To Build or Not To Build

Oil freight and charter rates, while getting stronger, cannot support the cost of owning and operating new vlccs (very large crude carriers). Yet the fleet is aging, and oil majors want newbuildings to comply with US OPA 90 regulations and avoid the environmental liability risks associated with older tonnage.

What is the best strategy for independent tanker owners? Should they run older ships as long as possible, or build new vessels? The breakeven rate for running a well-maintained,1973-built vlcc of nearly 300,000 dwt can be as low as $19,000 per day, while the breakeven rate for a newbuilding of approximately the same size is more than twice that amount – between $40,000 to $45,000 per day time charter equivalent. (This assumes 70% borrowing at about 9% interest).

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