Rising VLGCs fleet Impact LPG Freight Rates

LPG shipping freight rates are forecast to deteriorate further through 2016 as a result of the fast rising fleet of Very Large Gas Carriers (VLGCs) which has already started to impact earnings of smaller vessel classes, according to the latest edition of the LPG Forecaster, published by global shipping consultancy Drewry.

VLGC freight rates have been in free-fall since August 2015 as fleet growth has continued to outpace demand. Over this period as many as 41 VLGCs have been delivered and as a result, spot rates for these vessels touched a six-year low of $25 per tonne in April on the benchmark AG-Japan route. In line with falling spot rates, time charter rates for VLGCs have also come under pressure, averaging $800,000 per month in April, 55% down on the same period last year.

However, the fast expanding VLGC fleet is now impacting Large Gas Carries (LGCs) and Medium Gas Carriers (MGCs) as a larger share of the LPG trade is being carried on VLGCs. As a result, demand for the two smaller vessel segments has been deteriorating leading to a decline in time charter rates for these ships. The below graph shows one-year time charter rates for three different size categories of LPG vessels.

“At the end of April 2016 there were 117 vessels on order with each having a cargo carrying capacity of greater than 25,000 cbm. This means that the fleet will continue growing at a rapid pace in the three vessel size segments. As demand is not expected to match fleet growth, freight rates are therefore expected to come under further pressure in the months to come”, said Shresth Sharma, senior analyst, gas shipping at Drewry.