The State of the Tanker Sector

IMIF BUFFET LUNCHEON

Date: Friday 24th February 2017

Venue: Norton Rose Fulbright LLP, 3 More London Riverside, London SE1

Host: Harry Theochari, global head of transport, Norton Rose Fulbright LLP

Speaker: Nikos Tsakos, shipowner and chairman of Intertanko

Subject: The State of the Tanker Sector

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Report by James Brewer

Nikos Tsakos, Shipowner and Chairman of Intertanko

Mr Theochari set the scene by referring to the Norton Rose Fulbright The Way Ahead Transport Survey 2016, with its 200 respondentsfrom all sectors. This posed questions including: are current market conditions generally positive for the shipping industry?

In this context, Mr Theochari looked back to the 2014 version of the survey, when 69% of respondents were confident and positive about prospects. This figure dropped to 33%the following year. In 2016, sentiment dipped further, with 85% taking a negative view. Most respondents were concerned about over-supply of tonnage, but there were worries about financing and economic uncertainty.

Despite the latest survey indicating that only 15%found market conditions positive, what was the response today? “Buy more assets.  I suppose only a shipowner’s brain can understand that,” quipped Mr Theochari.

Dr Tsakos, who has been chairman of Intertanko since 2014, illustrated the dilemma for shipowners by putting up a chart of rate fluctuations for very large crude carriers since 1999. His freight graphs showed a few huge peaks dwarfing many foothills. He compared this market to a marriage that had only “short periods of joy,”parenthetically adding that he was not referring to his personal circumstances.

He examined oil demand growth, which was at its recent peak in 2015, at 2%. In 2017 it was forecast to be closer to 1.4%. “The business is still growing, not as fast as it used to be, but it is ours to lose,” he said. Today shipping stocks are “priced like it was a Black Friday,” he said, alluding to the furious retail discounting the day after Thanksgiving.

At such times, “all shipowners get together and think ‘tanker’. They say, I promise no more [ordering]… I have not had one for six months. And then they run out of the room, they order more, and the chain reaction starts, and your brokers start quoting for you.”

Dr Tsakos outlined the history of Intertanko, which was established in Oslo in 1970. In the last two years membership was opened to the gas sector and a flood of new members joined. Intertanko represents more than two-thirds of the independently owned tanker fleet. Its total coverage now is 330m dwt, or 3,729 vessels. By country of vessel registration, Greece has the greatest number of member companies, 62, and they operate 769 ships.

The main focus of Intertanko among many areas of concernis safety, the human factor, the environment, operations vetting “and we have brought back into the picture commercial sustainability.”Intertanko was co-operating with other organisations of shipowners in areas of common interest.

Dr Tsako spoke enthusiastically of the young generation in the industry – they were more internationally-minded and keen to co-operate.

He referred to impulses to bring in greater trade protectionism around the globe, and said: “I hope this will not be true.”

More than 70% of independent tanker operators’ business was long term. “It makes us worried but profitable. From here, the market looks profitable” given the import needs of China and India. “At the same time, we have the lowest global order book in recent memory” and new legislation that might side-line some older tankers.

He made clear his yearning for “a market that allows us to plan growth.” He warned against fads such as that for super-eco ships, when “everybody ran to buy ships, and destroyed the market.”

In answer to questions, Dr Tsakos said: “We need to keep expectations down. We have had a near 10-year down side with spikes from earnings of $300,000 for a couple of days, then it is down to negative.”

Asked about the effect of the Ballast Water Convention. Dr Tsakos commented: “As a shipowner, we are not for scrubbers.” Questioning the effectiveness of such systems, he added: “We expect the oil providers will be there to provide the right fuel we have to burn. I think that will take some of the marginal business out of the market.”

Adapting a slogan of US president Donald Trump, Dr Tsakosc oncluded with a call to “make tanker rates great again.”

Dr Tsakos is founder and chief executive of Tsakos Energy Navigation (TEN), one of the largest independent transporters of energy, controlling a fleet of 7.2m dwt in modern crude, product and LNG carriers. TEN is Bermuda-incorporated, managed from Athens, and listed in New York and Bermuda.

As the meeting drew to a close, members of the 40-strong audience individually congratulated Dr Tsakos on his presentation, and extended warm thanks to Mr Theochari and his colleagues for their welcome and generous hospitality.