Big oil tankers' need for
retrofit delays use of new Panama Canal
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[August 24, 2016]
By Liz Hampton
HOUSTON (Reuters) - The promise that
some oil traders and brokers saw for an expanded Panama Canal to
become a new route for large tankers will take longer to realize
than expected because many ships must first undergo inconvenient
retrofits to transit through the new locks, shipping industry
The modifications to these bigger oil carriers - which mostly
involve fittings such as chocks and bollards that secure the ship's
dock and tow lines - are needed because the new locks that opened in
June use tug boats rather than locomotives to pull vessels.
While only a fraction of the vessels that previously transited the
canal carried oil, its expansion caught the eye of traders hoping to
gain faster and cheaper access to international markets on bigger
tankers. But even if what those ships now fit through the new locks,
many lack the minimum required mooring equipment for the expanded
Although the new standards were published in advance of the canal's
opening, the required retrofits come as the shipping industry is
already facing financial strain, adding another wrinkle to an
opening beset by cost overruns and several incidents in which ships
scraped the walls of the new canal amid concerns about its design.
There are more than 900 Aframax tankers in the global fleet and
around 500 Suezmax vessels, according to shipping experts, who
estimate between half to more than three-quarters of the vessels,
especially those built before 2015, would need retrofits.
The portion of Aframax vessels requiring the retrofits is higher
than those in the Suezmax fleet, one ship analyst said.
Vessels must be dry docked, or taken out of service, for the
refittings. While the new parts cost just $1,000 to $3,000 per ship
- pocket change in the expensive world of shipping - additional
charges associated with the work can tally up to $100,000 to
$150,000, several sources said.
Sandith Thandasherry, chief officer of Navgathi Marine Design and
Construction, an India-based vessel servicer, said so far this year
his firm has already completed six retrofits for Aframax tankers
with the new Panama route in mind.
Ship servicers must also get approval for their work from the Panama
Canal Authority and vessel classification societies.
Early on, Thandasherry says his company received approvals from the
Canal Authority on ship modifications within a week's time,
unusually fast. This process has slowed in recent weeks, an
indication that the number of applications for retrofits is rising,
"I know for sure that the number of people who are applying is
increasing after the opening," said Thandasherry.
In a statement, the Panama Canal Authority acknowledged that certain
vessels would likely need new chocks and bollards added.
Most ship owners are opting to do retrofits during other scheduled
dry dock work. The added costs come at a time of rock-bottom
shipping rates amid global oversupply.
[to top of second column]
A floodgate test is conducted during a media visit to view the new
set of locks of the Panama Canal Expansion Project, on the Pacific
side of the Panama Canal, on the outskirts of Panama City June 6,
2016. REUTERS/Carlos Jasso
“The current market conditions are challenging for many ship owners. So retrofit
measures can be a financial strain,” said Daniel Abt, an inspection engineer for
DNV GL, a classification society that approves such vessel modifications.
Abt said the retrofits are not just for oil tankers but also for container
Though the new locks were mostly expected to boost container ship traffic, the
canal's greater depth and wider dimensions put tankers in play too.
Only a handful of Aframax tankers could fit the dimensions of the old canal. Now
86 percent can get through the expanded canal fully laden, according to ship
brokerage Galbraiths Ltd.
While no Suezmax vessels could fit through before, now 74 percent can get
through partially laden, Galbraiths said, but only if they have the proper
In mid-August, the Aegean Unity, a Greece-flagged vessel, became the first
Suezmax tanker to transit the canal. But that ship, built in 2016 and partially
laden, may have been an exception.
Brokers said, for now, there is a scarcity of ships with the right specs to go
through the new canal and that current price spreads between international crude
grades discourage such movements.
Once more ships are retrofitted and crude prices change, tanker traffic could
pick up. Transit through the canal instead of around the tip of South America
could save more than $300,000 on a voyage from the Caribbean to the U.S. West
Coast, according to brokers.
"It will become a trade route for sure, but it will happen over time," said one
(Reporting by Liz Hampton; Editing by Cynthia Osterman and Andrew Hay)
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