VLCCs vs Aframaxes: Which is in a better position?

This month we joined industry professionals at the 4th Capital Link International Shipping Forum in Shanghai, where our Head of Singapore Charlie Hockless spoke on ‘Opportunities & Risk: Signals in the Noise – Taking a look at the key data’. In our latest blog post we take a look at Charlie’s findings on opportunities and risk for Tankers. 

First, let’s take a look at the values. The graph below shows the value of a five year old fixed age Tanker, valued back to 2015. As you can see, the values of a five year old VLCC and a five year old Aframax have risen by 16% and 7% respectively over the last year.

VLCC values have risen sharply due to the resurgence in rates in the latter part of 2018. This has been very positive for VLCC values, and other tanker values alike, but this does not necessarily mean you should go out and invest in the first Tanker you see.

As we will find out, some are better placed than others for potential future return.  

The graph below shows the fixed age value of the INDIGO NOVA (ex TAMAGAWA) which was bought by Zodiac Maritime in April for USD 36 Mil. This means we have valued the ship at her current age (11.87 yrs old) going back in time to 1992 to see what a VLCC of this spec has been worth over different value cycles. As we can see the red line (current value USD 38.45 Mil) and the Yellow line (median value USD 40.5 Mil) are very close and becoming closer as time goes by. This means that VLCCs are approaching the upper level of their value possibility and are likely to undergo a correction in the near future.

This is compounded when you look at the current five year old fixed age values of Tankers versus their historical median values. As we can see VLCC are overvalued at this age by 5.9%. Aframax Tankers are valued below their historical median value, which represents an investment opportunity.

We look at the growth rates of Ton Mile and Supply to understand the demand & supply market in a specific Tanker sector. As seen in the below graph, Aframax Tankers are the only sector within Tankers that are experiencing more Ton Mile growth, than vessel supply growth. This means the market is in a position of more demand than supply growth. Other types within Tankers, particularly VLCCs are suffering negatively, which reinforces the opinion that VLCCs are in a precarious position despite their recent gains in value.

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