Chennai:
Port Wings News Network:
Since June 2017, 43% of the VLOC fleet have been sent to
the scrapyards, while 18% of the fleet is idled or damaged, a market analysis
by Baltic and International Maritime Council (BIMCO) has revealed.
"The tragic Stellar Daisy accident brought the
safety aspect of VLOCs into question. Now, three years on, three out of five
VLOCs are no longer in operation as their long-term charters have now expired.
Going forward, the obsolete VLOCs will be phased out of the market and replaced
with technologically superior and more reliable ships," said BIMCO’s Chief
Shipping Analyst, Peter Sand.
The VLOCs were converted from single-hull Very Large
Crude Carriers (VLCC) towards the end of 2000 as an innovative result of the
dry bulk super cycle and the IMO regulation which mandated that all single hull
tankers should be phased out by 2010. With cheap and obsolete tanker tonnage in
the market, investors eyed an opportunity to convert the ships into VLOCs and
deploy them on long-term contracts of affreightment, often with a duration of
10 years.
THE ECONOMIC RATIONALE OF KEEPING THE OLD VLOC TONNAGE
AFLOAT
In June 2017, BIMCO analyzed the VLOC fleet which at the
time consisted of 51 ships with an average age of 23.8 years, not far from the
average demolition age of 24.2 years. Back then, we argued that the ships on
long-term contracts still made solid economic sense, given a second-hand price
equal to the scrap value and stable earnings.
Arguably, the maintenance and repair costs are
significantly higher than younger tonnage, but the statement from 2017 still
holds true, granted the condition that the ships have employment under
long-term contract. Once the VLOCs no longer have to fulfil obligations under
long-term contracts, the economic incentive to keep the ships afloat
evaporates.
At face value, during their time as ore carriers, these
ships have provided a solid return on investment, even when accounting for
higher maintenance cost. Although the conversion from tanker to dry bulker came
at an estimated price of USD 12-15m, plus the cost of the actual ship, the
freight revenue from the long-term contracts for carrying ore from Brazil to
China have exceeded the cost by a fair margin.
Since the last analysis, the fleet has undergone a
massive trimming with 28 ships remaining in the fleet, eight of which are lying
idle in Labuan, a dedicated lay-up site. Since June 2017, 22 ships have been scrapped
while one is damaged and not in service. Therefore, it seems likely that
converted VLOCs will soon be a memory of the past.
CONVERTED VLOCS ARE PHASED OUT AS SUBSTITUTES ARE
BROUGHT IN
The investment strategy of converting cheap tanker
tonnage to dry bulk carriers seems unlikely to be replicated any time soon.
With economic growth and prosperity comes opportunities. The VLOCs were
acquired and contracted for conversion during the dry bulk bull run in
2007-2008, but many of the conversions were only complete after the financial
crisis put an end to the bull market.
The ships entered a market, which never recovered to
previous highs, but nonetheless remained a profitable one in the initial years.
In 2009 and 2010, the Baltic dry index (BDI) averaged 2,616 and 2,758 index
points respectively, well below the 6,390 index points seen in 2008, but a
substantial margin above the averages from 2011-2019, which never exceeded
1,600 index points.
Many of the ships are approaching the average age of
demolition, and these ships are set to be phased out as soon as the long-term
contracts under which they are employed expire. However, new VLOCs and even
larger ships, such as the Valemaxes, have already been supplied to the market.
For this reason, the scrapping of converted VLOCs will not create a shortage of
tonnage in the market.
Perhaps even the contrary holds true. From June 2017 to
April 2020, the Capesize (+100k DWT) fleet grew by 29.6m DWT (9.2%). From 2017
to 2019, seaborne trade of iron ore declined by 17m tonnes (-1.2%)
"A shortage of tonnage will not arise because the
converted VLOCs are now phased out. New and even larger ships have already been
delivered to the dry bulk market, more than covering the transportation needs,"
concluded Sand.
Source: http://portwings.in/three-out-of-five-converted-vlocs-s-are-no-longer-operating-bimco-analysis-shows/
