The following is probably the most important chart for the tankers.
As you can see, the vessels have to get their surveys done every five years during the first 15 years of their lives and every 2.5 years after 15 years of age. The first survey costs $1.5 million. The second survey costs $2.5 million. The third survey costs $3.25 million and the fourth survey costs $4 million.
Of the 800 VLCCs, 200 of them are 15 years or older. The next survey will cost them $3.25 million or $4 million. If the rates stay high, then it might make sense to incur such capital expense. But if the rates come down, then many owners will face the following dilemma.
Do I pay $3.25 to $4 million for a survey to extend the life of the vessel for only a few years or do I just take $15 million to scrap it?
If the rates drop, many owners will simply scrap their vessels reducing the fleet size by as much as 25 percent while the order book is at historic lows. This is the main reason why I am not too worried about vessel rates for the next 5 years. Yes, they will be wild and volatile but overall, the dynamic between demand for vessels and supply of vessels looks the best it ever did.