Relentless Regulations

With the shipping markets still getting used to the Emissions trading scheme (ETS), the next major piece of EU legislation is on the horizon. FuelEU serves as a critical piece within the intricate puzzle of the Fit for 55 regulations. While the Renewable Energy Directive (RED) and Alternative Fuels Infrastructure (AFIR) focus on creating a new sustainable fuel landscape in the EU over the long term, the ETS and the Energy Taxation Directive (ETD) aim for rapid reductions in greenhouse gas emissions. Positioned between these frameworks, FuelEU is intended to addresses the demand for renewable and low carbon fuels by implementing progressively stringent rules to encourage their uptake.

The regulation focuses solely on two key objectives: mandating a reduction in the greenhouse gas (GHG) intensity of energy utilized by ships arriving, departing, or staying in the ports of member states, and requiring the use of On-Shore Power Supply (OPS) in these ports for containers and passenger vessels. It sets forth an initial goal of reducing GHG intensity by 2% by 1 January 2025, gradually escalating to an 80% reduction by 1 January 2050, based on a reference value of 91.16 gCO2eq/MJ. The explicit focus on emissions, makes this regulation technology neutral, thereby giving shipowners considerable leeway with regards to choosing fuel technologies.

This mandate applies to ships exceeding 5000GT and encompasses 100% of energy usage for intra-EU voyages, with a 50% requirement for voyages to or from the Outermost Regions or other international destinations. While certain exemptions exist, they primarily do not pertain to tankers; exceptions may apply to ice-class ships subject to a distinct calculation mechanism. Additionally, voyages between Outermost Regions are exempted from this regulation.

Compliance with this framework follows a Monitoring, Reporting, and Verification (MRV) approach, with additional FuelEU-specific data entered into the MRV database. The compliance process begins on August 31, 2024, requiring companies to submit a monitoring plan to verifiers. Monitoring activities commence on January 1, 2025. The initial monitoring period concludes on December 31, 2025, with ship operators mandated to submit their FuelEU reports to verifiers by January 31, 2026. Verifiers assess compliance by March 31, 2026, and issue the ‘FuelEU Document of Compliance’ by June 30, 2026. Following issuance, all ships calling at European ports must possess this document. If the ship is not complying with the targets set out in this legislation, a penalty will be levied on companies. The penalty will be calculated as follows for ships using VLSFO:

Within this mechanism, companies can also pool their performances, allowing the surplus performance of one ship to offset any underperformance within the fleet. Furthermore, there’s the flexibility to bank and borrow surpluses for individual vessels, enabling offsets between surplus and deficit years, thereby providing maneuverability for individual ships concerned as well.

While this legislation is comprehensive, its focus appears predominantly on the container industry, as indicated by substantial sections of the legislation and all EMSA case studies solely addressing container emissions. This raises questions about the broader impact on the tanker, bulker and gas shipping sectors, and whether the nuanced nature of those sectors has been taken into consideration while drafting these rules.

FuelEU Target

Crude Oil

Middle East

The AG VLCC market is ending the week on a firm footing as we continue to see Charterers even at this late stage taking tonnage off March dates. The April programme should come out over the weekend but we have only seen a few COA’s and Basrah questions so far, so this should increase owners expectations that next week will be busy hence creating an uptick in rates. Today we are calling 270,000mt AG/China run at ws 75 and 280,000 AG/USG is now at the ws 48 level.

The list in the AG for Suezmaxes has begun to thin out but low levels of enquiry have prevented Owners from gaining any real foothold. For TD23 we estimate this today at 140,000mt x ws 67.5 via the Cape. To head East the market is steady and Owners will be looking to push above ws 122.5 on next-done.

Despite TD8 coming in at 80,000mt x ws 187.79 and remaining flat the past few days, the AG is set for a correction downwards with prompt ships forming a queue. The Indo region has seen a small spike in rates which in turn has prevented some ballasters from leaving the area. This, combined with a hot CPP market, has thus far prevented a big drop in rates. However, with sentiment growing softer by the day amongst Owners, next week could see a tumble subject to an influx in inquiry.

