Tanker Owner BW Maritime Refuses Cargoes as Rentals Plunge

BW Maritime, a Singapore-based owner of 15 supertankers, said it is declining cargoes as a glut of the vessels causes rents to plunge, joining rival Frontline Ltd. in refusing charters.

“This is being done on a case-by-case basis rather than systematically, but we do feel that the current market levels are dangerously low,” Chief Executive Officer Andreas Sohmen- Pao said by e-mail today. “We are not chartering vessels when we feel that the rates are insufficient to cover the operational risk of moving them.”

Frontline, the world’s largest operator, has some ships “drifting around” because rates are too low, Jens Martin Jensen, Singapore-based CEO of the company’s management unit, said July 27. Fuel costs comprise as much as 84 percent of hire payments on some routes, he said.

BW Maritime and Frontline have 62 supertankers between them, representing about 11 percent of the entire fleet. They could transport about 120 million barrels of crude, or almost three months of U.K. demand, which came to 1.3 million barrels a day in 2010, according to BP Plc. BW Maritime’s total fleet of 105 vessels also contains liquefied gas carriers and dry-bulk ships.

Fuel Costs

Owners are contending with the biggest glut of new tankers in 29 years as the fleet expands twice as fast as demand. At the same time, the price of ship fuel that represents their biggest expense has jumped 39 percent in Singapore, driving earnings from the vessels to the lowest level since 2002.

The six-company Bloomberg Tanker Index (TANKER) has slumped 44 percent this year to 208.38, exceeding the 8.5 percent slide by the S&P 500 Index of stocks.

Earnings for the fleet of 566 very large crude carriers, or VLCCs, fell to $9,140 a day for the week ended Aug. 5 on the Saudi Arabia-to-South Korea route, according to Clarkson Research Services Ltd., a unit of the world’s largest shipbroker. That’s the lowest level since the week ended July 5, 2002, its data show.

The tankers transport about 13.8 million barrels a day of oil, according to Clarkson. Total seaborne shipments are 40.5 million, it estimates.

‘Cold Lay-Up’

BW Maritime’s Sohmen-Pao said he’s considering placing some of his largest tankers in “cold lay-up,” a term that normally means vessels are deactivated for at least several months and crew members removed.

More owners of supertankers will do the same in the next several months because rates are unlikely to recover, said Erik Nikolai Stavseth, an analyst at Arctic Securities ASA.

“Right now we’re at a level where even if you take away 15 ships or 20 or 30 ships from the market, it’s not even going to make a difference,” he said. “If you look at what’s happening now with global oil demand, which is taking a little pause, it makes sense that tankers are going to be at the rough end of the stick.”

Vessels are waiting longer in between voyages to find employment, cutting utilization levels to 80 percent, according to Stavseth. Usage must rise to 90 percent before owners can halt a slide in rental rates, he said.

$6,000 Daily

Globally, hire costs for VLCCs, already cutting speeds to lower fuel consumption and lengthen journey times, are between $6,000 and $7,000 a day, around the same level as operating costs excluding fuel, Stavseth estimates.

Longer voyage times effectively curb supply of the vessels, each able to haul 2 million barrels of oil.

Average returns for supertankers shipping crude from the Middle East Gulf to the U.S. have been unprofitable since October, according to data from the Baltic Exchange, a London- based provider of freight costs on more than 50 maritime routes. Returns for the benchmark route between the Middle East and Japan were at negative levels from Aug. 1 through Aug. 9 and surged today to $623 daily, exchange data show.

Unprofitable, or negative, rates mean tanker owners effectively are paying some of charterers’ costs because agreed daily hire rates fail to cover all fuel and operating expenses for a journey.

Hire costs for VLCCs on the Saudi Arabia-to-Japan route slipped 0.2 percent to 45.84 Worldscale points. The points are a percentage of a nominal rate, or flat rate, for more than 320,000 specific routes. Flat rates for every voyage, quoted in U.S. dollars a ton, are revised annually by the Worldscale Association in London to reflect changing fuel costs, port tariffs and exchange rates.

The Baltic Dirty Tanker Index, a measure of costs to transport crude that includes vessels smaller than VLCCs, fell 0.6 percent to 701, according to the exchange.

To contact the reporters on this story: Michelle Wiese Bockmann in London at mwiesebockma@bloomberg.net; Alaric Nightingale in London at anightingal1@bloomberg.net

To contact the editor responsible for this story: Alaric Nightingale at anightingal1@bloomberg.net