The world requires accountability Global industries must increasingly answer not only to shareholders but to society as well. In particular, large global companies have to demonstrate their commitment to human rights, the environment and corporate transparency. They must be transparent about their own internal business affairs as well as about their dealings with others. The oil majors are no exception.

The major oil companies are among the largest companies in the world, and they are frequently targets for those who would question corporate ethics. Theirs is a business that is potentially harmful to the environment and they must often operate in countries that have doubtful human rights records. As a result, they attract a lot of attention from the media and the general public. Responding to this, they are working hard to demonstrate environmental and social accountability.

Tanker operators make a significant contribution to this image. Roughly 60% of the world's oil consumption is carried by sea, and tanker operators play an important part in the oil industry's accountability. Oil transport is relatively cheap, yet oil shippers cannot afford any mistakes. Torrey Canyon, Amoco Cadiz and Exxon Valdez were oil company-controlled tankers that caused some of the largest and, for their owners, most expensive tanker pollution accidents in history. They led to more stringent regulations and to an outsourcing by the majors of the seaborne carriage of oil to independent tanker specialists. This did not prove to be a panacea, however. The Erika accident demonstrated the vulnerability of oil companies to the consequences of a pollution accident involving a tanker run by an independent firm.

The increasing pressure on oil companies to be accountable to society is being felt by the tanker industry. The oil companies' willingness to pay more for quality tonnage and their rigid vetting procedures are a clear indication of their concern. Their increasing readiness to co-operate with initiatives to improve safety and prevent pollution is seen by many as a positive development.

"Tanker incidents have declined dramatically over the last two decades, with total annual tanker incidents running at one-tenth of their late-1970s levels"

Tanker operators, in turn, have responded by embarking on a drive to improve quality. We are now seeing the results of this initiative. Incidents involving oil tankers are on the wane. Pollution from tankers is declining. Tankers generally have better port state control records than other types of ships. Analysis of tanker incidents since 1978 shows that the number has declined year on year since 1990, when technical, and hull and machinery incidents peaked. Incidents in all categories have declined dramatically over the last two decades, with total annual tanker incidents running at one-tenth of their late-1970s levels. There has been a particularly strong decline in hull and machinery-related accidents.

Most accidents in tanker shipping today are either collisions or groundings, which together accounted for 56% of the incidents logged in 2001. This shows that navigational problems are the main cause of accidents, rather than technical failure. It also underlines the importance of proper training and quality crewing. Tanker operators have led the way in recruiting well-qualified staff and this is reflected in the sustained drop in the total number of tanker incidents caused by human error.

A change of focus
In recent years, the emphasis in the tanker industry has been on age and double hulls. Charterers have become increasingly sceptical about older tonnage, and double-hulled ships are seen as the ultimate safeguard against pollution. Yet, while there were only a few pollution incidents last year, it is worth noting that the most serious spill in 2001 was caused by a brand new doubled-hulled tanker off the Danish coast. The other notable spills in 2001 involved two tankers allegedly smuggling Iraqi oil and the small coastal tanker Jessica, which was trading with unknown class certification and non-mainstream P&I cover.

The amount of oil spilled in 2001 was at its lowest since records began in 1970. The annual volume of oil spilled between 1990 and 1995 varied from 9,000 to 435,000 tonnes, with an average of 153,000 tonnes of oil spilled per year. The amount of oil spilled annually between 1996 and 2001 varied from 9,000 to 79,000 tonnes, with the annual average running at 34,000 tonnes. The worst period on record was from 1974 to 1979, when the yearly average was 372,000 tonnes per year. On their own, these appear significant volumes, but viewed in context they are far less so. Some 2,000 million tonnes of oil are transported by sea every year. Taking additional operational pollution of roughly 20,000 tonnes per year into account, 99.998% of the oil transported by tanker last year arrived safely at its destination.

"It is time to change focus because the safety level has reached a high level and a systematic approach is needed to improve performance further"

At the time of writing, the biggest tanker pollution accident in 2002 involved a new double-hulled chemical tanker that grounded on a rock and spilled bunkers onto nearby beaches.

Source: INTERTANKO

The graph shows that 56% of tanker incidents recorded by INTERTANKO in 2001 were related to collisions and groundings. Several of these incidents were minor and caused no injury or damage. The graph also shows that the main technical problems are engine related

Source: LMIS / INTERTANKO

The graph shows a strong decline in the number of incidents involving tankers. Incidents related to hull and machinery have declined most strongly in the 1990s. Some 40% of the incidents recorded January to mid-March in 2002 involved minor groundings. The figures until 2001 are from Lloyd's Maritime Information Services, 2001/02 figures have been recorded by INTERTANKO

The industry continues to seek ways in which to cut back on spills. Yet once operational performance has reached a certain level, it is increasingly difficult to improve further. Inspections and vetting can stop blatantly sub-standard ships. What, though, of ships that appear fine outwardly, but lack proper procedures, training regimes or systems checks on board? These shortcomings are far harder to detect and demand the implementation of a rigorous procedures backed up by a solid quality assurance regime.

