expanded role of the ws committee sustainable tanker industry --o-- intertanko council meeting
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Expanded role of the WS Committee Sustainable tanker industry --o-- INTERTANKO Council Meeting London, November 14 th 2012 Erik Ranheim Senior Manager Research and Project Section. New role of the WS Committee the market Sustainability Changing preconditions Market distortion - PowerPoint PPT PresentationTRANSCRIPT
Leading the way; making a difference
Expanded role of the WS Committee
Sustainable tanker industry--o--
INTERTANKO Council MeetingLondon, November 14th 2012
Erik RanheimSenior Manager Research and Project Section
Leading the way; making a difference
1. New role of the WS Committee the market2. Sustainability3. Changing preconditions4. Market distortion5. Meeting the brokers
Leading the way; making a difference
New role of the WS Committee
1. Study and review Market distorting factors relating to transparency and free flow of information
2. Keep members informed about potential market distortions that may affect the sustainability of the tanker industry
3. Ensure that trade processes and tools are balanced, practicable and effective
4. Generate ideas and make recommendations where appropriate
5. Cooperate and develop a constructive dialogue with all such interested parties in the tanker
Sustainability
Leading the way; making a difference
Economics• Profit & loss• Cost saving• Terms and
conditions• Trade growth
Safety and environment • Oil pollution
• GHG emission• ANNEX VI
• Ballast water
World society/humanity• Free market and trade• Economy and welfare• Rules and regulations
• Law and politics
Sustainable
Sustainability - the balancing acts
Free competition/Fair trade
AdministeringNatural resources
Stewardship
Profitability & efficiency versus safety and pollution prevention
Leading the way; making a difference
Sustainability
Operating in today’s unstable market is not good for owners but then, nor is
it good for charterers either. Charterers should start asking
questions about paying rates that are so low as to jeopardise the good
operations of shipowners,Riccardo Barratozzi, Shipping Vice President of ENI Trading & ShippingINTERTANKOHellenic Panel end of March in Athens
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Chain of responsibility/sustainability
Shipowner ChartererClass
Bank Broker
Insurer
Shipbuilder
Flag
Nobody works in a vacuum
Changing preconditions
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Historical VLCC hire and bunker costs
1992 2002 20120%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Bunker
TC hire (+port costs)
Leading the way; making a difference
Mounting losses
• Piracy costs• Overage• Bunkers (LS/SECA) • Laytime• Demurrage• Age
..andNOT only the Supply/Demand balance favour charterers, owners are squeezed on:
2008
2009
2010
2011
2012
-10,000
10,000
30,000
50,000
70,000
90,000
110,000
130,000IRR 6%, docking costs $1-4 m per 5 year pe-
riod, residual value $20m after 25 years
Based on NPV calcula-tions
VLCC spot and break-even rates$/day
Break-even rates
Freight rate TD-3
Year Price OPEX2008 $150 m $ 9,000/day2009 $101 m $ 9,500/day2010 $105 m $ 9,500/day2011 $ 99 m $10,000/day2012 $ 90 m $10,000/day
Market distortion
Leading the way; making a difference
Oil transportation shared risk venture?
Lack of transparency – increase private cargoes
Perception that brokers are the oil companies proxy chartering arm - owner’s broker removed
Negotiation only price driven, long term operational issues suffer – contrary to oils policy?
Owners pay broker fee, but feel theyreceive little added value related to CP notifications, post fixture service, claims, late freight payment, professional expertise…
Leading the way; making a difference
Market distortion
Only the tanker owners feel the full pain of the serious oversupply of tonnage and lack of risk balance in the
market
Charterers take full advantage of their market power and owners’ fragile position to squeeze the owners not
only on rates and terms and conditions.
Owners too weak and fragmented to resist
Need to obtain allies and create awareness of the unsustainable situation before it deteriorates
Leading the way; making a difference
Market distortion and oversupply
Prolonged market distortion and oversupply
Bankruptcy, disruption to the supply of tonnage and
potentially increase the safety risk and damage to the environment
Sustainability threatenedStakeholders in the industry lose trust and credibility
More difficult access to good finance, good expertise and reduced profitability and society will require stricter regulations and control
Leading the way; making a difference
Market distortions – changing preconditions
• Why should this be the case?• Why should the market continue to use Worldscale?• How can brokers increase the value of their service to
the the owners to justify the commission?
Service fees: 1.25% is paid on gross freight, protects the broker and is not comparable to other segments.
INTERTANKO members have therefore started to ask:
Leading the way; making a difference
Public image drives profits
Public image drives profits. Corporations know this and, crucially, so do their shareholders. Michael Woodford - Financial Time 22 October 2012
The tanker owners serve the oil industry
Brokers serve them more
Oil transportation should be a shared risk venture
Meeting the brokers
Leading the way; making a difference
Meeting the brokers
1. The 1.25% broking commission is not really the issue2. Brokers have the same interests 3. Owners often their own worst enemy
• P&C and COAs are offered by the oils to get better rates, but
• Owners accept as they feel privileged to be approached• Rates immediately react to changing bunker prices • Everything depend on the spot market – owners
contribute to diminish it4. Brokers’ service insufficient5. Brokers research could to s greater extent warn about the
risks in the market instead of the opportunities
Leading the way; making a difference
Meeting the brokers
1. The 1.25% broking commission is not really the issue2. Brokers have the same interests 3. Owners often their own worst enemy
• P&C and COAs are offered by the oils to get better rates, but
• Owners accept as they feel privileged to be approached• Rates immediately react to changing bunker prices • Everything depend on the spot market – owners
contribute to diminish it4. Brokers’ service insufficient5. Brokers research could to s greater extent warn about the
risks in the market instead of the opportunities
Leading the way; making a difference
Meeting the brokers
• Oil companies charterers incentivised by beating themarket
• The cancer of fixing at or below last done• SIRE is not only rational quality control but used commercially• Big oils increase exposure to the spot market makes them
vulnerable• The situation is neither seen nor understood
• Oil company chartering departments of the lack experience and understanding
• Oil company boards do not know have tankers on their agenda
Leading the way; making a difference
Meeting the brokers
One of INTERTANKO’s challenges may be to get the message to the tops of the oil
companies that the current situation is not sustainable and that it makes them vulnerable
The brokers were willing join forces
Shared risk venture??
Leading the way; making a difference
Moving forward
INTERTANKO aims to involve all stakeholders to remove distortions in the market to the benefit of everybody
The objective of such engagement may be defined as:
The re-creation of a sustainable tanker industry by
working for transparency, balanced terms and conditions, and allowing for a fair risk sharing amongst stakeholders
Leading the way; making a difference
It’s unwise to pay too much, but it’s worse to pay too little. When you pay too much, you lose a little money — that is all. When you pay too little, you sometimes lose everything, because the thing you bought was incapable of doing the thing it was bought to do. The common law of business balance prohibits paying a little and getting a lot — it can’t be done. If you deal with the lowest bidder, it is well to
The Common Law of Business Balance
John Ruskin (1819-1900)
add something for the risk you run, and if you do that you will have enough to pay for something better.
...prominent social thinker and philanthropist