UKC-East VLCC freight rates fall to near 5-year low on excess capacity

In International Shipping News 15/07/2016

The cost of sending VLCCs carrying fuel oil on the Rotterdam-to-Singapore route has fallen to the lowest level in almost five years, S&P Global Platts data showed.

The UKC-East route, basis 270,000 mt, was assessed $250,000 lower at $2.75 million Thursday, the lowest level since a $2.75 million assessment September 19, 2011.

On the fixture front, Koch was heard to have fully fixed the BW Ulan at $2.75 million for a Rotterdam-Singapore voyage July 25.

The rates are in stark contrast to levels available to shipowners in 2015, with freight rates on the route above $6 million for much of the year.

There have been a number of factors which have combined to lower the cost of VLCC freight in the UK Continent — and indeed at all the main VLCC loading hubs — in recent months, according to market participants.

While cargo flow from the main loading area of the Persian Gulf has been relatively steady in 2016 the number of tankers available to transport these cargoes has risen. According to Affinity Research there are 43 new VLCC deliveries expected for 2016, with around 20 already delivered by June.

Allied to this there has been a significant reduction in delays at various Chinese ports, which has allowed VLCCs to return to position lists faster than had been the case for much of 2015 and early 2016.

Elsewhere, the significant reduction in Venezuelan crude output this year has created major downward pressure on Caribbean VLCC rates and left shipowners in the UK Continent with few bargaining tools when trying to negotiate freight rates on this side of the Atlantic as charterers know that owners cannot ballast to a nearby region to increase their earnings.

It is not just VLCC owners that have reason to be concerned with the low VLCC rates however. According to market participants, the extremely low rates at which VLCCs were now available to charterers in Europe could impinge on potential Suezmax business.

“It is making me sweat. I’m doing a short time charter for Med-Asia and seeing the reported VLCC levels I wonder why charterers aren’t taking VLCCs instead [of Suezmaxes],” said a Suezmax owner.

Source: Platts