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Singapore-Chinese tanker axis is strengthening

Mon 19 Feb 2018 by Barry Luthwaite

Singapore-Chinese tanker axis is strengthening
Barry Luthwaite, BRL Shipping Consultants

Renewal of the bunker tanker fleet, harnessing digitalisation and the return of smaller tanker companies mark the Singapore tanker scene

For Singapore 2017 was a bullish year for fleet strengthening and newbuilding investment in direct ownership and associated infrastructure. Directly owned tanker tonnage is at its highest since the financial crash almost a decade ago. Year-on-year performance in newbuildings confirms an order backlog of 100 vessels aggregating 6,991,812 dwt, an increase over the previous year of 91 vessels totalling 5,112,983 dwt. Since the tanker revival began three years ago, each year has yielded an increase in fleet asset strength. Today the directly owned Singapore tanker trading fleet stands at 797 units aggregating 43,063,859 dwt, up slightly from 787 vessels a year ago but slightly down in capacity terms from 43,178, 055 dwt. A total of 44 vessels were contracted in 2017, with an additional 10 already firmed this year.

Owners are keeping a careful watch on asset play for short-term gain in the run up to 2020, which is expected to be a crucial year for recycling disposals due to mandatory legislation covering emission-control limits. Older vessels will fall foul of compliance or be uncompetitive as charterers finally realise the merits of securing modern tonnage. By the end of 2020, the tanker fleet could be one of the youngest ever, and Singapore-related tonnage will be at the forefront. In addition to the Singapore directly owned fleet, a further 722 tankers totalling 40,079,831 dwt are registered in Singapore. Offices of overseas owners are domiciled in the busy hub port of Singapore because so much management and charter fixing is carried out there.

Forays into the secondhand market are still rare for Singapore owners – unless a bargain distress sale is on offer and asset play beckons. The location is one of the leading countries for arrests of vessels owned by financially troubled overseas owners.

A focus of attention at the moment is a major overhaul of the bunkering fleet, which comprises a big complement to comply with demand in the world’s largest bunkering port. Singapore prides itself as a free-trade nation and has allowed some foreign owners to station themselves on bunkering duties. Strict conditions must be met, though, and the scene is rapidly changing since Singapore became the first country to impose mandatory adoption of mass flow meter (MFM) delivery of fuel oil to ships. This reduces the typical bunkering operation time from eight to four hours, depending on vessel size. Idle time costs money, so the reduction in port time is very welcome.

Singapore embraces the digital revolution as the way forward in maritime infrastructure. The mandatory reduction of sulphur oil content to 0.5% by the start of 2020 is forcing a major reorganisation of facilities. More overseas vessels are being forced out as they will not adopt MFM given the extra costs involved. The industry was surprised by the withdrawal of Greek owner Aegean Bunkering Pte Ltd, which ended its Singapore operations at the end of January after all commitments to customers were fulfilled. Aegean cited a squeeze on Singapore margins due to increased competition in a battle for market share. In 2016 the Greek owner was the 20th largest bunker fuel supplier by volume in Singapore, with four 6,000 dwt vessels (plus additional barge charters). Also, several licenses have been refused renewal, so the scene will rapidly change in the coming months.

Around 55 licensed bunker suppliers remain, after three more were expunged in 2017. This puts pressure on the port to meet commitments with an upturn in global trade and so many more vessels calling. The result is an increase in ordering of bunkering tankers by Singapore owners, and new applications from overseas owners. Those owners refused licenses in the port crackdown are not necessarily operating older vessels. The 2014-built UE Star, which was one of Singapore’s largest bunker suppliers, was recently auctioned, having previously been operated by Universal Energy. A due-diligence check by the Maritime and Port Authority of Singapore, along with a mortgage covenant default, contributed to the liquidation of the company. In a thriving market larger vessels will have no trouble securing buyers within Singapore.

Increasing co-operation with China continues with Sinochem already establishing a base in Singapore for its rapidly expanding chemical tanker fleet. Newbuilding investment continues in a strong vein against the background of a bullish wet sector. Flagship owner Ocean Tankers is rapidly increasing its fleet for maximum penetration in the small and medium size products and chemical trades. The owner currently has only four IMO II chemical tankers in its fleet, but has placed a contract with Fujian Mawei, China, for six plus optional four 11,000 dwt units. These will deliver in 2020 and 2021. This was further enhanced by an order at the same yard for six plus optional four 23,500 dwt handysize MR1 product carriers, again with deliveries in 2020 and 2021. Options were exercised in December for two more 11,000 dwt medium chemical tankers in a six-ship series from Samjjin Shipbuilding Industries. Ocean Goby was recently delivered as the prototype. The remaining vessels will deliver this year and in 2020. The 17 ships on order will bring the fleet complement to 99 vessels. This increases by a further 26 if nine bunker barges and 17 lube/diesel barges are included.

After a year of negotiations, IMC Industrial Logistics entered into an equal 50/50 partnership with China State Shipbuilding Corp to build and own four plus optional four 55,000 dwt MR2 product/chemical carriers for delivery in 2020 and 2021. The vessels will be operated by IMC’s Malaysian subsidiary Aurora Tankers, and mark the first part of an expansion policy by IMC. The high technical grade vessels will meet IMO III classification for emission controls, and will incorporate 22 tanks to cater for parcel trades. The firm quartet will be built by CSSC Offshore & Marine Engineering, and are the first newbuilding tankers by IMC group in four years. Aurora operates its 14-vessel chemical/products fleet out of Singapore, and is no stranger to joint ventures in China. Per unit cost is put at US$36.9M apiece, with the options likely to be exercised at a later date.

Some of the bigger owners prefer to employ third-party management, which is a fast-growing business at the current time. In the tanker business a company can ill afford not to have some presence in Singapore. Thome Ship Management and Anglo-Eastern Univan are two prominent exponents. BW Group recently outsourced 15 tankers to third-party management despite having its own BW Fleet Management unit. A number of management decisions centre on new trading areas, where greater experience and expertise is required for smooth running of operations. Bernhard Schulte is hoping to increase its presence in Singapore, especially for chemical and products business.

During the recession some smaller players exited wet business. Some are now returning. One significant move was by Pacific Carriers, more noted for its bulk carrier fleet. The company sold its last medium range product carrier at the end of 2016, but a strengthening market has prompted a cautious return. The company is actively studying a plan for more MR acquisitions at the right price, which will mean exploiting the secondhand market. Re-entry occurred in August last year when US$19.2M was paid for a 51,000 dwt MR2. Eight 16-17,000 dwt clean petroleum product traders occupy the tanker fleet presence, with two having been added in 2017 as newbuildings.

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