Gulf Ship-to-Ship Transfers Drive VLCC Rates to Record Highs, But Newbuild Wave Looms

## VLCC Market Hits Stratospheric Levels Amid Gulf STS Activity Very Large Crude Carrier (VLCC) freight rates have climbed to exceptional highs, with ship-to-ship (STS) transfer operations in the Gulf playing a significant role in tightening effective vessel supply and driving earnings upward, according to Seatrade Maritime. STS transfers — a practice in which cargo is moved between vessels at anchor or underway rather than at a fixed terminal — have become an increasingly prominent feature of Gulf crude trade flows. By occupying tankers for extended periods during transfer operations, STS activity effectively removes tonnage from the active trading pool, contributing to the supply squeeze that has helped propel rates to current levels. The VLCC segment, which serves as a bellwether for the broader crude tanker market, has benefited from a confluence of supportive factors in recent months, including sustained demand for long-haul crude shipments, geopolitical disruptions affecting traditional trade routes, and the ongoing absorption of tonnage into shadow fleet and sanctions-related trades. ### The 2027 Risk: Newbuild Deliveries Despite the buoyant near-term outlook, market observers are already casting a cautious eye toward the medium term. Seatrade Maritime notes that a substantial wave of newbuild VLCC deliveries is expected to enter the fleet around 2027, representing a material risk to the current rate environment. Orderbook growth has accelerated in recent years as shipowners, encouraged by strong earnings and the energy transition's uncertain timeline for crude demand, have placed orders at yards primarily in South Korea, China, and Japan. Should these vessels deliver on schedule into a market where demand growth has moderated, the resulting capacity overhang could exert significant downward pressure on freight rates. The dynamic is a familiar one in tanker shipping — periods of exceptional earnings historically incentivise newbuilding activity that, when delivered en masse, can rapidly erode the market conditions that prompted the orders in the first place. ### Industry Outlook For tanker owners and operators, the current environment presents both opportunity and strategic complexity. Locking in period charter rates at or near current highs may offer a degree of earnings protection against the anticipated supply influx, while those reliant on spot market exposure will need to navigate the transition carefully. Freight market participants will be closely monitoring newbuild delivery schedules, scrapping activity among older tonnage, and the trajectory of global crude demand as key variables shaping the VLCC market's path through the latter half of this decade. *Source: Seatrade Maritime*