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Market Actors & Behaviour by
Erik.Ranheim@INTERTANKO.comManager Research and Projects
Copenhagen Business School Oslo 19 February 2008 ‘
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
Shipbrokers
Charterer
Shipowner
Cargo Owner/ Refiner/Trader
Pool/commercial man
IMO
International Regulations
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 Members50 Nationalities
M aritim eS afe ty
D ivis ion
L ega l Affairs andE xtern a l R e latio ns
D ivis ion
A d m in is tra tiveD ivis ion
C o nfe ren ceD ivis ion
M arineE n viro n m ent
D ivis ion
T echn icalC oo p eration
S E C R E T A R Y G E N E R A L
IMO Secretariat
Structure of IMO
Subcommittees
LegalCom m ittee
FireProtection
(FP)
Ship Designand
Equipment(DE)
Dangerous Goods,Solid Cargoes &
Containers (DSC)
RadioCommunications
(COMSAR)
Training &Watchkeeping
(STW )
MarineEnvironmental
ProtectionCommittee (MEPC)
FacilitationCommittee
Safety ofNavigation
(NAV)
Bulk Liquidsand Gases
(BLG)
Stability ofLoadlines &
Fishing VesselSafety (SLF)
Flag StateImplementation
(FSI)
Maritime SafetyCommittee
(MSC)
TechnicalCooperationCommittee
Council (C)
Assembly (A)
IMO Process
Proposal by Member
State
Maritime Safety
Committee
Approval by Assembly or other Action
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 StandardsMaritime Security
• Performance Based vs. PrescriptiveBallast 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” groupsEuropean UnionGOLACC (Latin America)
• Developing nations wanting a bigger say
• Change in world’s fleet
World’s Gross TonnageTop Ten – 1982
1. Liberia
2. Greece
3. Japan
4. Panama
5. United Kingdom
6. USSR
7. Norway
8. United States
9. France
10. Italy
World’s Gross TonnageTop Ten – 2007
1. Panama (4)
2. Liberia (1)
3. Bahamas
4. UK (5)
5. Marshall Islands
6. Singapore
7. Greece (2)
8. Malta
9. China
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
• Volatile• Dynamic, and• Open market • Congestions, storage slow steaming,
imperfect information
• Large number of actors• Great variety of players• Unpredictable? • Perfect market?
0
40,000
80,000
120,000
160,000
200,000
1.1.
02
1.1.
03
1.1.
04
1.1.
05
1.1.
06
1.1.
07
1.1.
08
VLCCsSuemaxAframaxClean
Development tanker ownership
• Wilh. Wilhelsen first tanker 1913 – 10 tankers by end 1st WW
• Norwegian pioneers (whale oil)• Independent owners increased activity
in the 1920s, mainly long term contracts• Greeks, liberty ships after 2nd WW
• Oil producers• Oil companies• Traders• Refineries
7%
4%6%
83%
Indep. Oil State Oil State
0102030405060708090
100
1900
1910
1920
1930
1940
1950
1960
1970
1980
1990
2000
2007
End user Independent
Seaborne trade and Middle East oil production
bn tonne-milesmbd
0
5
10
15
20
2519
70
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
0
2,600
5,200
7,800
10,400
13,000
Tonne miles
Middle east oil production
World oil importers - 52.6 mbd - 2006
Open markets for tankers
China quickly building up tanker fleet8.3 m dwt 4.6% of world oil tanker fleet
80% Japanese – long term contracts43.2 m dwt 11.1% of world oil tanker fleet
Mainly open markets for tankers
Source: BP, variousmbd
0 3 6 9 12 15 18
USA
Europe
Japan
China
RoW
26%
26%
10%
7%
32%
World largest oil exporters – 30.3 mbd35% of consumption - 58% of export
mbd
Saudi Aramco/VELA
Pemex
PdVSA
KOTC
Statoil
NIOC/NITC
Gasprom/Sovcomflot
0.0 2.5 5.0 7.5
Russia
Saudi Ar.
