization (IMO) with a proposal for a more gradual introduction of the 2020 0.5% sulphur emissions limit. Although this is an unprecedented event, we can draw parallels with methods used by the California Air Resource Board (CARB) to enforce ECA regulations. In this note, we discuss the historical context of the IMO’s progression on environmental issues, the current outlook for the 0.5% regulation and parallels between shipowners’ position and methods used by the CARB, which may act as a template for smoother implementation.
Our review of the VLCC fundamental outlook for our Mid-Year Update publication showed that the crude and residual fuel oil transportation market will remain structurally over-supplied in 2019 with commensurate weakness in VLCC (and other DPP segments) freight and earnings before re-balancing thereafter. In this note, we highlight the reasoning for our 2019 view in the context of historical observations.
As a supplement to this year's 2018 Mid-Year Tanker Market Outlook Update, we've developed an "Outlook Scorecard," a review of our 2018-2022 Tanker Market Outlook published in January, and updated forecasts for 23 major tanker trades across 8 vessel segments. The one-page format makes it a perfect desk reference that can be used through the balance of 2018.