Bloomberg News

Tanker Safety Risks Rising After Rate Plunge, Ship Owners Say

October 10, 2011

Oct. 10 (Bloomberg) -- A collapse in oil-tanker rates to the lowest level in at least 14 years is increasing the risk of spills because it may encourage some owners to spend less on safety, Tsakos Energy Navigation Inc. and BW Group Ltd. said.

Rates to haul Middle East crude to Asia, the biggest trade route, fell to $674 a day from a record $289,000 in 2007 because of a glut of vessels, data compiled by Bloomberg show. Daily operating costs for the very large crude carriers are $10,670, London-based accountant Moore Stephens LLC estimates.

“The industry cannot cover its operating expenses, and very soon we are going to see safety problems,” Nikolas Tsakos, chief executive officer of Athens-based Tsakos, Greece’s biggest publicly traded tanker owner, said at a conference in London Oct. 6. “If owners have to start cutting corners, pretty soon we are going to see accidents and pollution.”

RS Platou Markets AS, Pareto Securities AS and Dahlman Rose & Co. cut earnings forecasts for VLCCs in the past two weeks, citing the glut. The ships won’t make what Frontline Ltd., the largest operator, needs to break even until at least 2013, according to annual forward freight agreements that traders use to bet on future transportation costs.

“There is a risk that some owners will be forced into savings/cuts” on crew and maintenance, Jens Martin Jensen, chief executive of Frontline’s management unit, said by e-mail today. The risk of a spill “is the ultimate fear we all have and risk to the crew,” he said.

Exxon Valdez

Spills declined almost 90 percent from the 1970s to the last decade, according to the International Tanker Owners Pollution Federation Ltd. The number exceeding 7,000 metric tons averaged 3.3 annually from 2000 to 2009, compared with 9.3 in the 1990s and 25.3 in the 1970s. Spills including the Exxon Valdez in 1989, the worst from a tanker in U.S. history, spurred tougher legislation and improved ship designs.

David Cotterell, a London-based director at the Oil Companies International Marine Forum, representing 86 oil companies, declined to comment. The group was created in 1970 to promote ship safety and cut spills.

Forward freight agreements anticipate returns will be 54 percent or more below the $29,800 a day that Frontline’s vessels need to break even until at least 2013, according to data from the ship owner and Marex Spectron, a broker of the contracts.

“I don’t think it’s in the general market interest to have dangerously low levels for a sustained period of time,” Andreas Sohmen-Pao, Singapore-based chief executive officer of BW Group tanker unit BW Maritime, said by phone Oct. 3. “It’s going to start to raise questions of reliability and dependability, because people have to then cut in areas that are not necessarily good for safety.”

--Editors: Dan Weeks, John Deane.

To contact the reporter on this story: Michelle Wiese Bockmann in London at mwiesebockma@bloomberg.net

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


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