Iran
Norway
UAE
Kuwait
Nigeria
Venezuela
Iraq
Mexico
Canada
Development Shell controlled fleet
0
50
100
150
200
250
300
350
400
45066 68 70 72 74 76 78 80 82 84 86 88 90 92 94 96 99 07
TC smaller Owned smaller VLCCs on TC Owned VLCCs
No tankers
Marcus Samuel built Murex at Gray’s shipyard in UK 1892
Major oil company controlled VLCCsOwned and on long term contract (1 year +)
Source: J.G. Olssen KristiansandSource: J.G. Olssen Kristiansand
m dwtm dwt
0
50
100
150
200
250
1972 1973 1980 1985 1990 1995 2000 2003 2007
Tokyo TankersTexaco/StentexChevronMobilExxon(/Mobil)BPShell
1972: 334 VLCCs/35% control1980: 727 " /25% "1990: 433 " /23% "2000: 424 " /19% "2003: 439 " /13% "2007: 520 " / 6% "
Major oil company controlled VLCCsOwned and on long term contract (1 year +)
|
Source: J.G. Olssen KristiansandSource: J.G. Olssen Kristiansand
no VLCCno VLCC
SpotSpot45%45%
TCTCOilOil34%34%
20072007
Chinese and Middle east companies increasing their fleets
0%
20%
40%
60%
80%
100%
1972 1980 1985 1990 1995 2000 2002 2004 2006300
345
390
435
480
525
570
615
660
705
750
SpotTC*
Oil**
No VLCCs
* fixed for one year or more**oil include oil companies and state owend companies
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)
Exxon merged with Mobil, small tanker fleetShell few tankersBP merged with Amoco – large tanker fleetTotal merged with Final/Elf, - few tankersChevron merged with Texaco - some tankersConocoPhilips US Jones act fleet (expensive)Petrobras – large tanker fleetStatoil sold tanker company
$ bnSource: FT500Source: FT500
0 100 200 300 400
Exxon
GE
Microsoft
Gazprom
Shell
BP
Total
Chevron
Conoco Ph.
Petrobras
Rosneft
Lukoil
Statoil
Frontline
2
3
6
10
11
22
42
50
50
68
95
125
1
Rank
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
No fixturesSource: Poten&PartnersSource: Poten&Partners
Among the 20 biggest charterers are: - the major international oil companies (Shell, Exxon, BP) - typical tradersVitol/ Clearlake), - national oil companies (Indian Oil Co/UNIPEC/ Petrobras and- refiner Valero.
Largest market share Shell has 7.5% and Shell is among the biggest charters in all segments
0 100 200 300 400 500 600 700
UrsaCitgoKoch
RepsolPetrobras
LitascoUnipec
SKSun
ValeroIOC
ChevronConocoPh
ST ShipClearlake
TotalVitol
BPExxonShell 7.5%
5.3%4.2%
10 largest VLCC spot charterers – 47% of total
No fixturesSource: Poten&PartnersSource: Poten&Partners
Among the 10 biggest charterers are:- Oil importers Sinochem, SK IOC, UNIPEC -Major international oil companies, Shell, Exxon, BP- oil exporters, CPC, VELA
Largest market share ExxonMobil has 7.1% share
No Japanese charterers
Less than half the VLCC fleet is in the spot market
2007
0 20 40 60 80 100 120
Vela
ConocoPh
CPC
Sinochem
BP
SK
IOC
Shell
Unipec
Exxon
10 largest Suezmax spot charterers – 48% of total
No fixtures
Source: Poten&PartnersSource: Poten&Partners
Largest market share ExxonMobil has 3.2% share
Sun US importer
2007
0 20 40 60 80 100 120 140 160
Mercuria
IOC
Exxon
Petrobras
Repsol
Total
BP
Clearlake
Sun
Shell
10 largest Aframax spot charterers – 47% of total
No fixtures
Source: Poten&PartnersSource: Poten&Partners
Largest market share Shell has 8.2% share
Whereas it is the VLCC market which is highlighted, the activity in the Aframax market is 2.3 times bigger
0 50 100 150 200 250 300 350
Chevron
Lukoil
ConocoPh
ST Ship
BP
Total
Exxon
Vitol
Clearlake
Shell
10 largest Aframax spot charterers – 47% of total
No fixtures
Source: Poten&PartnersSource: Poten&Partners
Largest market share Shell has 8.2%
Whereas it is the VLCC market which is highlighted, the activity in the Aframax market is 2.3 times bigger
0 50 100 150 200 250 300 350
Chevron
Lukoil
ConocoPh
ST Ship
BP
Total
Exxon
Vitol
Clearlake
Shell
10 largest Clean spot charterers – 36% of total
No fixturesSource: Poten&PartnersSource: Poten&Partners
Largest market share the trader Vitol has 7.4% share
0 50 100 150 200 250 300 350 400
Exxon
Clearlake
Trafigura
Chevron
CSSA
BP
Litasco
ST Shipping
Shell
Vitol
Oil Industry stock declining
Days forward demand
Source: IEASource: IEA
