Surge in Product Tanker Contracts Signals Industry Growth Amid Supply Concerns

According to Niels Rasmussen, Chief Shipping Analyst at BIMCO, the first seven months of 2024 saw a significant increase in the contracting of product tankers larger than 10k deadweight tonnes (DWT). A total of 194 tankers with a combined capacity of 13.3m DWT were contracted, marking a 17% rise compared to the previous year and the highest level of contracting since 2006. The order book has rapidly expanded, growing 135% in 2023 and an additional 45% in 2024 to reach 37.1m DWT, with Chinese shipyards securing 72% of the orders.

The product tanker order book has been the fastest-growing among cargo carrying sectors since last year, with a 241% increase. While the average age of product tankers has risen to 13.6 years, with 13% of ships and 10% of DWT above 20 years old, recycling older ships could help mitigate fleet growth. However, the strong market conditions for product tankers and low recycling rates suggest that supply may outpace demand in the coming years, especially with an expected fleet expansion of 23.3m DWT by the end of 2027.

Rasmussen highlights that the demand for product tankers is influenced by decarbonization efforts, such as the shift towards electric vehicles impacting the need for petrochemical transport. With the order book indicating a delivery of 35.3m DWT by 2027, recycling rates would need to increase significantly to prevent an oversupply of product tankers. Unless older ships are recycled at a higher rate, the industry may face challenges in balancing supply and demand in the near future.

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