West Africa

WAF VLCC rates have held up this week despite it being quiet on the surface but tonnage remains tight for the first half of April and owners have managed to make some gains especially off earlier dates. Owners will remain optimistic as the USG is making a recovery and April stems should be out and working next week and therefore in today’s market we are expecting a WAF/China run to fix at the ws 75 level.

Suezmax markets in West Africa seem to have stalled and there is stalemate occurring with some Charterers facing offers way above the levels they are willing. For TD20 we estimate this run today at 130,000mt x ws 102.5.

Mediterranean

In the Med Suezmax market, TD6 hasn’t seen a great deal of activity this week, but with the potential for Owners to take Aframax stems at the moment, we estimate CPC/Med today at 135,000mt x ws 107.5. Rates to head East have stayed somewhat constant at around $5.2M for Libya/Ningbo via the Cape.

Activity in the Med Aframax market started strong at the beginning of the week, but it has since slowed down, causing rates to drop. At the start of the week, rates for an XMed run climbed to above ws 180, but due to a poor second half in terms of volume, the week ended with rates at ws 170 for the XMed voyage. Looking ahead to next week, we anticipate a pre-Easter rush as charters will be looking to cover their needs before the Easter weekend. This will provide those who may have missed out on opportunities this week with a chance to fix early on.

US Gulf/Latin America

We are finally beginning to see a recovery in the USG after a recent lull. Activity levels have improved during the later part of the week and the over tonnaged list we saw last week is finally starting to shrink a bit which should gives Owners some confidence. Brazil exports have enjoyed a busy week with plenty of enquiry especially for the second decade with a lot of cargoes going to the UKC and today we expect a USG/China run will fix in the region of $9.2M while we estimate a Brazil/China run is paying around ws 73 level.

North Sea

The North Sea Aframax market has inched up over the course of this week as Owners aware of the lack of other tonnage around them as well as a warming Med market, were able to drive the market up. As the week comes to an end, the market stands at ws 142.5 for a XNSea voyage. However, it is uncertain how long this new level will be sustained. With several ships returning from their USG voyages and TD25 collapsing, Owners may choose to stay in the region, extending the back end of the list and enabling charters to test the market.

Crude Tanker Spot Rates (WS)

Clean Products

East

The LRs have lost a little bit of momentum as the week ends but lists are tight for April so we could see rates firm again soon after some consolidation. LR2s have confirmed $8.0M for AG/UKC and this is great progress for Owners – but care is needed now to not over push. TC1 is at ws 312.5 and not quite hitting the highs hoped for and is slightly underperforming relative to West runs.

LR1s saw a slightly softer end to the week with freight being renegotiated on a West deal but the overall list is tight for April and any activity should see rates moving again. TC5 should trade at around parity with TC1 and AG/UKC is set for $5.5M.

It was another slow week in the Far East CPP MR market. Demand for the end of March and early April is low, no matter for MRs or LRs. Benchmark Korea/Spore rates lost another $125k to $875k and Korea/OZ rates are down 17.5 points to ws 322.5. TC7 managed to maintain at ws 310, due to a rapidly firming AG market. As the AG slowed down at the end of the week, the Far East is back under pressure.

Mediterranean

All in all, it’s been an active week for the Handies here in the Mediterranean with good enquiry for the best part. XMed began the week at 30,000mt x ws 340 before soon pushing to 30,000mt x ws 350 off the back of a big influx of cargoes. Since then however the list has lengthened a touch and with the fixing window now in end month dates, rates have started to come under pressure. 30,000mt x ws 335 is now on subs with BSea to track at +40 points when next tested.

Finally to the Med MR’s where rates have come under pressure this week due to a weakening TC2 market. We started the week with Med/TA at the 37,000mt x ws 290 mark which was repeated a few times but with TC2 crumbling and the list replenishing rates soon started to slide. Fast-forward to Friday and we see 37,000mt x ws 240 on subs with WAF tracking at +20 points. Rates remain pressured into the weekend.

