Tanker earnings in 2002 unlikely to recover; VLCC players remain static

Feb. 11, 2002
World tanker earnings for 2001 were in near free-fall, dropping by more than 70% from January to December. And no end seemed in sight for this the third drop-and by far the steepest-in 10 years, according to the December report from Clarkson Research Studies, London.

World tanker earnings for 2001 were in near free-fall, dropping by more than 70% from January to December. And no end seemed in sight for this the third drop-and by far the steepest-in 10 years, according to the December report from Clarkson Research Studies, London. That report was the most recently available through mid-January 2002.

Another recent analysis of the tanker industry, this of charterers for very large crude carriers (VLCCs), showed that consolidation among the group in the last 6 years has nonetheless left the players and their shares virtually unchanged.

Poten & Partners Inc., New York, released its study of spot-market tanker chartering companies in January.

Three troughs

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Clarkson compared the current fall in tanker earnings with two previous ones in the last 10 years: February 1991-January 1993 and October 1997-March 2000 (Fig. 1).

Between February 1991 and June 1992 (almost 66 weeks), average daily earnings fell by 75%. In the second major fall in earnings, the low point was not reached for almost 2 years (about 102 weeks) after beginning in November 1997.

In both cases, recovery did come, of course. The first cycle required 7 months to recover only a third of the losses; the second recovery was much faster.

What is unusual about the current decline, says Clarkson, is not that no end is in sight, but that the rate of decline is much faster-over only about 49 weeks to Dec. 1, 2001.

Clarkson also notes, however, that "after an exceptional year in 2000, earnings had much further [sic] to fall." The average earning for all tankers at Dec. 1 was slightly more than $16,700/day, "considerably above the lows reached in the two previous troughs."

Recovery from the current trough is unlikely to reach the heights of late 2000, says the study; "Earnings in late 2000 were exceptional and occurred only because of a series of favorable factors combined."

The world's oil supply in 2000 was 2.6 million b/d higher than in 1999. "There was also a greater proportion of supply from long haul producers resulting in extra tonne miles," particularly for VLCCs. Heavy demolitions in 1999 had also put owners in strong negotiating positions.

Stimulus needed

The tanker industry needs some kind of stimulus. This could come in the form of increased oil demand and hence increased demand for tankers to move the oil. Or, it could come from a decrease through heavier scrapping in the number of tankers to carry existing volumes.

Action in January by the Organization of Petroleum Exporting Countries to reduce shipments in world trade, however, works against the first scenario. And Clarkson forecasts the world's fleet will grow by more than 3% over 2002, even with the chance for heavier scrapping.

The net effect, combined with forecasts for reduced oil demand in 2002, is to present bleak prospects for any recovery in tanker rates soon, says Clarkson.

Industry players

The shape and population of the world's VLCC fleet has changed little over the past 6 years, according to Poten & Partners' analysis (Fig. 2).

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In 1995, the top five charterers accounted for 32% of all VLCC spot cargoes or "fixtures"; the top 10, for about 50%. Poten says possession of about 50 fixtures is required to break into the world's Top 10 VLCC charterers.

The shipping consultant says its records indicate about 95 active charterers, but the 20 smallest charters combined had only 23 fixtures in 1995.

More than 6 years and several consolidations wrought some changes in the population of the Top 5: No. 1 is the Royal Dutch/Shell Group; consolidation of Chevron Corp. and Texaco Inc. into ChevronTexaco Corp. and inclusion of Stena Bulk AB and Stentex UK Ltd. made this combination reach No. 2.

But the combination of Exxon Corp. with Mobil Corp. did not move Exxon from its 1995 No. 3 position.

Another 1995 company, Korea's Ssangyong Shipping remains in the Top 5 but as S Oil Corp., while the "rise of Reliance [Petroleum Ltd.] reflects crude imports to support the massive refinery expansion program in India."

The share of the overall VLCC chartering market by these Top 5, however, is now 29%, virtually unchanged from 1995, in the view of Poten & Partners. "Perhaps most surprising given all the consolidations is that it still takes about 50 fixtures to be in the Top 10-same as in 1995," says the consultant.

And, the Top 20 charterers in 2001 still accounted for almost 70% of all VLCC spot-market fixtures; the Top 30, more than 80%. This shape, the consultant says, is unlikely to change.