Minutes WS&M Com. Meeting 12 March 2013 in London
Attendance:
Member
Tim Horne, Chairman
David Allen
David Chapman
Mark Linham
Martin Baldock
Peter Liew
Erik Ranheim, Secretary
Company
Teekay Shipping UK
St. James Chartering
OSG UK
Eletson UK
Scorpio UK
AET UK
INTERTANKO
Asked to be excused
Mr. Tomoaki Ichida
Leo Gripari
Christian Østrup
Mariella Bottiglieri
Mitsui O.S.K. Bulk Shipping (Europe)
N. J. Goulandris
Laurin Maritime (America)
Giuseppe Bottiglieri Shipping
I.
New name of the Committee
The Committee agreed that the Worldscale Committee should change its name to the
Worldscale and Market Committee, which is a name that reflects both its traditional role
and the new tasks the Council has asked the Committee to be responsible for.
II.
Terms of Reference for the Committee
The Committee recommended referring to Worldscale in the Aims and Objectives as a
first bullet point:

The Committee will keep under review the Schedule of Nominal Freight Rates
published by the Worldscale Associations and liaise with them to communicate
and make recommendations to ensure that Worldscale remains a useful,
practicable, chartering tool under changing preconditions in the freight market.
The full terms of reference is attached as Appendix I
III.
Election of Vice Chairman
The Committee elected David Allen as Vice Chairman of the Committee.
IV.
Sustainability Index – quantifying the state of the industry
The Committee agreed on the two proposals for graphs presented in the agenda to
visualise the break-even rates and earnings of the industry. For the break-even graph it
was agreed to add figures for an MR and to use 7% as the required Internal rate of
Return, reflecting around 6% bank interest.
The assumptions for the below graph is:
i.
a 20-year lifetime
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Minutes Worldscale & Market Committee Meeting 12 March in London
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ii.
iii.
iv.
drydocking every 5th year, plus one at 18 years
7% capital costs
The Baltic Exchange rates with no adjustment for reduced speed
$/day
Average freight rates 1 -10 years backwards
45,000
35,000
VLCC - Baltic
TD3
Suezmax - TD5
30,000
Aframax - TD7
40,000
25,000
20,000
15,000
10,000
5,000
0
ytd 2013
20122013
20112013
20102013
20092013
20082013
20072013
20062013
20052013
20042013
20032013
20022013
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Minutes Worldscale & Market Committee Meeting 12 March in London
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In addition it was agreed to estimate the accumulated losses for tankers over the last
few years.
The accumulated losses since 2009 for the VLCCs, Suezmaxes and Aframaxes have been
calculated to be above $25 bn.
The assumptions used are:
i.
ii.
iii.
iv.
a 20-year lifetime
dry-docking every 5th year, plus one at 18 years
7% Internal Rate of Return
Using Net Present value Method for calculation
Prices VLCC, Suezmax, Aframax $97.35 m/$60 m /$45 mgiving
Break-even rates, $38,600/day, $27,400/day, $22,100/day
Rates used are estimation by one broker of rates actually obtained in the market
using results from public companies (giving quite higher rates that the first
estimation for VLCCs)
v.
vi.
vii.
AFRAMAX
Assumed
Freight rate
Calculated
Break-even
No
Afras
Loss per year per
Aframax
Loss per year fleet
Accumulated loss
since 2009
2009
16,667
22,100
836
-1,983,167
-1,657,927,333
-1,657,927,333
2010
21,377
22,100
880
-263,964
-232,288,116
-1,890,215,449
2011
13,043
22,100
900
-3,305,630
-2,975,067,391
-4,865,282,841
2012
15,217
22,100
912
-2,512,152
-2,291,082,783
-7,156,365,623
2013
14,130
22,100
912
-597,717
-545,118,261
-7,701,483,884
SUEZMAX
Freight rate
Break-even
No
Smaxes
Loss per Suezmax
2009
26,087
27,400
394
-479,261
-188,828,783
-188,828,783
2010
24,275
27,400
424
-1,140,493
-483,568,928
-672,397,710
2011
16,667
27,400
445
-3,917,667
-1,743,361,667
-2,415,759,377
2012
14,493
27,400
470
-4,711,145
-2,214,238,116
-4,629,997,493
2013
11,232
27,400
476
-1,212,609
-577,201,739
-5,207,199,232
VLCC
Freight rate
Break-even
No
VLCCs
2009
28,261
38,600
540
-3,773,783
-2,037,842,609
-2,037,842,609
2010
34,058
38,600
543
-1,657,841
-900,207,435
-2,938,050,043
2011
14,493
38,600
578
-8,799,145
-5,085,905,768
-8,023,955,812
2012
21,014
38,600
610
-6,418,710
-3,915,413,188
-11,939,369,000
2013
7,971
38,600
625
-2,297,174
-1,435,733,696
-13,375,102,696
Loss per Aframax
Loss/year
Loss/year
Accumulated loss
since 2009
Accumulated loss
since 2009
With regard to MRs, relevant freight rates are missing.
V.
a)
Commercial Issues
Market distortion
There was a long discussion on the apparent lack of professionalism in the chartering
process. In the spot market, the focus of the oil companies is to fix below the last
transaction done no matter the market level, and the link to risk seems to have been
lost. The risk evaluation has to a great extent been separated from chartering and left to
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Minutes Worldscale & Market Committee Meeting 12 March in London
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the vetting section. The oil companies have made transportation profit centres and
freight is traded like a commodity where the price level is not perceived to be linked to
the risk level. The introduction of vetting has probably not only shifted the risk focus
away from the chartering process, but also made it more difficult to lay up a vessel
because of the comprehensive process of obtaining new renewals and introducing the
ship into the market again. Layup has become an option only pending selling a ship for
conversion or scrapping.
It could alleviate the market situation if the requirements related to laying up the ship
and then introducing it to the market again were reduced.
Another aberration is that the tanker market is probably the only industry that offers
ships on subject as a free option and the charterers know how to take advantage of this.
The Committee agreed that the role for INTERTANKO is to create awareness of the
erosion in terms and the distortions created in the market by the lack of transparency.
To do this members of the Committee are encouraged to come forward with stories and
examples of particular situations where charterers are manipulating the market.
b)
Can service from brokers be improved?
It was agreed that INTERTANKO should seek to influence the brokers to provide greater
attention to the needs of owners, both with regard to providing better information in the
chartering process and post-fixture service on, for example, outstanding demurrage.
Another brokers’ representative as a member of the Committee could be useful in order
to open up better contact with the brokers. To obtain better service from brokers,
members are encouraged to communicate examples of special requirement to the
INTERTANKO office.
c)
Can be payment terms be improved?
The Committee agreed that the free line of credit and delayed payments for both freight
and demurrage is a great problem for the industry. It appears that it is the large oil
companies that are often the ones that delay payments the most, whereas the bigger
traders act most professional.
To highlight the problems the Committee members agreed to provide examples to the
INTERTANKO office on:
Mean/median time and time range from completion of discharge to the payment of
freight, demurrage and other claims.
INTERTANKO will use these results to encourage the membership to provide their data to
obtain a better understanding for the problem and to provide pressure on the charterers.
d)
The Worldscale (WS) and bunker prices
The Committee discussed Worldscale. It was agreed that WS functions according to its
purpose, but that there are some misconceptions about the system. The system would
also be more flexible to change if it was only produced electronically on the web without
publishing the WS books.
The Committee agreed that the level of bunker prices provided in the WS book compared
to the actual level in the market do not impact the freight rate level, except at times in
periods of transition from one bunker price level to the next. For each contract the
owners will have to do their own calculations using the current updated figures.
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Minutes Worldscale & Market Committee Meeting 12 March in London
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The Committee further agreed that there is a need for better understanding of the WS in
general and related terms, for example, of fixed differentials in particular.
VI.
Slow steaming
Committee noted the information provided and agreed that INTERTANKO should
continue to highlight aspects involved in slow steaming and encourage the use of the
optimal speed calculator.
VII.
Will Eco-ship ordering add to oversupply?
The Committee noted the information provided.
VIII.
How can rates below OPEX be accepted?
Situations for owners are different and sometimes apparently below cost rates are
accepted because of improved earnings due to reducing speed, by obtaining back hauls
or triangulation or it could also be because a first cargo is needed for a new ship.
However, often depressed rates are accepted in purely in desperation for cash flow.
Charterers will always continue to press for WS below the last done.
IX.
Next meeting
It was decided to have a teleconference meeting end of April to follow up the last
meeting and as preparation for the Council meeting and a full meeting, including a
meeting of the WS Association, in June 2013
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Minutes Worldscale & Market Committee Meeting 12 March in London
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Appendix I
Draft Terms of Reference
INTERTANKO Market Committee
1)

