Pan Ocean is accelerating its business expansion after deciding to acquire a large number of very large crude carriers (VLCCs) from SK Shipping. The shipping industry says the surge in VLCC rates creates a favorable environment for scaling up, but notes that the high age of the SK Shipping fleet being acquired and the potential for shifts in international affairs could become obstacles.
According to the shipping industry on the 20th, Pan Ocean signed a contract on the 11th to acquire 10 VLCCs from SK Shipping for $668 million (about 973.7 billion won). The amount equals 9.48% of Pan Ocean's total assets (1.02715 trillion won).
Pan Ocean said it decided on the acquisition "to acquire vessels performing long-term cargo transport contracts with major domestic shippers, bolster transport capacity, and secure a revenue base." The vessels are scheduled to be delivered in April next year under the contract.
Once the vessels are delivered, Pan Ocean will operate a total of 12 VLCCs. By expanding its relatively small VLCC fleet, the company can diversify its business portfolio. As of the end of last year, Pan Ocean's fleet numbered 246 ships, of which only two were VLCCs.
As of the end of last year, Pan Ocean's operating fleet consisted of 202 dry bulk carriers and 44 non-dry bulk vessels. Dry bulk refers to cargo such as grain or minerals. Wet bulk refers to crude oil and refined petroleum products.
Pan Ocean is expected to offset risks in its existing business by expanding into VLCCs, where the market outlook is bright. The core dry bulk business is widely expected to remain flat on the back of supply-side dominance, and the recovery of the MR tanker market (product tankers of around 50,000 DWT), which had been Pan Ocean's mainstay in non-dry bulk, is projected to be slow.
According to the Korea Ocean Business Corporation (KOBC), revenue from Cape-size dry bulk carriers (dry bulk carriers of 100,000 DWT or more), Pan Ocean's mainstay, is projected to fall 20% from a year earlier. That is because dry bulk capacity scheduled for delivery this year totals 39.8 million DWT (deadweight tons), while scrapping is just 11.2 million DWT, suggesting supply-side dominance will persist.
By contrast, VLCC daily time-charter rates are forecast to rise 12.7% this year to an average of $57,600. Although they fell 1.7% last year from the prior year, they are projected to rebound sharply this year on expectations of increased seaborne crude volumes. MR tanker daily time-charter rates are also forecast to rise 12.6% year over year to $24,100 this year, but remain below the 2024 level of $29,900.
Taking this market into account, Pan Ocean made an investment that can generate revenue right away, but some in the industry say the company may have taken on a somewhat risky bet. One reason cited is the high age of the VLCCs Pan Ocean holds.
SK Shipping owns 19 VLCCs. Their average age is 12.2 years. Excluding ships aged 4–6 years (six vessels), the average age is 15.5 years, and the industry believes Pan Ocean has brought in these older ships.
As secondhand VLCC prices continue to rise, ships around five years old have recently fetched about $124 million (about 179 billion won). Prices for VLCCs around 10 years old were at about $97 million (about 140 billion won) per ship in early this month.
Given that Pan Ocean agreed to pay $668 million for 10 ships, the view is that it is acquiring vessels around 15 years old. Such ships could be heavily affected by the economic measures (midterm measures) under consideration by the International Maritime Organization (IMO) on greenhouse gas emissions.
The midterm measures center on gradually reducing, against a baseline, the greenhouse gas fuel intensity of ships of 5,000 GT or more engaged in international voyages (by up to 43% by 2035). Even if the basic target (a 30% cut) is achieved, $100 per ton of greenhouse gas emissions must be paid into the IMO net zero fund. If the basic target is not met, the levy is $480 per ton.
Older ships often cannot use zero-carbon fuels due to their structure, and many lack greenhouse gas reduction equipment. If Pan Ocean brings in a large number of older ships with this investment, cost burdens from the regulations could rise significantly.
In addition, ships continuously exposed to seawater typically face higher risks of structural defects once they are 15 years old or older, which increases maintenance and repair expenses, and the industry sees this burden as another risk. Previously, HMM took this into account when it valued SK Shipping at around 2 trillion won during acquisition talks.
The industry also sees international affairs as a potential risk. The tanker market strength is not due to a rise in global oil export volumes but to increased ton-mile effects after Russian crude came under sanctions because of the war between Russia and Ukraine. If the war ends, the market could change significantly.
A shipping industry source said, "In the case of the tanker business, the short-term market is bright, so it can generate revenue for now, but several risks ahead are clear," adding, "Pan Ocean has increased its fleet with a massive investment, and whether these vessels can secure the next transport contracts will be the key to the investment's success or failure."
A Pan Ocean official said, "It is difficult to compare directly because HMM's assessed corporate value and the value of the acquired assets are based on different criteria, and the long-term transport contracts for the acquired ships are aligned with their expected scrapping timelines, so there is no issue with recovering the investment."