Market Analysis – 78101709 – Coastal and transoceanic transport by tankers

Market Analysis Brief: Coastal & Transoceanic Transport by Tankers (UNSPSC 78101709)

1. Executive Summary

The global tanker transport market, valued at est. $215 billion in 2023, is experiencing significant volatility driven by geopolitical shifts and regulatory pressures. The market saw a historical 3-year CAGR of est. 4.5%, but future growth is subject to complex variables. The primary strategic challenge and opportunity is navigating the energy transition; securing capacity on modern, dual-fuel vessels is critical to mitigate regulatory risk and control future costs associated with carbon pricing. Failure to adapt fleet sourcing to new environmental standards presents the single greatest threat to supply chain continuity and cost stability.

2. Market Size & Growth

The Global Total Addressable Market (TAM) for tanker transport is projected to grow at a moderate pace, driven by global energy demand, albeit with significant shifts in trade routes and cargo types (e.g., crude vs. LNG vs. biofuels). The market is dominated by the transport of crude oil and refined petroleum products, which together account for over 70% of seaborne liquid bulk trade. The largest geographic markets by demand are 1. Asia-Pacific (led by China and India), 2. Europe, and 3. North America.

[Source - various industry analyses, e.g., Mordor Intelligence, Allied Market Research]

3. Key Drivers & Constraints

1. Global Energy Demand & Trade Routes: Demand for crude oil, refined products, and LNG remains the primary driver. Geopolitical events, such as the war in Ukraine and conflict in the Red Sea, have fundamentally altered trade routes, increasing tonne-mile demand as vessels take longer voyages (e.g., around the Cape of Good Hope instead of the Suez Canal).
2. Bunker Fuel Costs: Bunker fuel represents 40-60% of total voyage costs. Price volatility, tied directly to global oil markets, creates significant uncertainty in freight rates. The transition to more expensive, cleaner fuels (VLSFO, LNG, Methanol) adds to this cost pressure.
3. Stringent Environmental Regulation: The International Maritime Organization (IMO) is aggressively tightening emissions standards. The introduction of the Carbon Intensity Indicator (CII) and Energy Efficiency Existing Ship Index (EEXI) in 2023, along with a revised 2050 net-zero target, is forcing carriers to invest in new technologies or slow steam, impacting vessel availability and cost.
4. Fleet Supply & Orderbook: The balance between new vessel deliveries and the scrapping of older, less efficient tankers dictates market capacity. A relatively low orderbook-to-fleet ratio for crude tankers (<5%) suggests tight supply in the medium term, supporting higher freight rates. [Source - BIMCO, Jan 2024]
5. Geopolitical Chokepoints: The security of maritime chokepoints (Suez Canal, Panama Canal, Strait of Hormuz) is a major constraint. Disruptions lead to immediate spikes in insurance premiums and freight rates, as seen with the >300% increase in War Risk premiums for Red Sea transits.

4. Competitive Landscape

Barriers to entry are High, defined by extreme capital intensity (a new VLCC costs >$120M), complex global regulatory compliance (IMO, flag state, port state), and the need for established relationships with major oil traders and charterers.

• Tier 1 Leaders

  • Frontline (NYSE: FRO): Operates a large, modern fleet of crude and product tankers with a reputation for aggressive, counter-cyclical fleet management.
  • Euronav (NYSE: EURN): A pure-play specialist in the large crude carrier segment (VLCCs and Suezmaxes), known for its strong balance sheet.
  • Scorpio Tankers (NYSE: STNG): The world's largest publicly listed owner of product tankers, operating a modern, fuel-efficient fleet of LR2, LR1, and MR vessels.
  • Teekay Tankers (NYSE: TNK): Owns and operates a significant fleet of mid-sized conventional crude oil tankers (Suezmax, Aframax).