UK Continent 

Despite a relatively active week and us ending up with limited available tonnage at the front end of the list, rates have only picked up a touch to the 30,000mt x ws 260-265 mark with the larger MRs hindering any aspirations. The market remains stable heading into next week and expect this sector to fluctuate close to this mark until MRs improve.

The writing has been on the walls for quite some time for this MR UKC sector with a large dark cloud of negativity hanging over it all week. Despite Owner’s best efforts, rates have tumbled down from the mid ws 200s, to now sit at the 37,000mt x ws 205 mark. The shining light for this sector though has been the Mediterranean market which continues to hold a 30-40 points premium and could well be a catalyst for things to come if there is any bounce back there. A fairly depressed market to close the week.

Clean Tanker Spot Rates (WS)

Dirty Products

Handy

The week started with healthy activity levels in the North which continued right up until the end of the trading week. That said, the list needed a cleardown with negativity creeping in, and this is exactly what took place! At the time of writing, Charterers are left with limited options for natural fixing windows. Looking into next week If enquiry continues at this pace, we can expect to see owners push back, as its also worth noting one owner has consistently achieved no less than ws 190 this week.

It’s was a similar story in the Med in terms of activity. A consistent flow of cargoes has been met by an abundant source of prompt tonnage. This week has seen vessels clipped off the list with replenishment to plug the gaps the very next day, all week long. Owners did well to see a repetition of ws 235 suggesting rates have found their floor, leaving a steady sentiment in Med.

MR

A distinct lack of full stem enquiry in the North has left owners with few options, most choosing to take part cargoes in order to find employment. A fresh test is needed in order to determine market levels moving forward.

MRs in the Med have seen full stem enquiry this week, leading to a steady sentiment in the market. Looking to next week, owners will be hoping for full stem enquiry in the region to strengthen, in order to keep levels steady, especially with the amount of tonnage available next week.

Panamax

Limited questions this week make for testing conditions from an owners perspective, with those who have tonnage in position facing a tough time securing follow-on employment from opening on European shores. Charterers sense rates are expected to show favorable correction on next done, however with liquidity problems in this sector they will need to take advantage quickly before said units decide to take their chances by speculatively ballasting to the US.

Dirty Product Tanker Spot Rates (WS)

Rates & Bunkers

Clean and Dirty Tanker Spot Market Developments – Spot WS and $/day TCE (a)

wk on wk changeMar 21stMar 14thLast Month*FFA Q1
TD3C VLCC AG-China WS+072726868
TD3C VLCC AG-China TCE $/day-50045,00045,50040,25040,500
TD20 Suezmax WAF-UKC WS+3105102109114
TD20 Suezmax WAF-UKC TCE $/day+1,50035,00033,50038,25040,500
TD25 Aframax USG-UKC WS-32149181204207
TD25 Aframax USG-UKC TCE $/day-12,25027,75040,00048,75049,500
TC1 LR2 AG-Japan WS+36314278191 
TC1 LR2 AG-Japan TCE $/day+13,00086,75073,75042,750
TC18 MR USG-Brazil WS-6277283254245
TC18 MR USG-Brazil TCE $/day-1,75034,25036,00030,25027,750
TC5 LR1 AG-Japan WS+29312283208254
TC5 LR1 AG-Japan TCE $/day+7,50060,75053,25033,50045,500
TC7 MR Singapore-EC Aus WS+3315312340310
TC7 MR Singapore-EC Aus TCE $/day+50037,50037,00042,25036,750

(a) based on round voyage economics at ‘market’ speed, non eco, non scrubber basis

Bunker Prices ($/tonne)

wk on wk changeMar 21stMar 14thLast Month*
Rotterdam VLSFO  +9595586574
Fujairah VLSFO  -6635641620
Singapore VLSFO  -2638640638
Rotterdam LSMGO  +8784776775

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