THE newbuilding orderbook for tankers has increased almost threefold in the past two years as relatively strong crude oil and product tanker markets and an ageing fleet have helped create ideal conditions for investment.

“The robust market conditions of the past two years, characterised by strong demand for tanker transportation, have made it financially attractive for shipping companies to invest in new vessels,” Eirini Diamantara, research analyst at Xclusiv Shipbrokers told Lloyd’s List.

Diamantara said improved market sentiment meant strong employment opportunities for tankers. There was also a need to replace older, less-efficient tankers with more modern and environmentally friendly vessels.

“Fleet replacement requirements have contributed significantly to the increase in orders,” she said.

“Combined with the good markets, these factors have come together to create a favourable environment for tanker investments, leading to a significant growth in the orderbook.”

During the whole of 2023 there were orders for 438 tanker newbuildings. To date in 2024, 408 tankers have been contacted, just 7% less than the entire 2023 period. 

The combined crude oil tanker and product tanker orderbook, as a percentage of the existing fleet in service, has almost trebled in the past two years, from 4.4% in August 2022 to today’s 12.9%.

The orderbook, as a percentage of fleet in service, is led by the aframax/long range two segment. The number of aframax/LR2 newbuildings on order represent 18.3% of the existing fleet, compared to 8.6% in August 2022.

This is followed by the suezmax segment, which has an orderbook to ships in service ratio of 16.6%, up from only 2% two years ago.   

Medium range two tankers have been most popular, followed by the aframax/LR2 segment with 274 and 210 ships on order respectively.

The very large crude carrier orderbook remains relatively low compared to historic averages with a newbuilding to in-service ratio of only 7.8%. There are 71 VLCCs on order compared with an active fleet of 908 ships.

Nevertheless, orders for VLCCs have risen significantly since the beginning of the year, said Diamantara.

“While the VLCC orderbook remains relatively low, VLCC orders have gained momentum during this year. A total of 49 contracts have been signed within 2024 so far, representing around 70% of the total VLCC orderbook.” 

Just 18 VLCCs were contracted in the whole of 2023. 

“This is a relatively niche market, so we do not expect a significant increase in the future as the average yearly orderbook since 1999 is 98,” said Diamantara.

With the increase in orders for tankers and rising activity from other vessel segments, in particular containerships, shipbuilding berth availability before 2028 is becoming limited.

Nevertheless, more shipbuilding capacity is coming online in China and South Korea to cater for the growing orderbook across most vessel sectors.

But market conditions, not slot availability, are what drive newbuilding activity.

“It is imperative to acknowledge that shipyards which have been dormant for extended periods are undergoing revitalisation, while others are actively engaged in or planning significant expansions,” said Diamantara.

Meanwhile, tanker newbuilding contract prices have risen by between 5% and 10%, depending on segment in the past 12 months and are up by almost 20% since August 2022.

Diamantara said that numerous elements have helped raise prices. 

Increased demand for new vessels has created a competitive market. Escalating costs associated with shipbuilding, including raw materials, labour, and technology, have also contributed.

The surge in freight rates has helped builders justify higher prices, as yards can highlight the potential profitability of owning a newly built vessel.

Diamantara said the time between placing a new order and taking delivery of the ship is growing, which also influences pricing.

The time required to build a ship can vary depending on its size, complexity, and the shipyard’s workload. However, even with advancements in shipbuilding technology, the construction process remains time consuming.

“Consequently, shipbuilders often incorporate the ‘time value’ of money into their pricing calculations, reflecting the opportunity cost of capital tied up in the construction project,” Diamantara said.

In addition, the incorporation of increasingly advanced technologies in new ships in particular to reduce fuel consumption, can also justify higher prices.

“Technological advancements, such as improved fuel efficiency, emissions reduction systems and automation can enhance the vessel’ operational efficiency and long-term profitability. As a result, shipowners are willing to pay a premium for vessels equipped with these cutting-edge features.”