As demand for very large crude carriers (VLCCs) that haul about 2 million Barrel of crude surges to unprecedented levels, a bizarre phenomenon is unfolding in which secondhand ships that can be deployed at sea immediately are fetching higher prices than newbuilds. With usable ships already in desperately short supply due to an increase in aging vessels and sanctions on Russia, the war involving Iran has ignited a spike in freight rates, intensifying competition to secure VLCCs.
According to Clarksons Research, a U.K.-based shipbuilding and shipping market analysis firm, global shipowners placed orders for 47 VLCCs in January–February this year alone. Compared with the same period last year, when not a single order was placed, market sentiment has flipped 180 degrees.
Even with new orders, it typically takes two to three years to take delivery, fueling fierce competition to secure ships that can be put into operation immediately. The resale price for taking over existing VLCC construction contracts at a premium is $168 million (about 250 billion won), which is $39 million (about 58 billion won) more expensive than the ship new building price ($129 million; about 190 billion won).
A 15-year-old VLCC is also asking $80 million (about 120 billion won), up 29% from the start of the year. Shipowners looking to deploy vessels immediately to capture hefty freight are paying premiums worth tens of billions of won.
Clarksons Research said, "Excluding vessels tied up by sanctions and those on long-term contracts, the actually available VLCCs number fewer than 500 worldwide, and even then 60%–70% are aged," adding, "On top of that, the war has sent freight rates soaring, and demand to secure VLCCs is growing exponentially."
◇ A sweep of open tonnage amid Middle East war clouds… charter rates hit record highs
Structural undersupply compounded by geopolitical risk has pushed maritime logistics bottlenecks to the limit. As armed clashes intensified around the Strait of Hormuz and shipowners halted transits one after another, more than 100 tankers, including some 70 VLCCs, have been stranded.
On top of that, a string of attacks on Russian tankers in the Black Sea and Mediterranean has prompted shippers to look to distant alternative producers such as the U.S. Gulf. With port congestion and increased sailing distances (ton-miles) piling on, the market has been virtually drained of ships that can be mobilized immediately.
The latest war has poured fuel on an already worsening supply crunch that predated the Middle East conflict. Since the Russia-Ukraine war, secondhand tankers have been absorbed into the "shadow fleet" carrying Russian crude to evade Western sanctions, shrinking available supply, while the replacement cycle for aged ships has overlapped, leaving the market chronically short.
Aggressive fleet moves by Korea-based Sinokor Merchant Marine are also cited as a factor exacerbating the ship shortage. According to shipping analytics firm Signal Ocean and others, Sinokor Merchant Marine is assessed to have pre-empted all uncontracted open VLCCs set to depart the U.S. Gulf for Asia and elsewhere within the next 30 days, just before the current surge in rates fully took hold.
Judging VLCCs to be undervalued, Sinokor Merchant Marine has expanded its fleet by snapping up dozens of secondhand vessels from 2022 through recently. As geopolitical turmoil slashed other lines' available VLCCs, a structure emerged in which Sinokor Merchant Marine monopolized the supply chain at U.S. loading points.
The severe supply crunch has immediately translated into a spike in charter rates. Daily VLCC rates, typically around $30,000–$40,000 (about 45 million–60 million won), have jumped roughly tenfold this month. As of Mar. 6, a VLCC owned by a Greek shipowner fetched a daily rate of $537,913 (about 800 million won), setting a record high, shipping trade outlet TradeWinds reported.
Hyundai Oilbank also reportedly chartered a Trafigura-owned vessel at $289,000 per day (about 430 million won) to secure U.S. Gulf volumes. As vessel operating profitability surged, shipowners rushed to secure ships, further boosting VLCC demand.
◇ China sweeps VLCC orders… Korean shipyards eye windfall with higher prices as a lever
A large share of the torrent of new VLCC orders is flowing to Chinese shipyards. Major global owners such as Zodiac Maritime and Pantheon Tankers have recently leveraged rising secondhand prices to sell aging VLCCs at high prices and are placing replacement orders at Chinese shipyards, where unit prices are relatively lower and building slots more available.
Even so, the prevailing view is that the persistent rally in tanker prices, including VLCCs, is a boon for Korean shipyards. As Chinese docks fill rapidly and drive global price increases, Korean shipyards can use this as leverage to accelerate a selective-order strategy focused on only high-margin volumes.
Kang Kyung-tae, an analyst at Korea Investment & Securities Co., said, "Regardless of ship size, all tanker ship new building price could surpass historical peaks," adding, "Given current market conditions, VLCCs (about 300,000 tons) could rise to $162 million (about 240 billion won), Suezmax (about 150,000-ton tankers) to $100 million (about 150 billion won), and Aframax (about 100,000-ton tankers) to above $82.5 million (about 120 billion won)." He said, "Korean shipyards are likely to allocate many slots (building space) to tankers strategically starting with 2029 deliveries, and contract prices are also likely to rise."
Lee Eun-chang, a research fellow at the Korea Institute for Industrial Economics & Trade (KIET), said, "Major Chinese shipyards have already filled their orderbooks through 2030 deliveries, making it inevitable for ship new building price to remain high for the time being," adding, "Ultimately, shipowners needing fast delivery will have little choice but to turn to Korea, which has delivery-time competitiveness even if prices are somewhat higher, and if the war drags on, we can expect additional demand exceeding forecasts."