Seaborne cargos can generally be divided into two types of cargos: wet and dry. Wet cargos, or sometimes termed liquid bulk cargoes, include chemicals, crude oil and clean petroleum products and palm oil. Such cargo is generally carried in by tanker ships.
According to the International Maritime Organisation (IMO), such tankers now form the greatest percentage of the composition of the world fleet of merchant ships. This is supported by Table 1 which shows a steady increase in the global tanker fleet over the last two decades.
Tanker vessels currently make up approximately 40 percent of the world's total merchant shipping capacity. As a measure of the growth in the tanker trade, the Institute of Shipping Economics and Logistics (ISL) from Bremen, Germany, has projected that tanker vessels will contribute to half of the world's tanker fleet by 2010.
The tanker trade is one of the most important trades in the shipping sector, carrying much of the world's oil and petroleum trade.
According to the United Nations Conference in Trade and Transport (UNCTAD), the share of the tanker trade in the total world seaborne trade in 2008 amounted to about a third. In the same year, an estimated two-thirds of world shipments of cargo consisted of crude oil.
The volume of seaborne trade of oil has been growing steadily in the last few decades (see Table 2). Although demand for oil has slumped amid the global economic downturn, the prospect for seaborne trade for oil is expected to register strong performance in the years ahead compared to other shipping trades, on the back of strong global energy demand.
Cargos carried by tankers
The performance of the tanker trade has been like a shining beacon amid the slump in the shipping industry since the global recession reared its ugly head. This is largely thanks to the global trade in petroleum products has been on a steady rise in the last three decades.
These group of products can be separated into the following sub-groups:
In addition to petroleum products, there is a wide range of petrochemical products carried by tankers. These include:
Various types of hazardous chemical cargos are also carried using chemical tankers. These are vessels generally ranging from 5,000DWT to 14,000DWT used to transport chemical cargos in bulk. Such vessels are typically equipped with separate cargo tanks made of stainless steel or covered with special coatings due to the specialised nature of the cargos they carry.
The cargos they carry include ammonia, methane and liquefied natural gas (LNG) which have chemical properties that can be hazardous to human health and perhaps pose danger to the environment and wildlife if released in water.
Types of vessels in the tanker trade
The shipping tanker trade consists of the following categories of vessels:
The vessel size groups generally used in the oil tanker trade are shown in Table 3.
Trends in the tanker trade
The shipping pattern of this trade shows a distinct trend of shipments of Russian petroleum products in small tankers from ports along the Baltic Sea increasing as a result of the damage inflicted by Hurricane Katrina in 2005 on refineries in the Gulf of Mexico.
The prognosis of this trade is rosy as developments such as the setting up of Petrocaribe, a Venezuelan-sponsored oil company, which will supply petroleum products to Caribbean island nations, and the establishment of new refineries in China, are set to increase shipments of this cargo in the near future.
In products such as palm oil, increasing demand from developing nations such as China, India and Russia and high prices will spur producing countries such as Malaysia and Indonesia to step up production. Demand for double hull tankers to meet the IMO requirement for palm oil shipment will continue to drive shipowners to commission yards to undertake newbuildings and conversion of single hull vessels into double hull ones.
Under the International Convention for the Prevention of Pollution by Ships (MARPOL) 73/78, several types of cargos are classified by the IMO and in the list of the International Maritime Dangerous Goods as "materials possessing chemical hazards". The various types of such materials include flammable solids; flammable solids or substances which are subject to spontaneous combustion and can emit flammable gases; oxidizing substances; poisonous substances; radio-active substances; or corrosives.
Review of the tanker market's performance
The phenomenal growth of the tanker trade in the last few years was halted by the global recession as demand for the cargo they carry is scaled back. This coincides with the impending entry of huge new capacity joining active tonnage in the trade which exerts considerable pressure to the trade.
Although capacity in the trade is still growing, ordering activity has markedly slowed down in 2008 compared to recent years. According to Drewry Shipping Consultants, there was an estimated 120 newbuilding orders for these vessels in 2008, a mere one third of the total orders commissioned in 2007.
Demand is expected to slow further but the impending arrival of new tonnage into the market over the next few years, as a result of the ordering frenzy between 2006 and 2007 just before the global economic crunch began, will provide balance to the demand-supply situation to the market.
It is however, unreasonable to take a generalist view of the tanker trade, no more than it is fair to view the shipping industry using broad lenses without taking into account the various trades therein.
