According to our estimates, there are over 700 Tanker vessels in the so-called Shadow fleet. It's the fleet of Tankers owned by shell companies with no track record of ship management, undertaking Russian business, loading Russian cargo, or involved in suspicious ship-to-ship (STS) transfers.

Nearly half of them are involved in the Russian oil trade. Since the Crude Oil price cap came into effect in December 2022, the market share of the Ghost fleet in Russia's exports has increased by more than 27%. So far in 2024 alone, the increase has been over 15%.

In terms of vessel count, by September 2024 the total shadow fleet registered a 20% year-over-year increase. The average age of the Ghost Fleet is over 19 years. The other subdivision of the Shadow fleet - the so-called Dark fleet - has an average age of nearly 17 years. The Dark Fleet includes tankers owned by companies directly connected to Russia, Iran, Venezuela, etc.

Recent Tanker Demolition Trends

The demolition of large Oil Tankers has nearly come to a halt over the last two years. For VLCCs with a deadweight of over 200K MT, the demolition rate has been zero, with  the last instance such a vessel arrived at a scrap yard recorded in October 2022. However, the second-hand market tells a different story. Most sales in this market consist of older ships, which are prime candidates for scrapping.

Over the same period, the average age of tankers over 100K MT of deadweight sold on the second-hand market was close to 16 years. Notably, Tankers purchased by undisclosed companies or entities with no prior record of ship management, tend to be even older. Due to high demand after Russia's invasion of Ukraine, some shipowners have made significant profits from selling ageing vessels that subsequently ended up in the Shadow fleet.

In 2022, Aframax, Suezmax and VLCC second-hand prices for 5-year-old vessels and older increased by an average of 45% year-over-year. In 2023, another 40% year-over-year was tacked on and so far in 2024, we are seeing a 10% increase over last year's prices.

Shadow Fleet Absorbing Older Ships 

A historical analysis of Oil Tanker demolitions reveals significant fluctuations in scrapping rates across different Tanker categories. For instance, 2018 saw a notable peak with 100 Tankers scrapped, including 45 Suezmax vessels. However, recent years have shown a sharp decline in demolitions, particularly post-2023, since when only four Tankers have been scrapped.

As vessels that would normally be destined for scrapping end up in the Shadow fleet, several factors could influence the future rate of Tanker demolitions, including but not limited to:

Regulatory Changes: Stricter environmental regulations, such as the International Maritime Organization’s (IMO) emissions rules, could force older, less efficient ships to be scrapped. These regulations could increase the cost of operating older vessels, making them less economically viable.

Economic Conditions: Global economic conditions and oil demand fluctuations could impact demolition rates. A downturn in oil demand could reduce the need for Tanker capacity, leading to more ships being scrapped.

Fleet Modernization: Shipping companies may choose to modernize their fleets to improve fuel efficiency and reduce emissions. This trend could accelerate the scrapping of older tankers in favour of newer, more technologically advanced vessels.

Market Dynamics: The availability of second-hand ships and the profitability of the Shadow fleets can affect demolition rates. If second-hand prices drop or Shadow fleet operations become less viable, older ships might be sent to the scrapyard.

Effect on Future Tanker Demolitions

Based on these factors, Tanker demolitions are expected to see a moderate increase in the coming years. If regulatory pressures and economic incentives align, the scrapping rate will rise.

Looking back at historical developments and trends, Tanker demolitions have a strong correlation to earnings. However, any estimation is contingent on various unpredictable factors, including geopolitical events and shifts in global trade patterns.

In particular, the dynamics of the Shadow fleet, which currently represents over 11% of the active Tanker Fleet, is difficult to predict. The rapid increase of old and inefficient ships engaged in the Russian, Iranian, and Venezuelan trades since 2022, is a temporary phenomenon that largely affects the market. It is certain that strengthening sanctions and control over dark trade could make the Shadow fleet unviable, leading to an increase in demolitions. It is a possible scenario, which could transpire either abruptly, or gradually.

Global Fleet Age

Currently, almost 40% of the active fleet of large Oil Tankers (Aframax, Suezmax, and VLCCs) are over 15 years old. In the short term, the lifespan of old and inefficient vessels involved in Shadow trades will be extended, which limits candidates for demolition.

Investment Implications

Tanker fleets with a lower average age indicate areas of recent heavy investment and modernization, which could be due to stricter environmental regulations or higher demand for larger, more efficient vessels. Conversely, the higher average age in certain vessel categories could be indicative of a potential future market for new buildings or increased scrapping activities.

Operational Insights

Older Tanker fleets face higher maintenance costs and are less fuel-efficient compared to newer vessels. This affects their competitiveness and operational costs in the long run. The age of the fleet also reflects the balance between scrapping old vessels and commissioning new ones, influenced by market demand, regulatory changes, and technological advancements.

While the demolition of large Oil Tankers has slowed considerably, the market for older second-hand vessels is thriving. This is due to the expansion of the shadow tanker fleet, which is increasingly made up of aging vessels that would otherwise be scrapped. The sales of older tonnage continues into 2024 albeit at a slower rate compared to the initial high activity from late 2022 and 2023. The demolition rates are normally influenced by economic conditions, fleet modernization efforts and regulatory changes, and of course market dynamics. Since the Shadow Fleet has grown to such a large scale, it will likely influence Tanker demolition rates for the foreseeable future.

Our AXSInsights module provides a comprehensive snapshot of the current state of the global Oil Tanker fleet by size and age, offering insights into market dynamics and future trends in the maritime shipping industry.