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Mon 1 Nov 2010 11:37 PM

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Tankers face satellite nuclear winter, says Tufton

Tanker owners predicting losses during nuclear winter between 2011 and 2015

Tankers face satellite nuclear winter, says Tufton
TOUGH TIMES: Oil companies have an edge in negotiating freight rates as use of satellites to monitor ship movements gives them better knowledge of tanker availability (Getty Images)

Manager of the world’s largest shipping hedge fund, Tufton Oceanic Ltd said, Oil tanker owners face a five year “nuclear winter” of unprofitable charters as satellite vessel tracking weakens their bargaining power.

Oil companies have an edge in negotiating freight rates as use of satellites to monitor and record ship movements gives them better knowledge of tanker availability, said Andreas Vergottis, research director at Tufton Oceanic, which runs the $1.6 billion oceanic hedge fund. Ship owners haven’t enjoyed similar advances in gathering cargo data, he said.

Hong Kong-based Vergottis said by phone today, “the game of poker bluffing has changed,” predicting losses for tanker owners between 2011 and 2015.

Rental income for supertankers on the world’s busiest route for the vessels, between Saudi Arabia and Japan, today climbed for the first time since June 29 above what industry leader Frontline Ltd needs to break even, according to data from the company and the London based Baltic Exchange. Returns surged more than eightfold last week.

Today returns climbed 31 percent to $33,558 a day, according to the exchange. Frontline said August 27 it needs $30,900 to break even on the carriers once finance costs are included.

In terms of industry standard Worldscale points, rates on the benchmark route advanced 11 percent to 73.62 points, according to the exchange.

Vergottis said, some owners were better able to conceal the availability of their ships in the past, strengthening their negotiating positions. Satellites are reducing their ability to do so, altering the “psychology of chartering,” he said.

Oil companies’ increased ability to monitor which vessels are available coincides with an expansion of the world tanker fleet that Morgan Stanley expects to set a record.

The fleet will swell by 86.5 million deadweight tons in the next two years, equal to about 27 percent of existing capacity, the bank estimates.

The tanker fleet will increase almost 13 percent next year, according to Morgan Stanley. That compares with the forecast for a 1.4 percent increase in oil use by the International Energy Agency, an adviser to 28 nations.

Vergottis said, satellite systems’ emergence will also bolster the efficiency of tankers by as much as 33 percent over the next 15 years. He said, an average tanker will steam as much as 40,000 miles per year loaded with cargo by 2025, up from 30,000 miles this year.

According to Vergottis, in the early 1970s, tankers steamed 47,000 miles a year on average on that basis, . That declined as the oil industry became less consolidated and consequently less efficient.

Vergottis said, satellite tracking will also make container and dry bulk shipping more efficient, cutting freight rates in those markets as well. He said: Improved efficiency will enable the shipping industry to improve its environmental performance.

He said: “If you want to reduce emissions, the lowest cost to do it is through the click of a mouse to make ships more productive.”

The Baltic Dirty Tanker Index, a measure of crude oil transportation costs that also encompasses vessels smaller than supertankers, climbed 0.7 percent to 763 points, the fifth advance in a row.

 

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