International oil tanker freight rates hit a six-year high

Securities Daily Reporter Chen Xiao and Zhang Wenxiang

International oil tanker freight rates are experiencing a rare rapid surge.

According to Clarkson, a data consulting and research firm, as of February 20, the average daily spot market earnings for VLCCs (Very Large Crude Carriers) increased by 24% week-over-week to $146,000 per day, reaching the highest level since April 2020. Additionally, Guosheng Securities released a research report stating that on February 27, the freight rate for 270,000-ton ships from Ras Tanura in the Middle East to Ningbo (CT1) was $209,352 per day, and the rate from Malongo/Jeno in West Africa to Ningbo (CT2) was $224,195 per day. These figures highlight the current strong market conditions for VLCC shipping.

The surge in freight rates has also driven growth in shipbuilding and second-hand vessel markets, with the capital markets reacting swiftly. China Merchants Energy Shipping Co., Ltd. (hereinafter “CMES”) saw its stock price increase by over 30% in the four trading days after the Spring Festival holiday. Guangdong Songfa Ceramics Co., Ltd. (hereinafter “Songfa”) also saw its stock price break through the 110 yuan per share mark after the holiday.

Industry experts generally believe that this round of market rally is not driven by a single event but is the result of multiple factors such as geopolitical tensions and structural shortages in shipping capacity.

Market Faces Supply Shortages

Regarding the reasons behind the recent sharp rise in oil tanker freight rates, Ding Zhenyu, senior investment advisor at Jufeng Investment Consulting, told Securities Daily that the direct drivers are the war insurance premiums caused by geopolitical risks and rerouting of shipping routes. A deeper structural factor is the reconfiguration of global crude oil trade flows.

Data shows that supply tightness is not a short-term phenomenon. Clarkson’s data indicates that by the end of 2025, nearly 20% of VLCCs in operation will be over 20 years old, and new VLCC orders account for only 17.2% of the fleet. Meanwhile, the effective capacity growth for VLCCs from 2026 to 2027 is expected to be only 1% to 2%, significantly lower than the demand growth rate of 3% to 5%.

The tight supply and demand situation has also pushed up vessel prices. Wang Qijun, chief analyst at PaiShip, told Securities Daily that currently, new orders for oil tankers (including crude oil and refined product tankers) are queued, and the sale of second-hand ships is limited. Supply cannot keep up with demand, leading to rising vessel prices. The main reasons for the increased demand are the rising freight rates and market expectations of continued growth. In the short term, the oil tanker market is expected to remain in a state of supply shortage, with price increases depending on the duration of geopolitical tensions and the cycle of capacity release. It is expected to ease around the end of 2027 to 2028.

A related insider from a domestic shipbuilding company also told Securities Daily that the recent surge in oil tanker freight rates, influenced by multiple geopolitical and unexpected events, has boosted demand for oil tankers. Since the production cycle for oil tankers is about one and a half to two years, even placing orders now will not immediately meet the demand gap. Short-term, VLCC orders may see a surge, but how long this can last remains to be seen.

Company Performance Improves

Songfa recently announced that its subsidiary, Hengli Shipbuilding, has signed contracts to build three 306,000-ton VLCCs, with a total contract value of approximately $300 million to $400 million. The return of shipbuilding orders reflects the changing supply and demand structure.

Under the high freight rate environment, the profitability of oil transportation companies is also rapidly improving.

Ding Zhenyu stated that the breakeven point for VLCCs is about $25,000 to $30,000 per day. Currently, spot rates are between $120,000 and $170,000 per day, meaning individual ships could earn between $90,000 and $140,000 daily.

Industry insiders note that fixed costs in the oil transportation sector are high. After deducting fixed costs such as fuel, port fees, and labor, the net daily profit per ship is quite substantial. For listed oil shipping companies, the performance elasticity driven by freight rates is very significant. Wang Qijun added that, for example, the current TCE (Time Charter Equivalent) spot rent for VLCCs exceeds $150,000 per day, with some reaching over $250,000 per day. Based on a newbuilding cost of around $100 million, the annual return rate can reach 50% to 80%.

China Merchants Shipping previously disclosed that it expects to achieve a net profit attributable to shareholders of 6 billion to 6.6 billion yuan in 2025, representing a year-over-year increase of 17% to 29%. The operating profit in the fourth quarter alone is expected to grow by 200% to 230% year-over-year.