Guide for Chartering a Ship - PowerPoint by fhc97632

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									Market Actors & Behaviour
                 by
   Erik.Ranheim@INTERTANKO.com
    Manager Research and Projects
   Copenhagen Business School
     Oslo 19 February 2008 ‘
          Tanker industry

Market
                        Technology




Finance

                            Regulations
Focus on the tanker industry

         Tanker industry carries one of the
         worlds most strategic commodities
         from some of the politically most tense
         areas in the world .

         Oil can potentially cause serious
         pollution .

         After many years with negative or low
         profitability over the last years, the
         tanker industry has during this decade
         made extremely good profit and has
         even received attention in the world
         stock markets
                  Tanker market

      Cargo Owner/ Refiner/Trader
                                                  International
                 Charterer                        Regulations



                                       IMO




Shipbrokers                         Shipowner
                                       Pool/commercial man
IMO
        What is IMO?
• The International Maritime
  Organization (IMO) is the
  specialized agency of the
  United Nations (UN) concerned
  with Maritime Affairs located
  in London, England.
• IMO (Formerly known as IMCO) was established
  under a 1948 United Nations convention that
  entered into force on 17 March 1958.
• IMO currently has 168 member states, 2 associate
  members, 51 Inter-Governmental Organizations
  which have concluded agreements of
  cooperation, and 66 Non-Governmental
  Organizations in Consultative Status with IMO.
      Why is there a need for IMO?

• Shipping is international
• Assets move between
  jurisdictions
• Need for universally
  applied standards


    Without IMO trade would be
             restricted
     What does IMO do?
IMO’s main objective is to
facilitate co-operation
among governments on
technical and legal matters
affecting international
shipping

Work to achieve the highest level of international
standards for maritime safety, maritime security
and protection of the marine environment.

This is accomplished through the development
of international conventions, codes, and
recommendations.
            IMO has adopted
   55 conventions & protocols, including:
• Safety of Life at Sea
  (SOLAS)
• Prevention of pollution
  from Ships (MARPOL)
  6 Annexes
• Preventing Collisions at Sea (COLREGS)
• Loadlines
• Standards of Training, Certification,
  & Watchstanding (STCW)
     IMO Has Developed 25 Codes, Including:

• Ship and Port Facility Security
  (ISPS)
• Safety Management (ISM)
• Standards for Training and
  Watchkeeping
• Maritime Dangerous Goods (IMDG)
• Construction and Equipment of
  Ships Carrying Dangerous Chemical in Bulk
• Solid Bulk Cargoes
• High Speed Craft
• Construction and Equipment of Mobile Offshore Drilling
  Units
          IMO has developed more than 700
       recommendations & guidelines, including:

   Safe access to and working in large
    tanks & large cargo holds
   Emergency towing requirements – tankers
   Medical first aid guide for use in accidents
    involving dangerous goods
   Safe use of pesticides in ships
   Packing Cargo in Freight Containers
   Provisions and Display of Manoeuvring



     Some guidelines/recommendations are
      required to be followed by charterers
                IMO Facts

• Annual Budget 24 m

• Member States fund IMO budget
  through assessments based
  largely on size of fleet
  (% of world’s gross tonnage)
• Secretariat –
      320 Staff Members
      50 Nationalities
             IMO Secretariat


   SECRETARY GENERAL

  Maritime        Legal Affairs and
   Safety         External Relations
  Division             Division

Administrative       Conference
  Division            Division


  Marine             Technical
Environment         Cooperation
  Division
                                Structure of IMO
                                               Assembly (A)

                                                Council (C)

     Legal               Marine          Facilitation                  Maritime Safety       Technical
   Committee          Environmental      Committee                       Committee          Cooperation
                        Protection                                          (MSC)            Committee
                     Committee (MEPC)
                                              Subcommittees
                  Fire          Ship Design                     Safety of         Bulk Liquids
               Protection           and                        Navigation          and Gases
                  (FP)          Equipment                        (NAV)               (BLG)
                                    (DE)

Dangerous Goods,     Radio               Training &             Stability of       Flag State
 Solid Cargoes & Communications         Watchkeeping           Loadlines &       Implementation
Containers (DSC)   (COMSAR)                (STW)              Fishing Vessel          (FSI)
                                                               Safety (SLF)
              IMO Process

Proposal by      Maritime     Approval by
                              Assembly or
  Member          Safety      other Action
   State        Committee          as
                              Appropriate


                Appropriate
               Subcommittee



              Working Group
     Major Issues on IMO’s Agenda

 Air Pollution from Ships
 Role of the Human
  Element
 Goal-based new ship
  construction standards
 Maritime Security
 Member State Assessment
 Ballast Water Management
 Recycling of Ships
     New Approaches emerging at IMO?


