The tanker firm Frontline has reported a decline in its Q4 earnings, seeing a year-on-year drop to $66.7m from $118.4m in Q4 2023. The company said that the growing shadow fleet of tankers had adversely affected trades into Asia for mainstream vessels, and was partially to blame for its losses.
While Frontline is the first carrier to report a financial impact as a result of Russia’s clandestine fleet, there is a growing feeling that its presence will continue to dog the industry. Estimates released last years indicate that this operation now constitutes approximately 17% of the global oil tanker fleet, with 889 tankers of more than 27,000 deadweight tonnage (dwt) involved in transporting sanctioned oil. That in turn has tightened the supply of compliant vessels, forcing traders into a scramble to secure capacity from an increasingly dwindling pool. That has put upward pressure on rates, with those for supertankers surging as traders urgently seek vessels to ship oil from alternative sources to major importers like China and India.
The effects are starting to ripple across the industry and will result in wholesale escalation of costs, with legitimate operators picking up the bill. With no recourse to regulation, shadow fleet operators are bypassing mandatory safety and environment standards, while anecdotal reports say that many have racked up bills with suppliers with no intention to pay. The net result is higher insurance premiums, increased compliance costs, and greater operational risks.
Elsewhere, The Guardian has reported that the heightened demand for vessels capable of operating under the radar had led to a substantial increase in the price of aging tankers, raising questions over ethics of shipowners in the process. Pre-conflict prices for 15-year old crude tankers had risen from $32.5m to $54m at the start of the year, enabling shipowners to generate more than $6bn in sales.
That’s pushed up the prices for both acquiring new tonnage and the cost of newbuilds, and led Frontline CEO Lars Barstad to state that it was becoming increasingly challenging for shipowners to justify investments in new vessels. He told told S&P that there was “absolutely no incentive” for compliant owners to buy new ships.
There’s a real sense that, if this scenario is left unchecked, the long-term consequences could be severe. The shadow fleet is already transforming the industry by distorting prices, tightening capacity and inflating rates. And in bypassing regulations, it’s creating an uneven playing field, leaving compliant operators to face rising costs. In the wider context, it weakens sanctions and creates additional risk, while fostering an aging fleet in an era where new, efficient vessels are imperative.
This fragmentation of the market, where shadow operators thrive outside of regulatory control, has the capacity to destabilise global trade in many respects. To that end, Governments and industry leaders must respond with stricter enforcement, closing loopholes and encouraging fleet renewal to prevent a future shipping crisis driven by safety failures, environmental disasters, and capacity shortages.
Author: Tom Holmes
Source: Ti Insight
Supply chain strategists can use GSCi – Ti’s online data platform – to identify opportunities for growth, support strategic decisions, help them stay abreast of industry trends and development, as well as understand future impacts on the industry.
Visit GSCI subscription to sign up today or contact Michael Clover for a free demonstration: [email protected] | +44 (0) 1666 519907
For your logistics and transportation management needs
Providing high frequency logistics and supply chain data and analysis for all those invested in the industry.