zoomImage Courtesy: Tanker Investments

Recovery in the crude tanker shipping market is not expected until 2020 as weak trade growth and a bloated orderbook limit any rate recovery, shipping consultancy Drewry said.

The timing of recovery will depend on the extent of scrapping activity, is expected to gather momentum towards the end of 2017, once the International Maritime Organization’s (IMO) ballast water convention is implemented.

Since some owners might bring special surveys forward, the real impact of the IMO regulation will not be seen until 2018, according to Drewry.

In the existing fleet, there are about 20 million dwt of vessel capacity aged 19 years or more, for which the fifth special survey is due during 2017-22, all of which could be scrapped during the period, as unattractive freight rates, poor employability and the additional cost associated with complying with the regulations will force owners to scrap them.

Additionally, there are about 367 vessels of 67 million dwt for which the fourth special survey is due during 2017-22. As these vessels are currently in the age range of 14-19 years, owners will have to decide whether to scrap them before they are due for their next survey as the owners will have to incur the additional cost of fitting ballast water treatment systems (BWTS) as well as scrubbers required to comply with IMO regulations on sulphur limits.

If about a third of these vessels are demolished during the forecast period, the recovery in tanker freight rates will not start until after 2019. However, the extent of actual demolitions will be a crucial factor for deciding how quickly the market recovers.

“We expect the market to start a gradual recovery from 2020. For any recovery before 2020, demolitions need to be strong enough to keep fleet growth slower than demand growth,” Rajesh Verma, Drewry’s lead analyst for tanker shipping, said.