• Proactive vs. Reactive
    Goal Based Standards
    Maritime Security
• Performance Based vs.
  Prescriptive
    Ballast Water Management
Delegations to IMO Meetings
   Delegations consist of Government
    and/or Industry/Public Sector Advisors
   Decisions on who goes are made by
    the Head of the Delegation to each
    meeting
   Decisions are based upon specific
    issues to be discussed at each session
   Individuals are recommended based
    on a specific area of expertise or on
    organizational representation
   Expenses to attend IMO meetings are
    normally covered by the individual
      IMO demographics have changed


• Break up of USSR

• Establishment of “Bloc” groups
     European Union
     GOLACC (Latin America)

• Developing nations wanting a bigger say

• Change in world’s fleet
           World’s Gross Tonnage
              Top Ten – 1982

1. Liberia           6. USSR

2. Greece            7. Norway

3. Japan             8. United States

4. Panama            9. France

5. United Kingdom    10. Italy
             World’s Gross Tonnage
                Top Ten – 2007
1. Panama      (4)    6. Singapore

2. Liberia     (1)    7. Greece      (2)

3. Bahamas            8. Malta

4. UK         (5)     9. China

5. Marshall Islands   10. Cyprus
         INTERTANKO’S ROLE

As an NGO*, we represent tanker
industry by:
•   Submitting proposals (w./without co-sponsorship)
•   Written comments on proposals
•   Verbal comments at meetings
•   Participating in working groups
•   Lobbying for support on issues
•   Demonstrating a proactive responsible role



*None Government Organisation
Tanker
market
                    Tanker market
                                200,000
                                                     VLCCs

•   Volatile                    160,000              Suemax
                                                     Aframax

•   Dynamic, and                120,000
                                                     Clean



•   Open market                  80,000


•   Congestions, storage slow    40,000

    steaming, imperfect              0




                                          1.1.02


                                                   1.1.03


                                                             1.1.04


                                                                      1.1.05


                                                                               1.1.06


                                                                                        1.1.07


                                                                                                 1.1.08
    information

                            • Large number of actors
                            • Great variety of players
                            • Unpredictable?
                            • Perfect market?
                Development tanker ownership
                                                100
•   Oil producers                                90
                                                 80
•   Oil companies                                70
                                                 60
•   Traders                                      50
                                                 40
•   Refineries                                   30
                                                 20
                                                 10
                                                  0




                                                      1900
                                                      1910
                                                      1920
                                                      1930
                                                      1940
                                                      1950
                                                      1960
                                                      1970
                                                      1980
                                                      1990
                                                      2000
                                                      2007
              7%                                      End user   Independent
         6%
    4%
                                        • Wilh. Wilhelsen first tanker 1913 –
                                          10 tankers by end 1st WW
                                        • Norwegian pioneers (whale oil)
                                        • Independent owners increased
                    83%
                                          activity in the 1920s, mainly long
                                          term contracts
                                        • Greeks, liberty ships after 2nd WW
    Indep.    Oil   State Oil   State
Seaborne Crude Oil Trade Flows 2006
             Seaborne trade and Middle East oil production

mbd                                                                                                                                    bn tonne-miles

25                                                                                                                                                13,000
                                         Middle east oil production
20                                                                                                                                                10,400


15
                                                                                             Tonne miles                                          7,800


10                                                                                                                                                5,200


 5                                                                                                                                                2,600


