Korean shipbuilders act on large oil vessels’ supply shortages

[Graphics by Song Ji-yoon and Chang Iou-chung]

Amid a deepening supply shortage of very large crude carriers (VLCCs), orders for these oil carrier vessels are surging in 2024. Korean shipbuilders are actively engaging in new VLCC bid after excluding these vessels from their portfolio until recently due to their relatively low value compared to liquefied natural gas (LNG) carriers.

HD Korea Shipbuilding & Offshore Engineering Co. and Hanwha Ocean Co. secured two VLCC orders respectively in February 2024, the first time that Korean shipbuilders secured VLCC orders in about three years. “Korean shipbuilders see the break-even point at $90 million. With VLCC prices climbing towards the $90 million mark, it seems they now have the capacity to secure orders,” an industry insider said.

According to maritime and shipping industry research firm Clarkson on Wednesday, a total of 19 new VLCC orders were placed in 2024 to date, surpassing the previous year’s total new VLCC orders of 18 vessels in just two months. It is also an increase of over six times from 2022, when there were only three new VLCC orders.

The surge in VLCC orders since the beginning of 2024 is attributed to supply imbalances. New ship orders from global shipping companies have been on the rise since 2021, but there were VLCC orders compared to those for LNG carriers and container ships. According to Clarkson, the number of VLCC orders between 2021 and 2023 was 52, significantly lower than 331 orders of LNG carriers and 1,421 container ship orders during the same period.

Meanwhile, the demand for crude oil transportation continues to increase relative to supply, the underlying gauge for the VLCC demand. Global demand for oil tanker loading capacity reached 339 million deadweight tons (DWT) in 2023, a 6.1 percent increase from the previous year and outpacing the overall loading capacity growth rate at 3.2 percent. Demand for loading capacity is expected to increase by 3.5 percent during the same period in 2024, but the supply growth rate is forecasted to be a mere 0.2 percent.

The disruption in the Suez Canal due to recent attacks on ships in the Red Sea by Yemen‘s Houthi rebels also exacerbated supply imbalances. As ships opt for alternative routes via the Cape of Good Hope in Africa, the increased sailing distance has led to additional vessel deployment.

The backlog of VLCC orders is dwindling, with global oil tanker company DHT Holdings Inc. saying the proportion of VLCC orders in the global order backlog dropped to less than 3 percent. Clarkson also predicts a shortage of 129 VLCCs by the end of 2024.

Supply shortages are also prompting rising second-hand VLCC prices, with the price per vessel hitting $128 million as of March 1st, 2024, the highest level since 2008. A five-year-old second-hand VLCC is currently being sold for $113 million, or a 7.6 percent increase compared to 2023, with a difference of only $15 million between new and second-hand vessel prices.

“The surge in second-hand vessel prices is due to increased demand from shipping companies which aim to enjoy the benefits of freight rate increases resulting from the shortage of VLCCs,” Yang Jong-seo, senior researcher at the Export-Import Bank of Korea’s global economic research center, said. Yang added that other shipping companies could prefer to build new vessels over securing high-priced second-hand vessels.