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Expanded role of the WS Committee Sustainable tanker industry --o-- INTERTANKO Council Meeting

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

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Expanded role of the WS Committee Sustainable tanker industry --o-- INTERTANKO Council Meeting

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  1. Expanded role of the WS CommitteeSustainable tanker industry • --o-- • INTERTANKO Council Meeting • London, November 14th 2012 • Erik Ranheim • Senior Manager Research and Project Section

  2. New role of the WS Committee the market • Sustainability • Changing preconditions • Market distortion • Meeting the brokers

  3. New role of the WS Committee • Study and review Market distorting factors relating to transparency and free flow of information • Keep members informed about potential market distortions that may affect the sustainability of the tanker industry • Ensure that trade processes and tools are balanced, practicable and effective • Generate ideas and make recommendations where appropriate • Cooperate and develop a constructive dialogue with all such interested parties in the tanker

  4. Sustainability

  5. Sustainability - the balancing acts • Profitability & efficiency versus safety and pollution prevention • Economics • Profit & loss • Cost saving • Terms and conditions • Trade growth • Safety and environment • Oil pollution • GHG emission • ANNEX VI • Ballast water • Sustainable • Free competition/Fair trade • AdministeringNatural resourcesStewardship • World society/humanity • Free market and trade • Economy and welfare • Rules and regulations • Law and politics

  6. 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, RiccardoBarratozzi, Shipping Vice President of ENI Trading & Shipping INTERTANKOHellenic Panel end of March in Athens

  7. Nobody works in a vacuum Shipowner Charterer Shipbuilder Class Chain of responsibility/sustainability Insurer Flag Broker Bank

  8. Changing preconditions

  9. Historical VLCC hire and bunker costs

  10. Mounting losses ..andNOT only the Supply/Demand balance favour charterers, owners are squeezed on: • Piracy costs • Overage • Bunkers (LS/SECA) • Laytime • Demurrage • Age

  11. Market distortion

  12. 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…

  13. 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

  14. 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

  15. Market distortions – changing preconditions 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: • 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?

  16. 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

  17. Meeting the brokers

  18. Meeting the brokers • The 1.25% broking commission is not really the issue • Brokers have the same interests • 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 it • Brokers’ service insufficient • Brokers research could to s greater extent warn about the risks in the marketinstead of the opportunities

  19. Meeting the brokers • The 1.25% broking commission is not really the issue • Brokers have the same interests • 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 it • Brokers’ service insufficient • Brokers research could to s greater extent warn about the risks in the marketinstead of the opportunities

  20. 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

  21. 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

  22. Shared risk venture??

  23. 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

  24. The Common Law of Business Balance 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 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 John Ruskin (1819-1900)

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