Although the short-term prospect for the large tanker trade, most notably in the VLCC segment, looks rather discouraging given faltering global demand for oil there are some silver linings elsewhere in the tanker trade. Most notably, the small tanker trade is set to remain robust on the back of strong demand for product cargo, especially among developing economies which do not have terminal reception facilities to handle huge tankers.
Although several developing economies have invested in enlarging their oil refinery capacity, their new capacity will only come in on stream between 2010 and 2012. In the meantime, they will continue to depend on small tankers for their oil shipment. Owners of small tankers providing services in coastal waters and to countries which have not signed up as yet for IMO's mandatory phase out of single hull tankers will continue to reap the benefit from the demand for such tankers.
The global economic slump affected all shipping trades including the tanker market, although it has not suffered the kind of near-collapse fate of trades such as container and bulk.
Having plunged from a record US$147 per barrel in July 2008 to as low as US$35 per barrel in February 2009, crude oil prices have gained grounds steadily in these last few months, trading at around US$70 per barrel at the time of preparing this report. Concerned over low prices, OPEC members have cut down production to maintain decent levels of oil prices, and the stimulus packages of giant economies such as US and China are bearing fruits, injecting bullishness into the oil market.
That said, fundamentals in the global economy and the oil market remain generally weak and no sharp upside potential is expected in oil price anytime soon.
Weak demand for products has led refineries to cut down production and hence affecting demand for product tankers. On the back of this, the near term outlook is not promising for the large tanker segment. The double-whammy combination of low global demand for oil amid the economic woes and the impending arrival of huge new tonnage in the market, is expected to depress sentiment in the large tanker trade.
At the height of the performance in the large tanker trade, many huge size tankers were deployed as floating storages to make up for the shortage of onshore storage tanks in the product trade. However, there is now excess supply of these offshore storage facilities as demand for oil slumped amid the global economic slowdown.
As a result of this, Drewry Shipping Consultants expected short term (less than six months) charter rates to remain poor due to the lack of incentives to store products offshore.
Outlook for the tanker trade
At the end of 2008, IEA downgraded its projection of oil demand from the US and Europe, but China's oil imports are expected to recover. This is positive news for long haul trades such as West Asia – East Asia.
Fleet growth is expected to grow overall this year and as demand for bulk cargo has declined sharply, there should be few conversion activities from tankers to bulkers. The verdict is that the tanker market should recover quickly than other shipping trades, but should owners decide to reroute their service to avoid hot spots such as the Gulf of Aden, the balance in the market could very well tilt.
In contrast to the woes faced by large tanker owners, the chemical tanker markets have remained stable thus far this year.
The strength of the biodiesel market is especially noteworthy, and there are signs of recovery for other chemical trades. The prognosis for small tankers within the chemical trade in certain routes looks promising: for example in Latin America, which has a long coast, where these tankers provide invaluable coastal transport service for a range of fuels. Other markets with bright prospect for small tankers include Vietnam, where the first refinery is only set to come on stream in 2010, and China and India, where new refinery capacity will only be ready between 2010 and 2012.
Until then, these markets will continue to rely on small tankers to transport oil and other types of fuels domestically along their coasts in and out of those countries.
Various shipping reports and analysis project the growth in the small tanker trade at markedly slower pace than the growth registered in the trade in the years prior to the global economic recession.
However, the current steady performance of the small tanker trade, at a time when many shipping trades have collapsed amid the devastation wrought by the global recession, is commendable and puts it in good stead to chart decent growth in the foreseeable future.
Barring unforeseen circumstances, the outlook for the small tanker trade should be buoyant, given its indispensable role in facilitating the transport of oils and chemicals especially to developing nations. As the small tanker trade is closely related to the oil trade, there is every reason to bet on a winning outcome of this trade, given the seemingly insatiable demand for oil, petroleum products and chemical products from fast growing developing economies.
Admittedly, the current blip in the tanker trade resulting from the fall in demand for oil and chemicals amid the global economic recession, the credit crunch and the surplus capacity in tanker tonnage combine to weigh down heavily on the small tanker trade.
However, upon careful and objective assessment of the trade using a long-term perspective, it will become clear that the small tanker trade has the potential to provide a silver lining amid the cloudy forecast in the shipping industry.
There is every reason to believe that once the gloom of the global recession clouds lift, the global demand for oil and chemical products, which are almost indispensable in our daily lives, will pick up again, and so will the attendant demand for the small tankers to transport them.
