The Road To Recovery

Erik Broekhuizen

2 Aug 2019: Tanker contracting slows amid challenging rate environment
There is a strong correlation between tanker newbuilding activity and tanker rates. Shipowners tend to order more vessels during periods of high rates, when they are flush with cash and banks are more willing to provide financing. However, if the industry orders too many vessels, the subsequent oversupply (when all this new capacity hits the market) tends to push rates down, pessimism sets in and owners stop ordering. Provided that oil and tanker demand continue to grow (and demolition picks up as well) this reduction in ordering will typically sow the seeds for the next recovery in rates. For the tanker market, the last good year with healthy rates was 2015. Rates across all segments have been depressed since then. 2017 and 2018 were particularly bad. After a relatively strong winter market, rates in 2019 have dropped again and we are firmly in the summer doldrums now. Shipowners are looking at the next winter market with a sense of guarded optimism, especially since it will coincide with the implementation of the IMO 2020 Sulphur regulations on January 1. Is that warranted?

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