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Friday, October 19, 2018


Tanker Market Session, Monte Carlo Tanker Event, Wednesday 12 April 2000

“Latest market trends, including pooling and the Erika impact”


Peter Swift, Director, Seascope Shipping Ltd


Erik Ranheim, Market Research Manager, INTERTANKO

Keynote speaker:

Linda Adamany, Chief Executive Officer, BP Amoco Shipping


Colin Cridland, Director, Simpson, Spence & Young Shipbrokers Ltd

Finn Engelsen, Jr, Head of Analysis, Lorentzen & Stemoco AS

David G Palmer, President and Chief Executive Officer, International

Product Carriers

The nature of the oil markets has been changing steadily over the past three decades, with the oil majors’ share of the ownership of crude production, refinery capacity and product marketing all inexorably declining. As Peter Swift, moderator of the Market Session at the INTERTANKO Monte Carlo Tanker Event pointed out, the tanker industry has been responding to these and other developments such as the consolidation among the major charterers and the drive for quality shipping. As a result the pace of change in the tanker market in the recent past has inevitably been accelerating, not least due to the sinking of the Erika last December. The aim of the market session was therefore to identify the key drivers influencing change and the likely impact of these factors.

As an introduction to the session, Erik Ranheim reviewed the tanker market since the beginning of 1997 when the market was well balanced with a moderate order book and a healthy demand increase. His message was to be less inward-looking and focus more on the behaviour of the players in the market. Despite a healthy demand increase of 90% from the bottom year 1985 to the peak year 1998, the industry had been through several troughs during this period. Year 2000 - the Year of Erika - had started with increasing rates. The much higher rates for new tankers at the beginning of this year, contrary to previous periods, demonstrated a clear change in oil company chartering policies.

Mr. Ranheim said that the "removal" of the Exxon approvals and new attitudes among oil companies might have greater long-term consequences for tanker owners than possible changes in the European legislation. It is a myth that the tanker market is a free and perfect market because it lacks some basic preconditions, such a free flow of information and equal enforcement of a common set of rules. The basic law of economics; "If you try and get something for nothing, you take a risk that you may live to regret", is often forgotten. He believed that increased transparency followed by charterers’ greater dependence on Class records would make the tanker market move towards a perfect market. Such a market is, however, a break-even market where the best performers make some money and the non-performers lose money.

In introducing her keynote speech, Linda Adamany of BP Amoco said that she had been prepared to speak about e-commerce, as this will have a major impact on the way the tanker market functions in the very near future. However, in light of recent developments, notably Erika, she thought it most appropriate to concentrate her comments on health, safety and environmental (HSE) issues. The BP Amoco commitment to these issues is a big commitment, and the company’s reputation in this respect is priceless. As this reputation is entrusted to shipowners, and so many other participants in the Chain of Responsibility have let the system down, it is important that BP Amoco vets every ship. Like tanker owners, BP Amoco believes that the proposed European Commission measures to tighten up port state control and classification society regimes are good but disapproves of the plan to accelerate the phasing out of single hull tankers in European waters. The IMO is the correct forum for such proposals. BP Amoco’s HSE measures are based on a risk assessment approach, said Linda Adamany. It is not a perfect system but it is a very effective system which aspires to perfection. Ultimately, the solution to today’s maritime safety problems must be a collective one, and quality people, including good leaders, are essential.

In his review of the likely impact of the Erika sinking on the tanker market, Colin Cridland reconfirmed its potential for major significance. The French people, through their government, and the EC proposals are the main drivers for change. “The Erika disaster demonstrates the risk presented by old ships” is one of many similar statements in the EC proposals. Irrespective of the outcome of the regulatory debate, further pressure on ageing ships will occur as a result of changes to oil company chartering policies. Colin Cridland looked at the impact of the removal of older tonnage from service on the tanker fleet by sector. For tankers of Aframax size and below, a relatively large percentage of the older ships serve the Mediterranean and UK/continent trades, so the early removal of such tonnage would have the strongest impact on the tanker supply/demand balance in Europe. In the “most likely” scenario outlined by Colin Cridland, oil companies will tighten their chartering policies; the demand for modern tonnage, and hence new ships, will increase; new ships will continue to command a premium in freight rates; and owners will get paid for their commitment to quality, finally.

Looking at the various large tanker sectors, Finn Engelsen held out the prospect for a sustained strengthening of the market over the next two years as the consuming nations seek to renew depleted stockpiles and Asia re-establishes itself as the region showing the most dramatic increase in oil demand. VLCC supply will be tight through the end of 2001, followed by a period in which significant newbuilding tonnage will need to be offset by a further round of scrapping. New demand alone will absorb most of the new VLCCs on order, and the growing likelihood of the need to phase out pre-MARPOL tonnage, either through IMO or EU legislation, will prompt a number of new orders. Similarly, the Suezmax sector should benefit from healthier demand in the VLCC sector over the next two years. The Aframax sector is less prone to the effects of Erika due to the relatively young age of the overall fleet and the oversupply of tonnage, but owners of new ships will still benefit from the underlying oil company unease about older tankers. As ever, oversupply is the shipowner’s worst enemy, concluded Finn Engelsen. Nevertheless, with a judicious attitude to newbuildings and by only ordering against a definite need, the next 10 years for tanker owners can be very much better than the last 10.

David Palmer brought the Millennium Tanker Event to a close with an examination of pooling as a tool to bring about consolidation of the currently fragmented product tanker trades. Consolidation amongst the charterers is driving the 242 different owners of product tankers in the 25-50,000 dwt size range to consider the various forms of aggregating their fleets to stop the users of their services from gaining too much of an upper hand. Pooling and marketing alliances amongst shipping companies are already gaining favour, including amongst the financial institutions, and there are four recognised forms - pool management companies, dominant owner pools, operating mergers and alliances. All allow the participants to engage in trial marriages before making the substantial commitment of resources that mergers and acquisitions entail. Such arrangements bring many benefits, not least in a pooling of costs and a reduction of overheads, and charterers are beginning to recognise the benefits of scale efficiencies, global networks, improved information flows and well-managed fleets. Experience to date and market developments, including e-commerce, point to a growing commitment to pooling and marketing alliances in the years ahead, said David Palmer. In contrast, companies that are fiercely independent and seek to protect “the crown jewels” are likely to be the losers in the race for market share.