Low stock – greater volatility – gives oil companies less bargaining power
50
52
54
56
58
60
62
64
1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2006
VLCC freight rate/Brent Blend oil price
$/per day freight rate
Source: IEASource: IEAStrong volatility – great uncertainty
$/per barrel oil price
0
40,000
80,000
120,000
160,000
200,0002-
Jan-
01
8-M
ay-0
1
10-S
ep-0
1
15-J
an-0
2
17-M
ay-0
2
18-S
ep-0
2
23-J
an-0
3
28-M
ay-0
3
25-S
ep-0
3
30-J
an-0
4
3-Ju
n-04
1-O
ct-0
4
7-Fe
b-05
10-J
un-0
5
7-O
ct-0
5
13-F
eb-0
6
16-J
un-0
6
17-O
ct-0
6
21-F
eb-0
7
28-J
un-0
7
26-O
ct-0
7
26-F
eb-0
8
0
16
32
48
64
80
Oil price, Brent Blend
VLCC rate, 250,000 dwt, AG - Japan
Cost of oil freight insignificant
Gasoline prices at the pump $/gallon Dec-07
Source: IEA/VariousSource: IEA/Various
Volatility in the oil market more important than volatility in freight ratesOil price much more important for oil companies that freight rates
Real and nominal oil price and freight rate
0
10
20
30
40
50
60
70
80
73 79 85 91 97 03
Nominal price Arabian Light
Real Price Arabian Light
Nominal freight rates PG-West
Deflated freight Rates PG-West
0.0
2.0
4.0
6.0
8.0
USA Japan UK
Long haulfreight rates
Marketing/ refining/etc
Oil price
Tax
Cost elements making up the gasoline price:
Based on Dec. 2007 figures from IEA and the Baltic Exchange
13% 39% 63%
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*Oil Companies International Marine Forum host****Ship Inspection Reports Programme database for inspection Ship Inspection Reports Programme database for inspection reports submitted by charterersreports submitted by charterers (some 1200 per year) started 1993 (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 ownership
Greece, Norway, Germany; UK
Japan, China, Singapore; HK
m dwtSource: LRFairplay databaseSource: LRFairplay database
Independent ownership concentrated in Independent ownership concentrated in few nationsfew nations
0 40 80 120 160
FSU
Other
M East
N Amercia
Asia
Europe
20 largest tanker owners 33 % of totalmore that 1000 owners489 owners 1 tanker146 owners 2 tankers130 owners 10 tankers+
i.e. great fragmentation
m dwtSource: LR/FairplaySource: LR/Fairplay
Strategies:* Shuttling oil to Japan(Mitsui/NYK)* Competing for cargoes in the open market* Bringing oil closer to the market (Saud Aramco)* Taking advantage if increased domestic import (CSG/India Gov)* Strategic alliance (Dr. Peters, OSG)* Carrying own Cargoes (BP)0 2 4 6 8 10 12
India Govt
Nat Ship Arabia
Novoship
BPSovcomflot
China Ship Gr
AP Moller
DynacomBW Shipping
Iran Govt
Saudi Aramco
Dr PetersEuronav
OSG
Anangel
Ship Fina IntTanker Pacific
Teekay
NYK
Mitsui
20 largest Aframax tanker owners
33 % of totalSome 190 owners67 owners 1 tanker32 owners 2 tankers
15 owners 10 tankers+
Strong fragmentation
Aframax tanker best suited for US ports
Pools;Aframax Internal 38 tankers 8 ownersTorm LR2 pool
Teekay 6%, market share, increased fleet by consolidation
m dwtSource: LR/FairplaySource: LR/Fairplay
6% share
0 1 2 3 4 5
Cardiff Lundqvist
OSGIndia Govt
VallesPDVSA
GenmarThenamarisSovcomflot
ArcadiaDynacom
TormAP MollerCentrofinMinerva
BPTanker Pacific
NovoshipAET
Teekay
20 largest VLCC tanker owners
58 % of totalSome 120 owners
14 owners 2 tankers52 owners 1 tanker
13 owners 10 tankers+
Two Japanese owners on topAramco largest oil co
One big pool:Tankers International47 VLCC 15 m dwtTMT bought many tankers for conversion to dry bulk
m dwtSource: LR/FairplaySource: LR/Fairplay
0 2 4 6 8 10
SK ShippingTMT
Saudi MariDynacom
KOTCAP MollerHyundai
Titan PetrochOSG
Nat Ship of S ATanker Pacific
EuronavNITC
Dr PetersBW Ship
Saudi AramcoAnangel
Frontline/Ship FinNipponMitsui
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
Shipbrokers
Charterer
Shipowner
CARGO OWNER/ Refiner/Trader
Pool/commercial man
IMO
International Regulations
Tanker market players
• Oil producers (OPEC)• Oil companies• Traders• Refineries
• Tanker owners:– Independent– State owned– Oil companies
Tanker ownership
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