 0                                                                                                                                                0
      1970
             1972
                    1974
                           1976
                                  1978
                                         1980
                                                1982
                                                       1984
                                                              1986
                                                                     1988
                                                                            1990
                                                                                   1992
                                                                                          1994
                                                                                                 1996
                                                                                                        1998
                                                                                                               2000
                                                                                                                      2002
                                                                                                                             2004


                                                                                                                                           2008
                                                                                                                                    2006
Oil
market
                        World oil importers - 52.6 mbd - 2006



 RoW              32%                  Mainly open markets for tankers


 China                                 China quickly building up tanker fleet
             7%                        8.3 m dwt 4.6% of world oil tanker fleet


Japan
         10%


Europe            26%                  80% Japanese – long term contracts
                                       43.2 m dwt 11.1% of world oil tanker fleet


  USA             26%              Open markets for tankers

         0    3   6     9   12 15 18

                                       mbd                               Source: BP, various
                   World largest oil exporters – 30.3 mbd
                   35% of consumption - 58% of export
  Canada

  Mexico
                                     Pemex
      Iraq

Venezuela                            PdVSA

   Nigeria

   Kuwait                            KOTC
     UAE

  Norway                             Statoil

      Iran                           NIOC/NITC

 Saudi Ar.
                                     Saudi Aramco/VELA
   Russia                            Gasprom/Sovcomflot
             0.0   2.5   5.0   7.5
                               mbd
             Development Shell controlled fleet

     No tankers
       450

       400
                                                               TC smaller
       350                                                     Owned smaller
                                                               VLCCs on TC
       300
                                                               Owned VLCCs
       250

       200

       150

       100

        50

         0
             66
                  68
                       70
                            72
                                 74
                                      76
                                           78
                                                80
                                                     82
                                                          84
                                                                86
                                                                     88
                                                                            90
                                                                                 92
                                                                                      94
                                                                                           96
                                                                                                99
                                                                                                     07
Marcus Samuel built Murex at Gray’s shipyard in UK 1892
                   Major oil company controlled VLCCs
                     Owned and on long term contract (1 year +)


    m dwt

    250                          1972: 334 VLCCs/35% control
                                 1980: 727     "     /25%   "
                                 1990: 433     "    /23%    "
    200                          2000: 424      "    /19%   "
                                 2003: 439      "    /13%   "
    150                          2007: 520     "    / 6%    "

                                                                          Tokyo Tankers
    100
                                                                          Texaco/Stentex
                                                                          Chevron
    50
                                                                          Mobil
                                                                          Exxon(/Mobil)
     0
                                                                          BP
     1972   1973   1980   1985    1990       1995    2000   2003   2007
                                                                          Shell




Source: J.G. Olssen Kristiansand
                    Major oil company controlled VLCCs
                     Owned and on long term contract (1 year +)

                                                                  no VLCC

      100%                                                          750

                                                                    705         Spot

      80%                                                           660         TC*
                                                                                Oil**
                                                                    615
                                                                                No VLCCs
      60%                                                           570
                                                                            * fixed for one
                                                                    525
                                                                            year or more
      40%                                                           480     **oil include
                                                                            oil companies
                                                                    435
                                                                            and state
      20%                                                           390     owend
                                                                            companies
                                                                    345

       0%                                                           300                  2007
             1972   1980 1985   1990 1995 2000 2002 2004   2006

                                                                          Oil       TC
   Chinese and Middle east companies                                      34%
   increasing their fleets                                                      |



                                                                                Spot
Source: J.G. Olssen Kristiansand                                                45%
        Should oil companies own tankers
 • Vertical integration is most attractive when
   different types of market failure exist that
   threaten profitability. Bringing production in-
   house allows a company to internalise and
   thereby overcome market failures. The strategy
   is not without its own costs in terms of efficiency
   and price .
 • Vertical integration is best where the activity in
   question is complex and hard to define under
   conventional legal contracts.
 • Vertical integration is attractive when outside
   suppliers are few and likely to behave
   opportunistic, exercise market power.

