As geopolitical tensions in the Middle East drive oil tanker rates to new heights, South Korean shipping companies are rapidly securing Very Large Crude Carriers (VLCCs). Following significant investments in second-hand vessels, these companies are also expanding their orders for new ships to strengthen their market presence. However, with the VLCC market entering an unprecedented order cycle, concerns about structural oversupply are growing.
According to industry sources, Pan Ocean has invested over 2 trillion won in VLCCs this year alone, aggressively expanding its fleet. Earlier this year, the company agreed to acquire 10 second-hand VLCCs from SK Shipping for approximately $668 million.
Pan Ocean is also actively pursuing new orders. As of the end of June, the company resolved to order two additional VLCCs, bringing its total new order book to nine vessels. This move marks a shift from its traditional bulk carrier focus to developing the oil tanker segment as a new growth area.
Janggeum Maritime has emerged as a major player in the VLCC market, rapidly expanding its fleet by aggressively purchasing second-hand vessels since late last year. The company currently operates over 160 oil tankers, with nearly half of them being VLCCs. This swift acquisition has significantly increased its influence in the global oil transportation market.
The massive investments by domestic shipping companies in VLCCs are driven by an unusual boom in the oil tanker market. Sanctions on Russian and Iranian oil have reduced the number of vessels available for normal oil transport, compounded by geopolitical instability in the Middle East, tightening available shipping capacity.
VLCC freight rates have surged dramatically. Rates that averaged between $50,000 and $60,000 per day before the closure of the Strait of Hormuz have recently skyrocketed to around $480,000, an increase of more than eight times.
This surge in rates directly translates to improved profitability for shipping companies. The more vessels they secure, the greater the cargo and operational revenue they can capture in this high-rate market. Particularly, VLCCs are known for their significant rate fluctuations, meaning that during periods of rising market conditions, larger fleets can yield greater performance improvements.
However, the simultaneous push by global shipping companies to secure VLCCs raises concerns. The competition among companies has led to record-high new orders for VLCCs this year.
The VLCC order book has increased to exceed 30% of existing fleets, raising fears that future supply may outpace demand. Many of the vessels currently ordered are expected to be delivered sequentially after 2028.
An industry insider noted, "While the current surge in rates from the Middle East allows for profitability with more VLCCs, the situation may change after 2028 when a large number of new ships are delivered. If oil transport volumes do not keep pace with the increase in fleet size or if stability returns to the Middle East, the current aggressive investments could lead to oversupply challenges."
* This article has been translated by AI.
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