• Emerging/Niche Players

  • Stolt-Nielsen (Oslo: SNI): Dominant leader in the specialized parcel and chemical tanker segment.
  • Navigator Gas (NYSE: NVGS): Leading owner and operator of handysize liquefied gas carriers, crucial for LPG and petrochemical supply chains.
  • Ardmore Shipping (NYSE: ASC): Focuses on high-quality, modern product and chemical tankers, emphasizing fuel efficiency and performance.

5. Pricing Mechanics

Pricing is primarily determined by freight rates, which are quoted either on the spot market (for a single voyage) or as a time charter (a daily hire rate for a fixed period). Spot rates are highly volatile and often benchmarked using the Worldscale system, a standardized schedule that provides a price reference for any given route. Time charter rates offer more stability but are influenced by long-term market expectations.

The price build-up consists of three core components: 1) Capital Costs (CAPEX) amortized over the vessel's life, 2) Operating Costs (OPEX) including crew, maintenance, and insurance, and 3) Voyage Costs including fuel, port fees, and canal transits. The most volatile elements are voyage-related:

1. Bunker Fuel (VLSFO): Prices can fluctuate dramatically with crude oil. Recent 12-month volatility has seen swings of +/- 30%.
2. War Risk Insurance Premiums: For high-risk areas like the Red Sea, premiums have increased from ~0.05% of hull value to as high as 1.0% per transit.
3. Canal & Transit Fees: The Panama Canal has imposed draft restrictions and transit surcharges due to drought, increasing costs and delays by 20-30% for affected routes.

6. Recent Trends & Innovation

• Accelerated Fleet Renewal with Dual-Fuel Vessels (2023-2024): A significant uptick in orders for tankers capable of running on alternative fuels. Methanol and LNG-powered vessels now constitute over 25% of the tanker orderbook by tonnage, as owners position for stricter IMO emissions targets. [Source - Clarksons Research, Jan 2024]
• Geopolitical Rerouting and Tonne-Mile Inflation (Late 2023 - Present): Houthi attacks in the Red Sea have forced the majority of tanker traffic between Asia and Europe/US to divert around Africa's Cape of Good Hope. This adds 10-14 days and ~3,500 nautical miles to a typical voyage, effectively reducing global fleet capacity and driving up freight rates.
• Major Industry Consolidation (Oct 2023): Euronav and Frontline, two of the world's largest tanker owners, terminated a protracted merger attempt. Subsequently, Euronav agreed to a takeover by Compagnie Maritime Belge (CMB), which plans to merge its fleet and focus on decarbonization, signaling a strategic shift in the competitive landscape.

7. Supplier Landscape

Note: The global tanker market is highly fragmented. Market share is based on owned/operated deadweight tonnage (DWT) in a market of thousands of vessels.

8. Regional Focus: North Carolina (USA)

Demand in North Carolina is driven by consumption of refined petroleum products, as the state has no local refineries. Supply is dominated by two key channels: the Colonial and Plantation Pipelines, and coastal shipments via tanker and Articulated Tug Barge (ATB) into the ports of Wilmington and Morehead City. Local port capacity is geared towards receiving, storing, and distributing these products. All coastal shipping is subject to the Jones Act, which mandates the use of US-built, US-flagged, and US-crewed vessels. This regulation significantly increases the cost and limits the flexibility of maritime transport compared to international options, making pipeline economics more favorable for baseline supply.

9. Risk Outlook

10. Actionable Sourcing Recommendations

1. Diversify Carrier Portfolio & Prioritize Modern Fleets. Mitigate geopolitical and regulatory risk by contracting with a broader base of carriers across different ownership structures. Earmark a portion of your spend for carriers investing in dual-fuel vessels, which comprise ~25% of the current orderbook. This secures future-proof capacity and hedges against carbon taxes, which are expected to be implemented post-2027.

2. Implement a Hybrid Chartering Strategy. Secure 60-70% of predictable, baseload volume through 1- to 3-year time charters to ensure budget stability and guaranteed capacity. Cover the remaining variable/peak demand on the spot market. This blended approach balances cost certainty against market opportunity, especially as spot rates have shown >200% volatility in key lanes over the past year due to market disruptions.