Watching Government: Boom and bust

April 21, 2003
"Expect the unexpected" was the recurring theme of a recent Washington, DC, conference sponsored by the International Association of Independent Tanker Owners

"Expect the unexpected" was the recurring theme of a recent Washington, DC, conference sponsored by the International Association of Independent Tanker Owners (Intertanko).

Michael Tusiani, CEO of the brokerage and consulting firm Poten & Partners, detailed for the international audience a list of "disruptions to normalcy" that have occurred over the past 9 months. These include weather delays, civil unrest in Venezuela and Nigeria, war in Iraq, nuclear power plant shutdowns in Japan, and the Prestige tanker accident.

"In today's environment both shipowners and charterers must deal with heightened unpredictability. How one copes with it will determine one's ability to survive and grow," said Tusiani.

Shorter cycles

A key question tanker owners are asking is whether disruptions to the status quo are becoming so frequent that they can no longer meaningfully predict the profitability of crude volumes on key trade routes.

Conventional wisdom in the tanker business has held that booms usually last 2 years and busts 7 years.

But Adrian McMahon, managing director of Stelmar Tankers (UK) Ltd said that paradigm may be invalid. Looking beyond simple economics, factors such as geopolitics, uncertain regulatory climates, and new technologies mean boom-and-bust cycles may be getting shorter, he said.

"Are we in control of our own destiny?" he asked. Shipowners may find it increasingly difficult to use a shorter boom to finance an inevitable bust.

Oil company view

Robert Curt, general manager of marine transportation for ExxonMobil Corp. said his company plans to continue its policy of maintaining a balance between ownership and chartering to meet "unforeseeable contingencies."

ExxonMobil also looks for improvements in its vetting program to ensure that the company's affiliate operations and third-party charters remain focused on excellence, he said.

"There should be no doubt that we have to operate flawlessly. Too many people have their eyes on our industry, and the consequences of less than perfect operations are severe—and much more costly—than doing it right in the first place," said Curt.

ExxonMobil affiliates continue to own and operate their own tankers, but the company increasingly relies on both term and spot chartered tonnage.

And thanks to high vetting and inspections standards, ExxonMobil has a larger pool of quality vessels to charter with fewer rejections, because tanker owners are learning to meet the company's high standards, he suggested.

ExxonMobil also recently standardized its demurrage system so that an average claim takes 34 instead of 69 days.

During a question-and-answer session, Curt sought to dispel the perception among some tanker owners that oil companies do not want to pay for quality ships. He conceded that some oil traders may still try to use marginal vessels, but in the case of ExxonMobil, there is a "real firewall" between the employees that assess a ship's seaworthiness and those holding a commercial interest in the cargo, he said.