Aims and Objectives
The Committee will keep under review the Schedule of Nominal Freight Rates
published by the Worldscale Associations and liaise with the Worldscale
Associations to communicate and make recommendations to ensure that
Worldscale remains a useful, practicable chartering tool under changing
preconditions in the freight market.
To study and review market-distorting factors relating to transparency and free
flow of information in the market, and factors affecting the sustainability of the
tanker industry.
To keep Members informed about potential market distortions that may affect
the sustainability of the tanker industry.
To ensure that trade processes and tools are balanced, practicable and effective
in order to secure the interests of all stakeholders in the market.
To co-operate and develop a constructive dialogue with all such interested
parties in the tanker industry that may further these aims.
To generate ideas and make recommendations where appropriate, both in terms
of policy and specific cases.





To this end the Committee will:

pay due regard to relevant work being done by other INTERTANKO Committees
and in other bodies outside of INTERTANKO.
work in accordance with INTERTANKO’s anti-trust guidelines.

2)

The Committee will represent the various interests and different geographical
areas of the INTERTANKO membership.
Committee membership should be adapted as found appropriate to maintain the
dynamics, the relevant expertise, and a suitable number of participants.
The members of the Committee shall work with the INTERTANKO Secretariat on
the issues the Committee is tasked with.
Observers or experts within special areas needed by the Committee may be
invited to attend the meetings



3)

Membership of the Committee
Meetings
The Committee will meet when necessary to at any time fulfil its tasks and
obligations.
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Minutes Worldscale & Market Committee Meeting 12 March in London
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4)

The Committee will nominate a Chairman for election by the Council. The term
of office will be a two-year period with the option of a further period of two
years unless other reasons apply.
A Vice-Chairman will also be elected by the Committee.

5)

Travel Expenses
The travel expenses of the Committee’s membership will be paid for by the
Member company.
6)

Terms of Reference
The Terms of Reference shall be approved by the Council.
7)

Secretarial
The INTERTANKO Secretariat will undertake the secretarial and administrative
tasks for the Committee.
8)

Chairman/Vice Chairman
Reporting
The Worldscale Committee will report to INTERTANKO’s Council through its
Chairman.
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