Market woes stemming from weak freight rates have pushed oil tanker shipping company Frontline into a loss of US$22.9 million in the second quarter of 2018. Frontline said that the average spot time charter rates for the three months ended June 30, 2018 were US$17,000 for ECO VLCCs and US$13,200 for VLCCs younger than 15 years. Nevertheless, Robert Hvide Macleod, Chief Executive Officer of Frontline Management AS, believes better days are ahead for tanker rates.

"The factors supporting our expectation include continued scrapping ahead of 2020 offsetting new deliveries and increased demand for seaborne trade as a result of expected growth in both US exports and OPEC production of crude oil.  Additionally, crude oil demand remains strong, and the end of the inventory draw cycle seems increasingly inevitable,” he said.

The global crude oil tanker fleet was expected to grow by 8.3 pct in 2018, with 57 VLCCs scheduled for delivery. However, only 24 have been delivered so far, and it is likely that some deliveries will be delayed into 2019, Frontline said in its market outlook comment.

On the other hand, 25 VLCCs have been scrapped so far and an additional 14 VLCCs have been sold for near-term scrapping. The company believes that weak freight market and high scrapping prices will continue to entice owners to continue scrapping older vessels.

Taking into account that 20 percent of the existing VLCC fleet is over 15 years of age, which are likely candidates for scrapping, the fact that the current VLCC orderbook equals approximately 15.8 pct of the global VLCC fleet, is not worrying, the shipping company estimates.

"If the pace of scrapping continues, we estimate that the global VLCC fleet will see negative growth in 2018. (…) As we have stated previously, older vessels are less desirable to charterers and earn a discount compared to newer, more fuel-efficient vessels,” Frontline said.

In preparation for the new regulation coming into force in 2020, Frontline announced in June that it had inked a deal to acquire a 20 pct ownership interest in FMSI, a scrubber manufacturer. The move secures Frontline the capacity to source a large volume of scrubbers.

"We will continue to look for the right investment opportunities to further position the company for the expected recovery,”Macleod added.