"The modernisation of the tanker fleet is accelerating and by the end of 2002 the larger part of the world's tanker fleet will be double hulled"

Effective procedures and quality assurance are aided by the availability of reliable information and statistics concerning incidents and near misses. Sadly, for the shipping industry as a whole, this information does not exist. Class societies have a great deal of information. Insurers analyse their ships. And some data is duly published. However, the cause of the incident is often not recorded, and the information available is often incomplete. The more information that becomes available, the easier it will be to improve standards even further.

Lack of driving forces in the tanker market
The market forecast for 2002 may be flat, but the medium to long-term outlook suggests rising oil consumption. Oil demand in 2002 is expected to increase only slightly. Matters are not improved for tanker operators by the fact that whatever incremental oil demand there is will be serviced by sources close to the consumption centres.

Whereas increasing oil imports by South Korea, China, India and the US were important drivers in the tanker markets in the 1990s and early 2000s, oil shipments to the three Asian destinations declined in 2001, and the IEA projects virtually flat Asian demand for 2002. Even with an economy that is once again on the up, the projected increase in US oil demand is likely to be less than increase in North American supply.

The situation is exacerbated by forecasts that the Former Soviet Union will continue to push up its oil exports, leaving little room for increased exports from the Middle East, where production is already under pressure as many countries, notably Saudi Arabia, seek to keep oil prices at a reasonable level to balance their budgets.

Source: IEA

Asian oil demand is levelling out after a strong increase since the mid 1980s. IEA project South Korean demand to be flat, China's demand is increasing marginally

Source: BP Review / IEA

Oil exports from the Former Soviet Union are increasing strongly from both the Black and Baltic Seas

The tanker industry is responding to the uncertain market by pushing through the most extensive renewal programme in a decade and a half. Renewal activity at the beginning of 2002 was higher than in 1985, the industry's peak scrapping year, when 30 million dwt were sent to the demolition yards. As a consequence of this modernisation process, the phasing out of much of the world's 1970s-built tanker fleet is far ahead of the schedule set out in the revised MARPOL 13G. This is fortunate, given that up to 60 million dwt will need to be culled from the existing fleet by 2005 to offset the arrival of tankers currently on order.

Not only will the recycling of old tankers help make up for the arrival of younger ships, it will also tip the balance of the world's tanker fleet in favour of double-hulled ships. Assuming that tanker tonnage totalling 20 million dwt is sent for recycling this year, which is a moderate assumption considering the activity over the first two months of 2002, by the end of December the larger part of the world's tanker fleet will be double hulled – 51% against 40% single-hulled. The remaining 9% will come from double-sided and double-bottomed tonnage.

Forward thinking
The tanker industry operates in a complicated, volatile and uncertain world, in which market forecasts are easily made obsolete. What, then, can be said of the future?

"Managing capacity remains a difficult challenge for the industry, which is still fragmented"

Commercially, the tanker industry is in reasonable shape. At present, there is no great surplus of tankers and the introduction of new tonnage is level pegging with the rapid renewal process. Short-term demand prospects remain uncertain, but long-term forecasts still point towards a continued increase in the demand for oil carriers.

Operationally, the tanker sector is healthier than it has ever been. The industry has achieved a high level of safety and has the momentum to improve the situation further, because co-operation between the key players in the industry is better than ever before.

Source: Fearnleys / INTERTANKO

The sales of tankers for recycling at the beginning of 2002 were at a record level since 1985

Source: LR Fairplay / INTERTANKO

The tanker fleet is progressively changing. The figure for 2002 assumes that 20 mil dwt of 70’s built tonnage is removed from the market.
The figure for 2007 assumes recycling according to 13G requirement, i.e. the pre-MARPOl fleet is removed

New and revised regulations such as the ISM Code, STCW Convention and new European directives also provide good instruments to improve safety.

A free market requires law and order, and measures introduced over the last few years are expected to improve the regulatory platform on which the tanker industry rests. Increased transparency, driven by the European Union's class directive, which sets out common rules and standards for ship inspection and survey organisations as well as guidelines for maritime administrations, will be essential to improve safety and help level the playing field. The European Commission considers transparency to be a "fundamental tool to prevent accidents at sea".

Managing capacity remains a significant challenge facing tanker shipping. Over-ordering is a symptom of industry fragmentation. Too many individual owners are deciding to order at the same time. This is confirmed by a look at the current orderbook, which comprises around 600 tankers above 10,000 dwt, totalling 60 million dwt. The orderbook is shared among some 190 different owners, more than 50 of which have one tanker on order and more than 40 of which have two tankers on order. The biggest orderbook by number is 16 tankers on order, the biggest one by tonnage totals three million dwt.

The tanker industry is a mature industry. Its cyclical nature and changing conditions are familiar, as indeed is its tendency to order too many tankers when freight rates are high. Nonetheless, changes in freight rates and ship values due to short-term oil reserve fluctuations, seasonal oil demand variations, currency shifts or arbitrage trading still cause confusion in the market. Long-term shifts too have the ability to surprise, witness increasing FSU oil exports and the rebound of US oil production. Once again it is worth recalling that the only certainty in shipping is that shipping is an uncertainty.