As competition intensifies to secure ships that can be put to work moving crude immediately, the benchmark for prices in the tanker market is shifting from "vessel age" to "delivery timing." With traffic restrictions in the Strait of Hormuz continuing for more than two months due to the Middle East war, resales of ships under construction have carried premiums up to 35% above the ship new building price. As owners look for vessels they can receive sooner instead of placing new orders and waiting two to three years, the depreciation formula that prices fall as a vessel gets older has effectively collapsed.
◇Even a 5-year-old very large crude carrier costs more than a newbuild
According to the industry on the 21st, construction contracts for two Suezmax (157,000 DWT) crude carriers under construction at Daehan Shipbuilding, a mid-sized Korean shipbuilder, were recently transferred to a new owner. Tanker operator Teekay Tankers agreed to buy the vessels for $95 million each (about 143 billion won), paying a premium. When the ships were ordered three years ago, the market average ship new building price for a Suezmax crude carrier was about $87 million (about 130 billion won) per vessel.
Daehan Shipbuilding's recently won Suezmax crude carrier contracts are around $90 million (about 135 billion won) per ship, while the resale price is about $5 million (about 7.5 billion won) higher. In effect, a premium was paid to take delivery in 2027 instead of placing a new order and receiving the ship in the second half of 2029 or later.
In the very large crude carrier (VLCC) market, which has been suffering acute shortages since the Middle East war, resale premiums have risen even more steeply. Global commodity trader Trafigura is said to have acquired a VLCC under construction at China's Hengli Shipyard for delivery next September for about $106 million (about 240 billion won). According to Signal Ocean, a maritime and ship market data analytics firm, VLCC resale prices have been set up to $45.5 million (about 70 billion won) above the general ship new building price. Considering that right after the Middle East war the VLCC resale premium discussed in the market was around $39 million (about 60 billion won), the premium rose by roughly $6.5 million (about 10 billion won) in about a month.
This price inversion is deepening. Typically, a 5-year-old ship trades below a newbuild, and resale ships only carry a small premium for earlier delivery. But a 5-year-old VLCC is currently valued about $9 million (about 13.5 billion won) higher than the newbuild contract price at a Korean yard. An industry official said, "For VLCCs, which are nearly impossible to find in the market right now, even if they are not new, the seller can name the price," adding, "For Suezmaxes, the price gap between the latest secondhand ships and newbuilds has effectively disappeared, and Aframaxes have also entered a reversal phase where secondhand prices exceed the ship new building price."
◇Soaring freight rates fuel premiums… shipbuilders gain bargaining power
Owners are accepting hefty premiums because they judge that surging freight rates will let them recoup ship acquisition costs in a short time. According to Teekay Tankers, in the second quarter Suezmax spot rates (short-term charter rates) averaged $121,800 per day (about 180 million won), Aframax rates were $98,000 per day (about 150 million won), and VLCC rates were $141,800 per day (about 214 million won). Compared with first-quarter Suezmax spot rates of about $62,100 per day (about 93 million won), daily hire nearly doubled in a single quarter. Teekay Tankers said, "With the Strait of Hormuz effectively blocked, turmoil continues in the global crude and tanker markets, and early second-quarter rates spiked to record highs."
In fact, since the Middle East war, crude exports from the region have fallen by about 10 million barrels per day from prewar levels, and with some ships unable to exit the Strait of Hormuz, roughly 8% of the VLCC fleet has effectively been immobilized. On top of that, Asian refiners, seeking substitutes for Middle Eastern crude, turned to Atlantic barrels such as from the U.S. Gulf, lengthening voyage distances. Even for the same volumes, ships are tied up longer, making immediately available tonnage even scarcer in the market.
This is expected to bolster Korean shipbuilders' bargaining power on pricing. An industry official said, "Owners are now paying premiums for ships they can receive right away, but that also means there is a shortage of readily deployable tankers, which can affect the ship new building price," adding, "With Korean shipbuilders' slots filled through 2029 and beyond, there will be even more room to negotiate prices."