SHIPPING: Tanker owners slow steam to cut losses as bunkers soar - sources

Tanker owners worldwide are slow steaming to mitigate losses as rising bunker prices and lower freight erode earnings, market participants said Feb. 21.

There has been a sharp rise in bunker prices as crude hit its highest in seven years, while several tanker sizes have slipped into the red.

Daily losses on the Persian Gulf-North Asia VLCC routes are more than $14,000, while for LR1 and LR2 clean voyages on same routes its up to $3,000, according to broker estimates. This is assuming bunker fuel prices of around $740/mt.

Owners point out that running their tankers at relatively slower speeds, particularly during ballast, is the only way to reduce costs. "Some owners are even opting for non-steaming by putting them up at cheap anchorages such as in southwest India," a clean tanker broker said.

Slow steaming often has more impact on ballast speeds, as ships do not have the same expected demands of a charterer when the voyage is without cargo, Graham Close, Senior Trade Analyst at UK-based shipping consultancy VesselsValue said.

The average ballast speeds have decreased 3.2% across VLCC, LR2s and LR1s combined since December last year, according to VesselsValue's estimates for the Middle East.

When freight is firm, owners even ballast at 13 knots to quickly pick up their next cargo, but with higher bunker prices and lower voyage rates, owners are trying to achieve lower speeds of 12 knots or lesser to reduce bunker consumption.

At current low sulfur bunker prices, a daily saving of 3 mt of bunkers on a three-week voyage can translate to a cost reduction of more than $45,000, one of the brokers said. Bunker consumption is highly variable depending on the engine efficiency, but non-eco VLCCs are still consuming close to 70 mt daily when laden with cargo and around 61.5 mt in ballast, the broker added.

Bunkers is the single largest variable cost component for a tanker owner and its intelligent use can result in savings of $100,000 or even more in a round voyage, a VLCC broker said.

"Owners are trying to make sure the voyage is as slow as possible," a source with an LR owner said.

Some LRs are steaming at 12 knots during ballast, but may slow down to 10 knots if things get worse, the source said. According to VesselsValue's Close, the average ballast speed for LR1s this month is already 10.4 knots.

Ballast speeds are opportunistic and depend on the ship's location when the fixture is finalized. A tanker running behind schedule may speed up to make it for the laycan, but it will not be reflective of the market.

Laden speeds

Laden speeds of 13 knots are not seen anymore, the owner source said.

To be sure, VLCCs' laden speed have been declining since 2019 because earnings had spiraled downward much earlier than clean tankers.

There was a significant 8% decline in VLCC laden speeds in the three months through November 2020, coinciding with the sharp fall in freight from very high levels, Close said. The laden speeds of LRs are more volatile, he added.

Owners attributed this to a fluctuation in earnings. A case in point is the LR2s, which are currently running into losses, but the 3-month average earnings on the Persian Gulf-Japan route is estimated at close to $6,000/day.

Since December last year, the average laden speeds are consistently below 12 knots in the Middle East for all three key ship sizes of VLCCs, LR2s and LR1s, the VesselsValue data showed.

Agreement limitations

Laden voyages have to be undertaken as per charter party agreements, so charterers will pick up whichever tanker offers speed as per their delivery schedule, a chartering source said.

There is a surge in the supply of tankers and just as owners compete on rates, they also do so on laden speeds, the source said. There are more than 60 LR1s available for prospective loading in the Persian Gulf or West Coast India in the next three weeks, leaving little room for owners to negotiate for lower laden speeds.

"The typical laden speed at current market is between 11.5-12.5 knots," a source with a VLCC owner said. Since owners are losing money on voyages, they try to get a slightly higher freight if charterers insist on a faster laden voyage.

"To require a VLCC to sail above 13 knots, charterers have to pay at least 0.5 Worldscale points more for every incremental 0.5 knots," a VLCC broker said. This is pittance in a weak market.

However, not all owners want to opt for slow steaming as it can damage the engines, he said.