TRAFIGURA, the commodities trading giant, is expecting another bleak year for the tanker market if scrapping does not pick up.

“The biggest problem is overcapacity,” said the company’s head of wet freight Andrea Olivi.

He said waves of coronavirus and the emergence of new variants have also not helped the tanker segment, even as the Organisation of the Petroleum Countries is looking to increase exports in the coming months.

About 50% of the very large crude carrier fleet is non-eco (non-scrubbers), and looking at the forward curve today, these vessels will earn below operating costs in 2022, he said.

“Looking at our tankers’ supply and demand models, with no scrapping, we think that forward curve looks optimistic today — it is a really depressing state of the market,” Mr Olivi said in an interview from Geneva, where the company is based. 

“The shadow fleet — those older vessels used for shipping Venezuelan and Iranian crude — could be scrapped in the medium-term, but it still wouldn’t cover the numbers needed to see a recovery in the market,” he said. “We need to see more scrapping than this.

“There is a chance that 2022 will be as bad as 2021. If no scrapping takes place, 2023 doesn’t look great.”

He said tanker removals need to happen next year, but many owners do not want to send their ships to the scrapyard yet.

“It’s difficult to be constructive." 

The period from 2023-2025 should see a phase out of older tonnage, with the new Energy Efficiency Existing Ship Index and Carbon Intensity Indicator regulations coming into force, making way for super-eco vessels, he added.

In terms of efficiency and emissions, Trafigura has been experimenting with different types of tools, but there is “no silver bullet,” Mr Olivi said.

“We’re focusing on vessel operations: more modern vessels, shorter ballasts, using bio-fuels, amending charterparties for virtual arrival clauses and reducing CP speeds when and where we can." 

Trafigura is also looking at energy saving devices such as hull paints, waste heat recovery systems and air bubbles, but it depends on the size of ship and regularity of the trades. 

“Aggregating all these measures will see a meaningful reduction in emissions,” he said, adding that while it has proven difficult to accurately measure emissions, “we believe we are getting there”.

Trafigura is an active participant in the Sea Cargo Charter, which has clear emissions reporting standards creating an equal level playing field, and would welcome more participants in 2022.

In dry bulk shipping, demand remains robust, with cargo volumes up year on year, according to Trafigura’s head of dry freight Alan Cumming.

Volumes rose to 41.6m in the financial year to end-September from 37.4m tonnes in the previous 12 months, of which 63% was from internal Trafigura business, it said in its annual results. Fixtures rose by some 9% to 1,226 over the year, while profit more than doubled. 

“The biggest driver for the market has been inefficiencies, that is the number of ships not actually trading, tied up in ports, or slow-steaming because of the quarantine effect or deviation for crew changes,” he said in the same interview. Combined with that has been the flow of typically containerised cargo moving in bulk carriers.

“In the short-term, that won’t change dramatically,” he said. “Regulatory changes will have an effect on the entire freight market as we progress through 2022, and we now have a dedicated team looking at emissions and efficiency in shipping. The team was expanded to handle the increased demand and to help grow our third-party trading book.”

Bulk minerals volumes traded increased 8% to 82.7m tonnes, while non-ferrous concentrates and refined metals rose 9% to 22.8m tonnes, Trafigura said.

Of the bulk minerals, iron ore climbed 17% to 23.1m tonnes, while coal increased by 4.8% to 59.6m tonnes. 

Iron ore volumes have been ramping up from Porto Sudeste in Brazil, most of which was shipped to the Asian market. Targets for 2022 will be based on what happens in the iron ore market in terms of pricing.

Growth in coal trade was based on high demand this year amid an energy crisis, but it is unclear whether this will continue in 2022 as it depends on Chinese policies, weather and supply.