Time charter rates for product tankers have nudged up to their highest levels in three years amid expectations of strong demand next year from the International Maritime Organization's (IMO) 2020 sulfur emissions cap.
Next year's expected increase of 2mn b/d in global seaborne distillates exports, which would be the largest annual increase in at least 19 years, equates to an 8.4pc annual gain in seaborne exports, according to data cited by shipping firm Scorpio Tankers.
One-year time charter rates for medium range (MR) tankers have edged up this year to about $15,000/d, and those for long range 2 (LR2) tankers have risen to about $19,000/d, according to data cited by the company.
The looming implementation of IMO 2020 is increasing interest among charterers to secure product tankers on a time charter basis, but shipowners are offering at levels that charterers are unwilling to pay, said one shipbroker.
The wide bid-offer spread, as well as a depressed spot market for product tankers, is helping to slow gains in the time charter market. Scorpio's data shows time charter rates are still well under their 15-year averages of $17,500/d for MR tankers and $23,000/d for LR1 tankers.
Refinery maintenance, narrow arbitrage opportunities, and plentiful tonnage supply continue to weigh on the spot market, making charterers less willing to pay premiums for time charters. The cost of MR freight on the key US Gulf coast-Pozos, Colombia, route stands at $400,000 lump sum, down 16pc from its five-year average, according to Argus figures.
One charterer told Argus that he agreed the product tanker market will rise next year, but only enough to cover increases in IMO 2020-related bunker costs.
"It is not going to be a windfall like the owners think," he said.
