New tanker joint venture to control more than 10% of global VLCC fleet

A new joint venture in the tanker market could end up controlling more than 10\% of the global VLCC fleet, if one counts for the actual active fleet. In its latest weekly report, Gibson, the London-based shipbroker, noted that the new joint venture between Frontline and Tankers International (TI), the new company, VLCC Chartering Ltd, will aim to create a larger fleet with more flexibility and more options for cargo owners and a single point of contact to access these benefits, to reduce voyage related expenses through optimisation of voyages and to reduce carbon emission through fleet optimisation.

Gibson added that “one source stated that Frontline will make 25 VLCCs available to the joint venture, while the TI lists 37 VLCCs under its control, given the venture a potential fleet of 62 tankers trading spot. With the global VLCC tanker fleet currently standing at 625, on paper at least the tie up will have a unified control of about 10\% of the total fleet. However, not all of the VLCC trading fleet is active in the conventional spot market. According to our database that tracks VLCC spot and time charter activity, 472 VLCCs have undertaken at least one spot fixture since the beginning of this year. If we assume that these units have been regularly operating in the spot market this year, which effectively increases the Frontline/TI share of the VLCC spot market from 10\% to 13\%. Out of 472 VLCCs, 125 units have concluded just one spot fixture so far in 2014, thus it is likely that some of these tankers do not operate in the spot market on a regular basis. If that is the case, the actual spot market share of VLCC Chartering Ltd could be significantly higher than 13\%”, Gibson said.

Meanwhile, “apart from Frontline and TI there are other prominent players, who also control a number of spot trading VLCCs. The biggest one is Navig8, who has 21 very large crude tankers on the spot market (over 4\% of all the VLCC tonnage with reported spot fixture activity this year), plus another 14 on order. The news about the tie up has been enthusiastically received by the shipowning community. Consolidation from the owner’s view is a good thing as the larger the fleet under control of one entity is, the more bargaining power it has to negotiate better rates. However, having said that, even before the latest “merger”, the VLCC market had seen more consolidation compared to the Suezmax sector; yet Suezmaxes have fared somewhat better than VLCCs in terms of returns in recent months. On this basis, it remains to be seen what difference the Frontline/TI tie up will make to the fortunes of shipowners”, Gibson concluded.

During the past week, in the crude tanker market, in the Middle East, Gibson said that “VLCC Charterers failed to slow the pace, and thereby continued to aid Owners’ attempts to set a new market high. That they duly did with the average highpoint at ws 45 to the East, with a premium ws 50 paid upon one late week fixture. Western runs were harder to come by, but rates also inflated to ws 25 to the Continent via Suez. Some of the froth may be blown off next week, but initially Owners will stay intransigent. Suezmaxes tried hard to break out of their recent rate structure, but again, enquiry just fell short of that required to achieve critical mass, and the market remained at around ws 42.5 West and ws 70 to the East, and will remain at no better than that over the short term. Aframaxes kept at a rather lowly 80,000 by ws 80 to Singapore through the week, but the further East has become more active, and the expectation is for a modestly positive uptick here over the coming period”, the shipbroker said.

Similarly, in the North Sea, “good Aframax volumes, particularly late in the week, but the net effect was limited to a very small gain to 80,000 by ws 102.5 X-UKC and to 100,000 by ws 80 from the Baltic. It will take another similar push of enquiry to force a new higher, rate-band, and that looks unlikely as it now stands. Suezmaxes found very little to get their teeth into but theoretically would move in the mid ws 70’s Transatlantic, and to around $4 million to Singapore. VLCCs found friends, at last, with the last fixture reported as $6.3 million for a Forties crude movement to South Korea. Availability is thin, and similar values will continue to be demanded for a while”, Gibson concluded.
Nikos Roussanoglou, Hellenic Shipping News Worldwide