Impact of global slowdown on tanker markets
Global slowdown has emerged as a key trend in the past year. There is a widespread concern over a worldwide economic recession that can most likely occur in the near future. The trade wars, inverted yield curves, German GDP slump, Brexit, hyperinflation in Venezuela, crisis in Iran and many more worldwide developments appear to be auguring just the same. Alongside, there has been a growing number of industry-specific reports about the effects of a possible crisis. Poten & Partners, an 80-year-old ship broking firm, has recently published a report about the possible effects of recession on tanker markets. In the report, they present the data from last two recessions and their co-relationship with the tanker markets. A study of these observations can give a better perspective on this particular topic.
The last economic recession was in the year 2008–09, a period in which the global oil consumption declined from 87.2 mb/d to 85.8 mb/d and the global oil trade shrunk by 5.4%, all in the span of a single year. Simultaneously, the VLCC rates on AG-East route fell from an average of $93,000/day in 2008 to an average of just $32,000/day in 2009. The 2008 recession did initiate that drop, however it wasn’t the only cause for such a steep fall. The five-year period prior to the recession was the one of prosperity in the tanker market, and the owners were prompted to fill their orderbook by more than 2000 tankers (about 48% of the fleet). As a result, there was a tremendous oversupply in the tanker market, plus the fall in demand post recession, which needed nearly 6 years to recover.
Previous to 2008, the recession in 2001 was caused by a sluggish GDP growth and the aftermath of dotcom bubble burst in OECD countries. However, it did not cause any contractions in the global economy. Its effects on the emerging economies like China and India were very limited. Although the oil demand continued to grow between the years 2001 and 2002, the decline in global oil trade to -0.05% did affect the VLCC spot rates as they plummeted from $36,000/day in 2001 to $22,000/day in 2002, and the damages were limited by a modest orderbook which was at just 20% of the fleet. In subsequent years, the rapid growth of China (GDP 8.3% in 2001 to GDP 14.2% in 2007) almost single-handedly caused a boom in the tanker market which is widely known in the industry as the ‘super-cycle’.
Currently, the orderbook appears to be relatively modest at 8.5% of the fleet. Also, as a result of IMO 2020, many of the older tankers which are expensive to upgrade are set aside for scrapping instead. Further, the adoption of energy productivity by many countries will also favor the tanker markets. Thus, the overall situation right now isn’t probably as grave as it was in 2008, and a recession now wouldn’t have a deeper impact on the tanker market.
