by Dr. Michael Tsatsaronis, Asst.Professor in Dept. of Port Management and Shipping, National and Kapodistrian University of Athens
Why today’s tanker market may have more in common with the late 1970s than most observers think
For much of the past two years, tanker market discussions have revolved around a familiar question: are owners ordering too many ships?
The concern is understandable. Freight rates have been robust, asset values remain elevated and tanker companies have enjoyed a period of exceptional profitability. History has taught shipping investors to become nervous whenever strong earnings coincide with rising contracting activity.
Yet the industry’s focus on fleet growth may be obscuring a more important source of risk.
The most relevant historical parallel to today’s market may not be the excess ordering that ultimately contributed to the tanker crisis of the 1980s. Instead, it may be the tendency of markets to mistake extraordinary trading conditions for a new normal.
In that respect, the late 1970s offer a surprisingly relevant lesson.
The wrong debate?
Much of the current narrative centres on supply. Analysts scrutinise orderbooks, estimate delivery schedules and debate whether newbuilding contracting is laying the foundation for the next downcycle.
There is logic behind this approach. Shipping has always been vulnerable to excessive optimism during profitable periods. High earnings encourage investment, investment expands supply and supply eventually catches up with demand.
However, today’s tanker market differs from many previous boom periods in one crucial respect.
The market’s strength has not been driven solely by growth in underlying oil consumption. Instead, a substantial portion of freight demand has been generated by a dramatic increase in transport work, measured in ton-miles.
This distinction matters.
A market supported by rising oil demand behaves differently from one supported by longer voyage distances. The latter can generate exceptionally strong freight conditions even when global oil consumption grows only modestly.
As a result, focusing exclusively on vessel supply risks overlooking the factor that has arguably contributed most to recent tanker earnings.
A market built on geography
The tanker sector has been one of the clearest beneficiaries of geopolitical fragmentation.
The reshaping of crude and product trade following sanctions on Russian exports fundamentally altered trading patterns. Cargoes that once moved relatively short distances began travelling much longer routes.
Russian crude found new buyers in Asia. Europe increased imports from the Middle East, the United States and West Africa. Product flows were similarly redrawn. More recently, disruptions in the Red Sea encouraged further rerouting and extended voyage durations.
None of these developments required a dramatic increase in global oil consumption.
What they required was distance.
And distance is the lifeblood of tanker demand.
The result has been a freight market whose strength cannot be fully explained by traditional measures of commodity demand. Instead, it reflects a geopolitical premium embedded within global trade patterns.
The question investors should therefore be asking is not simply how many tankers are on order.
It is how much of today’s earnings power depends on trading patterns that were created by geopolitical disruption.
Looking back to 1979
Comparisons between today’s market and the tanker boom of the early 1970s are common, but they are often simplistic.
Most discussions focus on vessel supply and the construction boom that eventually left the industry burdened with excess capacity. That story is well known.
Less attention is paid to the environment immediately preceding the industry’s prolonged downturn.
By the late 1970s, the tanker market had already experienced periods of extraordinary disruption. Political events, changing energy relationships and shifting trade flows created conditions that many participants struggled to interpret correctly.
The challenge was not merely forecasting fleet growth.
It was determining which aspects of demand were structural and which were temporary.
As often happens in shipping, extraordinary conditions gradually came to be viewed as normal conditions.
That distinction proved costly.
When trade patterns ultimately evolved and economic realities reasserted themselves, the adjustment was painful. Market participants discovered that some of the assumptions underpinning earnings expectations had been far less durable than anticipated.
The lesson is not that history is about to repeat itself.
It is that shipping markets frequently misjudge the longevity of unusual trading environments.
The real risk may be demand normalisation
This is where today’s discussion becomes interesting.
The bearish argument for tankers traditionally centres on supply growth. Yet current orderbooks, while significant, do not necessarily suggest an unavoidable replay of the 1980s.
A more plausible risk lies elsewhere.
What happens if geopolitical fragmentation begins to moderate?
What happens if some trade routes shorten?
What happens if sanctions evolve, disruptions ease or trading relationships gradually become more efficient?
None of these developments would require a collapse in oil demand.
Nor would they require a flood of new vessel deliveries.
They would simply reduce transport work.
And because freight markets are highly sensitive to incremental changes in ton-mile demand, even moderate normalisation could have a meaningful impact on earnings.
This possibility receives surprisingly little attention compared with discussions about fleet expansion.
Perhaps that is because vessel supply is relatively easy to measure. Orderbooks are visible. Deliveries can be counted.
Geopolitical premiums are harder to quantify.
Yet markets are often most vulnerable to risks that cannot be neatly incorporated into a spreadsheet.
Beyond the orderbook
None of this suggests that tanker owners should become bearish on the sector.
The industry’s fundamentals remain considerably healthier than during many previous cycles. Fleet renewal requirements persist. Environmental regulations continue to influence effective supply. Investment uncertainty still constrains some ordering decisions.
But these factors should not distract from a broader reality.
A significant part of today’s market strength reflects geography rather than pure commodity demand.
That geography was shaped by extraordinary political and economic circumstances.
The durability of those circumstances deserves as much scrutiny as the size of the orderbook itself.
Conclusion
Shipping history rarely repeats itself in a literal sense. The circumstances are always different, the actors change and the catalysts evolve.
Yet the industry has a habit of making the same intellectual mistake.
It often assumes that exceptional conditions will last longer than they eventually do.
The most useful lesson from the late 1970s is therefore not that owners ordered too many ships. It is that markets can become comfortable with distortions, particularly when those distortions are profitable.
Today’s tanker market may ultimately remain strong for years to come.
But if investors are searching for the sector’s most important risk, they may want to spend less time looking at the shipyard orderbook and more time examining the geopolitical foundations of modern tanker trade.
Because when ton-miles matter more than tankers, the most important question is not how many ships are being built.
It is whether the routes that made them profitable will remain the same.
