Does Size Matter? Why the crude oil tanker sizes did not increase in last 5 decades?

vlcc-size

Recently someone asked me this question as to why there are very few new ULCCs? Why most of the ULCCs were built in 70s ? I considered the question to be a topic of one of my blog. This blog is the answer to that question.

Well generally speaking the decision of ordering a particular size of a ship depends upon

1) Technological advancement or feasibility and
2) Economical viability.

There are no problems technologically to build largest crude oil tanker of the world never built but the question is “would it be economically viable?” and the answer is NO.

The economical viability is again dependent on

1) Costs related to transporting a cargo on a route
2) The demand of the cargo

A model of estimated costs to transport per tonne cargo developed from the Evans & Marlow’s model of maritime economics revealed, “ As the route length increases, the larger ships will have lower costs in transporting a unit cargo and there is optimum ship size for a route length”. So for to and fro route length of say 2000 mile, a VLCC would not be an economically viable option but for to and fro route length of 20000 miles, 180000 DWT tanker would be an ideal option.

Another factor that affects the ship size is the demand of the cargo and the ships to carry that cargo (Shipping is a derived demand). The unit costs I talked about earlier is based upon the assumption that ships will be fully laden in the voyage but if the demand is less and bigger ships move with half full, the inventory costs will offset the low unit cost of the larger ships on longer routes and hence if the demand is low, the ship size need to be smaller.
The demand in shipping is measured in tonne miles, which is equal to tonne of cargo carried, multiplied by the distance to cover in nautical miles.

Now to answer the question specifically, why the largest tankers were built in 70s. What is special event related to shipping in that era? The answer is closure of Suez Canal following Arab Israel war that forced the ships to route via cape of good hopes for transporting the crude oil from gulf to Europe and North America. This increased the shipping demand in terms of tonne mile as the distance increased. There was huge shortage of the tankers and crude oil prices skyrocketed. This was ideal time for the ship owners to order bigger and bigger ships as these ships could be employed on longest routes in a time with huge demand. This greed however later led to the biggest recession of the shipping industry in 80s because of over supply of the ships.

Food for thought: can you think how the discovery of shale gas in USA will affect the demand of crude oil in tonne mile and what effect this can have on the average size of the crude oil tankers in near future?

Written by Capt Rajeev Jassal

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