Not Logged In, Login,

Saturday, October 20, 2018

Market actors and behaviour explained to the Copenhagen Business School

INTERTANKO's Manager Research and Project Section, Erik Ranheim, lectured on 'Market Actors & Behaviour' this week at the Copenhagen Business School’s course for Executive MBA in Shipping and Logistics.


He said that the main actors in the tanker market are the owners, oil companies and the brokers, but that without the IMO, or a similar international institution, trade would end up severely impeded by fragmented, unilateral regulations. Despite some shortcomings, the IMO has been very successful in creating a unique international regulatory regime for the shipping industry, he said. Without such a regime, modern international trade would be impeded as ships move between different jurisdictions. The IMO has been accused by some of being too slow and bureaucratic, but Ranheim argued that international work involving many nations cannot move fast and that even a small step forward in an international context is a major step forward for the industry.


He explained that the tanker market is an almost perfect market, but that market imperfections such as congestion, storage, slow steaming, and imperfect information made it hard to predict. Information on why a market turned may often not be available until later.


He pointed out that the tanker markets are still very fragmented with few dominant players. Teekay has one of the larger market shares in the aframax fleet of some 6%. There are also some large pools representing several owners, the biggest being the Torm pool in the product tanker market and Tankers International in the VLCC market. The independent owners have increased their share of the market and represent more than 80% of tanker ownership.


Ranheim analysed why oil companies may want to own tankers. Vertical integration is most attractive when certain types of market evolution threaten profitability. It is also attractive when outside suppliers are few and likely to behave opportunistically and exercise market power.


On the other hand, the freight rate is only a small part of the delivered oil price, which could also explain why oil companies focus on oil production more than they do on the freight market. The liability of oil pollution has also prompted some oil companies to downsize their tanker operations. Lastly, although recent high tanker markets have been highly profitable for tanker operators, the tanker market has historically produced a low or negative return on capital.


Despite the major oil companies being amongst the world's largest companies, tanker chartering is also quite fragmented. Shell, the largest charterer, only has a 7.5% market share and the 20 biggest charterers represent only some 57% of total chartering, according to Poten and Partners.


Ranheim's presentation can be viewed here or on the INTERTANKO web site under Intertanko Presentations.


or please contact Erik to obtain a copy.