When economics means business, Sultan Kermally
                         Market value biggest oil cos $m
                                 (+ world 2nd 3rd biggest co, one tanker co)

   Frontline       Rank
                                                                 Exxon merged with Mobil,
     Statoil       125
                                                                 small tanker fleet
      Lukoil 95                                                  Shell few tankers
    Rosneft        68
                                                                 BP merged with Amoco –
                                                                 large tanker fleet
  Petrobras
                   50                                            Total merged with
 Conoco Ph.        50                                            Final/Elf, - few tankers
   Chevron         42
                                                                 Chevron merged with
                                                                 Texaco - some tankers
      Total        22
                                                                 ConocoPhilips US Jones
         BP
               11                                                act fleet (expensive)
      Shell 10                                                   Petrobras – large tanker
                                                                 fleet
   Gazprom
               6                                                 Statoil sold tanker
  Microsoft 3                                                    company
        GE
               2
     Exxon
               1
               0           100       200    300     400


                                                          $ bn
Source: FT500
      Why oil companies by each other
 • Horizontal integration merging of firms which are
   at the same level of production or are involved in
   similar processes
 • Horizontal integration competitive to achieve
   positioning of the firm vis-a-vis rivals.
 • Horizontal integration to achieve economics of
   scale.
 • Horizontal integration to acquire technology and
   knowledge




When economics means business, Sultan Kermally
               20 largest spot charterers 2007– 57% of total

          Shell 7.5%
        Exxon 5.3%                                          Among the 20 biggest
            BP 4.2%                                         charterers are:
          Vitol                                             - the major international oil
          Total
                                                               companies (Shell, Exxon,
     Clearlake
      ST Ship
                                                               BP)
    ConocoPh                                                 - typical tradersVitol/
      Chevron                                                   Clearlake),
           IOC                                              - national oil companies
        Valero                                                 (Indian Oil Co/UNIPEC/
           Sun
                                                                Petrobras and
            SK
       Unipec
                                                            - refiner Valero.
       Litasco
    Petrobras                                               Largest market share Shell
       Repsol                                               has 7.5% and Shell is among
          Koch                                              the biggest charters in all
         Citgo
                                                            segments
          Ursa
              0   100   200   300   400   500   600   700

                                                 No fixtures
Source: Poten&Partners
         10 largest VLCC spot charterers – 47% of total
                                                    2007

      Exxon
                                                    Among the 10 biggest charterers are:
      Unipec                                        - Oil importers Sinochem, SK IOC,
                                                      UNIPEC
       Shell
                                                    -Major international oil companies,
        IOC
                                                      Shell, Exxon, BP
                                                    - oil exporters, CPC, VELA
         SK

         BP                                         Largest market share ExxonMobil
                                                    has 7.1% share
   Sinochem

       CPC                                          No Japanese charterers

   ConocoPh                                         Less than half the VLCC fleet is in
                                                    the spot market
        Vela

               0   20   40   60   80   100 120
                                             No fixtures
Source: Poten&Partners
              10 largest Suezmax spot charterers – 48% of total
                                                        2007


      Shell
                                                                 Largest market share
       Sun                                                       ExxonMobil has 3.2% share
  Clearlake
                                                                 Sun US importer
        BP

      Total

    Repsol

  Petrobras

     Exxon

       IOC

   Mercuria

              0   20   40   60   80   100   120   140    160

                                                         No fixtures


Source: Poten&Partners
              10 largest Aframax spot charterers – 47% of total


      Shell
                                                             Largest market share Shell
  Clearlake                                                  has 8.2% share
      Vitol
                                                             Whereas it is the VLCC
     Exxon                                                   market which is
                                                             highlighted, the activity in
      Total
                                                             the Aframax market is 2.3
        BP                                                   times bigger

   ST Ship

  ConocoPh

     Lukoil

   Chevron

              0   50   100   150   200   250   300     350

                                                     No fixtures

Source: Poten&Partners
               10 largest Aframax spot charterers – 47% of total


       Shell
                                                            Largest market share Shell
   Clearlake                                                has 8.2%
       Vitol
                                                            Whereas it is the VLCC
      Exxon                                                 market which is
       Total
                                                            highlighted, the activity in
                                                            the Aframax market is 2.3
         BP                                                 times bigger
    ST Ship

  ConocoPh

      Lukoil

    Chevron

               0   50   100   150   200   250   300   350


                                                  No fixtures

Source: Poten&Partners
               10 largest Clean spot charterers – 36% of total



