Feature: Aging tanker fleet, 1%-2% fleet growth mean fewer freight discounts on older ships

The average age of crude and refined product tankers is increasing, while the total fleets growth is expected to be between less than 1% to 2% in 2024, pushing out previously available discounts for older ships as the global fleet's age reaches the highest average in over a decade.

Average tanker age is increasing, an ongoing trend in the shipping industry, as interest in newbuilds has only recently gained momentum. Newbuilds could lower the average tanker age, which was 13.2 years on average in 2024 -- the highest since 2003 -- according to shipping company Teekay Tankers.

The 2024 average age is one year older than the 2023 average, an August report by Riviera Maritime showed. Within the global tanker fleet, the number of tankers aged 20 years or older has surged 70% since 2022.

Demand for refined product tankers like Aframaxes, or Long Range 2 tankers, is growing faster than supply this year, but the dynamic could reverse in 2025 when the product tanker fleet is anticipated to increase 4.7%, according to the Balticand International Maritime Council, or BIMCO.

Product tankers are on average around 13.6 years old, averaging five years older than they were 2011, with 13% of the fleet above the age of 20.

Crude tankers are expected to see a similar shift in supply and demand, as the crude tanker fleet is set to grow 1.2% in 2025, up from only 0.5% this year.

Growth is driven by newbuild contracting. While the crude tanker orderbook for newer ships remains small, product tankers will be seeing deliveries of ships contracted in 2023 by 2025, according to BIMCO.

"Since the beginning of last year, the product tanker order book has been the fastest growing of all cargo carrying sectors," rising 241%, with the crude tanker orderbook trailing behind at 151% growth over the same period, BIMCO reported Aug. 21.

Increasing demand for refined product tankers has raised the orderbook-to-fleet ratio by 5.9% since 2023, reaching 13.6% at the start of 2024 and 19.6% at the time of publishing.

Newbuild crude tankers such as Very Large Crude Carriers, meanwhile, are facing extended delivery times of three years in 2024 compared to two years between 2016 to 2022, Riviera Maritime reported. Modern VLCCs between zero to five years old make up only 18% of the fleet, while vessels aged 15-20 years make up 18%.

Fewer discounts available based on age

Shippers have been seeing fewer discounts on freight for older tankers, as the average fleet age has increased amid a volatile market that has also kept supply tight, market sources said.

"The aging fleet is what's driving freight rates up, it's kind of a perfect storm with the Russian war and older ships," one source said. "But once those new ships do enter the market in 2027 and 2028, then you'll probably see some discounts because of age, but right now there's just not enough supply."

The source was referring specifically to Aframaxes, which are seeing fewer discounts on the basis of age for ships between 15 to 16 years old, as the global fleet's average age has increased.

Additionally, booking older ships has become a lengthier process due to stricter environmental, social and governance policies that are demanding younger and more efficient tankers, according to Riviera Maritime. While this has pushed the shipping market's interest in newbuilds, a strong rate environment has also contributed to more investments in newer ships.

Shippers say the current strength in the market began in 2022 when Russia invaded Ukraine, which rerouted ships on longer voyages due to sanctions on Russian oil exports. Sailing distances in 2023 increased 3% and 2.3% for crude and product tankers, respectively, due to shifting trade patterns, according to BIMCO.

Since then, disruptions to the Panama Canal due to historically low water levels and war-torn waters at the Red Sea have further elongated ton miles. BIMCO does not anticipate ships returning to "normal" routes until 2025 at the earliest, increasing the average sailing distance 7% for crude tankers and 4% for product tankers in 2024.

These market conditions have kept freight relatively elevated through 2024 for ships departing the US Gulf Coast to Asia and Europe. Fewer discounts could additionally normalize shipping rates at the current heightened level.

Platts, part of Commodity Insights, assessed freight for the 70,000 metric ton US Gulf Coast-UK/Continent Aframax route for loading Aug. 28-Sept. 12 at $27.42/t for average-lifting tonnage on Aug. 23. The assessment excludes additional costs incurred for offsetting EU Emissions Trading Systems carbon emission charges, reflected at a 5 Worldscale-point premium considering current EU emission allowance. Rates have come down from a peak of $62.72/t on Oct. 30, 2023, but are higher than two years prior, when Platts assessed freight at $11.90/t on Aug. 23, 2021.

Platts assessed freight for the 270,000 mt VLCC USGC-China route for the typical loading dates of Sept. 6-Oct. 6 at lump sum $27.78/t on Aug. 23, compared to October 2023 when the market peaked at $38.30/t. Rates are nearly $10/t higher than in August 2021.