Oil tanker market facing crisis as slump deepens

Many oil tanker owners are struggling to survive as weak freight rates and escalating costs batter profitability with the industry looking for ways to ride out one of the worst ever slumps, a top market official said.
Ship owners went on an ordering spree between 2007 and 2009, bolstered by strong earnings as rates in the tanker market reached a peak of over $180,000 a day for crude oil supertankers before economies worldwide slowed, sending rates tumbling.
"A lot of our very, very high quality members are currently in really dire straits," said Katharina Stanzel, managing director of trade association INTERTANKO, whose members own the majority of the world's tanker fleet.
"In particular, we are seeing very large crude carrier rates are absolutely rock bottom on key routes. So, people are just losing money the whole time," she said in an interview. "That is something that is very worrying."
Average earnings for VLCCs on the benchmark Middle East Gulf to Japan route - the major market barometer - are currently around $790 a day, below operating cost levels of around $10,000 to $12,000 a day, Baltic Exchange data showed.
Despite average earnings sliding to negative levels in recent months and a record low of nearly -$8,000 a day, ship owners have continued to hire their tankers out, aiming to keep their vessels in employment and also ensure they are positioned in places where they can pick up further work.
"We are actually paying oil companies to transport their oil," Stanzel said.
Last month Frontline, one of the world's biggest tanker operators, said it may miss bond repayments due in 2015 and be forced to restructure again if the market's depression continues.
In November top tanker operator Overseas Shipholding Group filed for bankruptcy protection.
INTERTANKO estimated that 60 percent of all VLCCs, those that trade the spot market, had accumulated losses of around $5.5 billion in the period since 2009.
Many banks have been reluctant to seize vessels, which would mean they would have to operate them and instead have extended loan covenants. However, many in the ship industry expect banks to get tougher on repossessions as conditions stay poor and banks feel the pressure on their own credit lines.
"The issue is the oversupply is there - we have too much tonnage. It is not going to go in a hurry," Stanzel said.
The ordering boom saw owners paying up to $162 million for a VLCC in 2008, with values sliding to around $80 million currently, leaving many saddled with huge mortgages in weak market conditions, analysts say.
"It's likely that the independent VLCC owners will be the easiest to get squeezed out of the market or to have to fight for the remaining cargoes in the market not bought by strategic buyers," said Basil Karatzas, chief executive of consultancy and brokerage Karatzas Marine Advisors & Co.
While crude tanker market earnings have seen periods of gains since 2009, rising bunker fuel costs have also taken their toll on bottom lines.
Bunker fuel costs for a VLCC on an average 30-day journey from the Middle East Gulf to Asia have surged to an estimated $1.7 million from under $700,000 in early 2009. Tanker owners face further costs related to fitting vessels with equipment that meets new environmental regulations in coming years.
INTERTANKO said it was looking to ensure the sustainability of the tanker industry, which includes "redrafting the worst terms in freight contracts between ship owners and charterers that helps makes it possible for us to survive, helps makes it fair and helps share the risk equally".
Asked why charterers would agree to better terms on contracts, Stanzel said: "If we break the supply chain because members go to the wall it affects everybody.
"It is the quality tonnage they will lose."
Source: Reuters