           Vitol

          Shell                                                        Largest market share the
                                                                       trader Vitol has 7.4%
    ST Shipping
                                                                       share
        Litasco

            BP

         CSSA

       Chevron

      Trafigura

      Clearlake

         Exxon

                   0   50   100   150   200   250   300   350    400


                                                                No fixtures
Source: Poten&Partners
                       Oil Industry stock declining

  Days forward demand


   64

   62

   60

   58

   56

   54

   52

   50
        1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2006


              Low stock – greater volatility – gives oil companies
              less bargaining power

Source: IEA
                VLCC freight rate/Brent Blend oil price
  $/per day freight rate                                                                                                                                                                                $/per barrel oil price
    200,000                                                                                                                                                                                                                                                                      80


                                                            VLCC rate, 250,000 dwt,
    160,000                                                                                                                                                                                                                                                                      64
                                                            AG - Japan

    120,000                                                                                                                                                                                                                                                                      48

                         Oil price, Brent
     80,000              Blend                                                                                                                                                                                                                                                   32



     40,000                                                                                                                                                                                                                                                                      16



         0                                                                                                                                     1-Oct-04                                                                                                                          0



                                                                                                                                                                                 7-Oct-05
              2-Jan-01




                                                            17-May-02




                                                                                                28-May-03




                                                                                                                                    3-Jun-04


                                                                                                                                                          7-Feb-05




                                                                                                                                                                                            13-Feb-06




                                                                                                                                                                                                                                 21-Feb-07




                                                                                                                                                                                                                                                                     26-Feb-08
                         8-May-01




                                                                                                                                                                                                                     17-Oct-06




                                                                                                                                                                                                                                                         26-Oct-07
                                                15-Jan-02




                                                                                    23-Jan-03




                                                                                                                        30-Jan-04




                                                                                                                                                                     10-Jun-05




                                                                                                                                                                                                         16-Jun-06




                                                                                                                                                                                                                                             28-Jun-07
                                    10-Sep-01




                                                                        18-Sep-02




                                                                                                            25-Sep-03




                                    Strong volatility – great uncertainty
Source: IEA
                  Cost of oil freight insignificant
  Gasoline prices at the                                 Real and nominal oil
  pump $/gallon Dec-07                                   price and freight rate
   8.0                                              80
                                                                        Nominal price Arabian Light
                                  Cost elements                         Real Price Arabian Light
                                  making up the     70
                                  gasoline price:                       Nominal freight rates PG-West
   6.0                                              60                  Deflated freight Rates PG-West
                                   Long haul
                                   freight rates
                                                    50
                                   Marketing/
                                   refining/etc
   4.0                                              40
                                   Oil price


                                   Tax              30


   2.0                                              20
                                  Based on Dec.
                                  2007 figures
                                  from IEA and      10

         13%     39%       63%    the Baltic
   0.0                            Exchange           0
          USA    Japan     UK                            73   79   85         91       97          03




    Volatility in the oil market more important than volatility in freight rates
     Oil price much more important for oil companies that freight rates
Source: IEA/Various
                       Oil company vetting

        OCIMF* question whether flag, port and Class
         inspection can be trusted.
        OCIMF has established a comprehensive ship
         database – SIRE** - sharing information
        Both ships and operators inspected
   •     If these entities enforced/followed the rules effectively
         there would not be a SIRE Programme SIRE exists to
         minimise as far as possible, the risk to oil companies
         of chartering
  *Oil Companies International Marine Forum host
  **Ship Inspection Reports Programme database for inspection
  reports submitted by charterers (some 1200 per year) started 1993


Source: Presentation by David Savage SIRE Director, Nov. 2007, INTERTANKO seminar
                       Oil company vetting
        If these entities (Class, Flag/Port State)
         enforced/followed the rules effectively there would not
         be a SIRE Programme
   •     SIRE exists to minimise as far as possible, the risk to
         oil companies of chartering sub-standard tankers.
   •     Rise in Management Cos. resulted in lack of
         knowledge regarding operator, vessel condition and
         standards of operation in the 1980s
   •     Tankers that are never inspected
   •     under SIRE comprise what is called “The Grey Fleet
         (2,000 out of 8,00 tankers)




Source: Presentation by David Savage SIRE Director, Nov. 2007, INTERTANKO seminar
Tanker
owners
                            Tanker ownership

  Europe                              Greece, Norway, Germany; UK


     Asia                             Japan, China, Singapore; HK


N Amercia
                                       Independent ownership concentrated in
                                       few nations
  M East



   Other



     FSU


            0   40   80   120   160



                                  m dwt
                                                   Source: LRFairplay database
                       20 largest tanker owners
         Mitsui                                     33 % of total
           NYK                                      more that 1000 owners
        Teekay                                      489 owners 1 tanker
 Tanker Pacific                                     146 owners 2 tankers
   Ship Fina Int                                    130 owners 10 tankers+
       Anangel
          OSG                                       i.e. great fragmentation
       Euronav
      Dr Peters                                     Strategies:
 Saudi Aramco                                       * Shuttling oil to Japan
       Iran Govt                                    (Mitsui/NYK)
  BW Shipping                                       * Competing for cargoes in
      Dynacom                                       the open market
     AP Moller                                      * Bringing oil closer to the
  China Ship Gr                                     market (Saud Aramco)
    Sovcomflot                                      * Taking advantage if
            BP                                      increased domestic import
      Novoship                                      (CSG/India Gov)
Nat Ship Arabia                                     * Strategic alliance (Dr.
     India Govt                                     Peters, OSG)
                   0   2   4   6   8   10    12
                                                    * Carrying own Cargoes (BP)
                                            m dwt
Source: LR/Fairplay
                     20 largest Aframax tanker owners

      Teekay                       6% share       33 % of total
        AET                                       Some 190 owners
    Novoship                                      67 owners 1 tanker
Tanker Pacific                                    32 owners 2 tankers
          BP
     Minerva                                      15 owners 10 tankers+
    Centrofin
    AP Moller                                     Strong fragmentation
       Torm
    Dynacom
                                                  Aframax tanker best suited for
      Arcadia
                                                  US ports
   Sovcomflot
  Thenamaris
     Genmar
                                                  Pools;
      PDVSA
                                                  Aframax Internal 38 tankers
       Valles                                     8 owners
    India Govt                                    Torm LR2 pool
          OSG
     Lundqvist                                    Teekay 6%, market share,
      Cardiff                                     increased fleet by
                                                  consolidation
                 0     1   2   3        4     5
                                              m dwt
Source: LR/Fairplay
                20 largest VLCC tanker owners

              Mitsui
                                                58 % of total
             Nippon                             Some 120 owners
  Frontline/Ship Fin
            Anangel                             14 owners 2 tankers
     Saudi Aramco                               52 owners 1 tanker
           BW Ship
          Dr Peters
                                                13 owners 10 tankers+
               NITC
            Euronav
     Tanker Pacific
    Nat Ship of S A
               OSG                              Two Japanese owners on top
      Titan Petroch                             Aramco largest oil co
            Hyundai
           AP Moller                            One big pool:
             KOTC                               Tankers International
          Dynacom
          Saudi Mari                            47 VLCC 15 m dwt
               TMT                              TMT bought many tankers
       SK Shipping                               for conversion to dry bulk
                       0   2   4   6   8   10

                                           m dwt
Source: LR/Fairplay
                   End remarks

• Close to a perfect market
• A great deal of
  consolidation but still
  fragmented tankers
  ownership


                              • National oil companies
                                are becoming stronger
                              • Many companies with
                                different strategies
                                makes the market
                                dynamic
                 Tanker market

      CARGO OWNER/ Refiner/Trader
                                               International
               Charterer                       Regulations



                                    IMO




Shipbrokers                  Shipowner
                                    Pool/commercial man
                 Tanker market players

   •   Oil producers (OPEC)
   •   Oil companies
   •   Traders
   •   Refineries



                              • Tanker owners:
                                 – Independent
                                 – State owned
                                 – Oil companies
Tanker
ownership
Tanker market – unique?




           • Large number of
             shippers/charterers
           • Large number of
             receivers

								
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