Market Structure

Question 1

Explain derived demand in terms of shipping

Answer 1

• Derived demand refers to the fact that the demand for shipping services depends on the demand for the goods being transported rather than being a direct demand itself
• If global oil consumption rises, the demand for tanker shipping increases because more crude oil needs to be transported
• Conversely, during an economic downturn, when consumer spending falls, the demand for shipping drops as fewer goods are produced and traded.
• Shipping is highly cyclical and tied to global trade patterns, meaning that shifts in industrial production, commodity markets, and consumer trends directly impact freight rates and vessel utilization

Question 2

Describe the structure of the oil market pre-1970

Answer 2

• Until the early 1970s, the oil industry was dominated by oil majors, who were thoroughly vertically integrated; from exploration, to production, transport, refining and the sale of refined goods
• These oil majors could control production, distribution and price in competition with one another, enabling them to make accurate forward price predictions and to keep costs to a minimum

Question 3

Describe how the dominance of oil majors impacted the tanker markets pre-1970

Answer 3

• Within the tanker market, oil majors planned transport requirements including quantity, type of product and type of ship, and internally managed the strategy of tankers needed to fit their production and refining programs
• Oil companies owned about 40% of the tanker tonnage they required, and took another 40-55% of required tonnage on period time charters, usually of 3-15 years, with only the remaining 20-5% chartered from independent owners on the spot market
• For example, in 1970, BP owned about one third of its utilized tonnage, time chartered another third, and voyage chartered the balance – operating around 600 ships. At the time, Shell operated 1000

Question 4

Give an example and brief description of seasonality in global oil markets

Answer 4

• Oil refineries adjust the proportions of different products they produce seasonally to match demand
• For example, in the US, more gasoline is needed during summer and more heating oil is needed in winter; US refineries produce more gasoline during the US driving season (late May – early Sep)
• The same pattern applies in Europe, however to a lesser extent as Europe does not have an equivalent ‘driving season,’ the distances travelled are generally smaller, more use of public transport is made, and cars are generally smaller and more efficient
• Although US cars are becoming more efficient, the country still accounts for 10% of global gasoline demand
• This variable product mix influences the choice of crude oil required for US refineries at any given time of year

Question 5

Give an example of how tanker trades are becoming less relevant in global energy supply

Answer 5

• The increased popularity of AC, which already accounts for 10% of global electricity use and is expected to triple by 2050 (according to IEA), has increased summer energy demand in the developed world
• The proportion of electricity produced by burning oils has fallen to 10% globally from 30% in 1990, making tankers less relevant in energy production as other fuels are found

Question 6

What role did independent tanker companies play prior to the market disruption of the 1970s?

Answer 6

They provided both time and spot charters, acting as a buffer to cover peak demand.
In 1973, around 75% of the independently owned tanker fleet was on time charter to oil majors

Question 7

How did the structure of oil majors’ fleets benefit independant tanker owners prior to the market disruption in the 70s?

Answer 7

The high proportion of vessels on time charter (around 75%) provided a guaranteed income, enabling owners to finance and build new ships, keeping the fleet’s average age lower

Question 8

What caused the major market disruption in the 70s?

Answer 8

The organization now known as OPEC nationalized their oil reserves. Oil majors redelivered their time charter tonnage or sold their own ships to release capital for exploration and production, causing serious financial challenges in the industry, leading to distressed sales in the second-hand tonnage market.

Question 9

Why did oil traders emerge in the 1970s?

Answer 9

As OPEC countries nationalised their oil production, oil traders thrived as they could independantly negotiate spot or short term purchases directly with producers outside of contract prices that had been imposed by oil majors

Question 10

How did the growth of oil traders influence the tanker market in the late 70s/80s?

Answer 10

• Traders struck more one-off deals than the majors had, and therefore used the spot tanker market to move the cargoes they’d bought and sold
• In times of volatile prices, traders’ preferences were to load either half million or 1mb parcels to allow for greater flexibility of sale, leading to aframaxes utilisation as tramp vessels

Question 11

Describe how a fleet owner can use speed in reaction to falling or rising tanker markets

Answer 11

Vessel speed is one of the easiest factors for an owner to control. When bunker prices are high or market rates are low, owners may slow down their fleet to reduce fuel costs. Conversely, when freight rates are high, owners may speed up their vessels to complete voyages faster and secure new employment sooner, maximizing earnings at the higher rate

Question 12

Explain how trade pattern effects efficacy of tanker markets in the fromat of an essay plan (introduction, 5 paragraph headings, and a conclusion)

Answer 12

Trade patterns significantly impact the efficiency of tanker markets by influencing vessel demand, route optimization, and freight rates.
1. Trade flow stability vs volatility (stable routes lead to predicatable demand allowing for efficent fleet deployment and stable freight rates; volatile routes caused by sanctions/etc create uncertainty and may lead to longer ballast legs)
2. Voyage efficiency and ballast legs (tankers are most efficient operating on triangulated routes to minimise empty return voyages; shifting supply sources will lead tankers to travelling longer distances without cargo)
3. Seasonal demand fluctuations (increased winter demand in the NH; weather delays)
4. Port/infrastucture delays (long turnarounds at ports in key regions such as China or the USGC reduce overall mkt efficiency; bottlenecks at canals force tankers to take longer alternative roiutes, increasing costs and reducing avalible tonnage)
5. Shifting production/demand centres (e.g. increased USGC VLCC demand due to higher crude exports)

Conclusion: fficient tanker markets depend on predictable trade flows, minimal ballast legs, and well-functioning infrastructure. Disruptions or shifts in trade patterns can cause inefficiencies, impacting freight rates, vessel availability, and overall market stability.

Question 13

How do stable and volatile trade routes impact the efficiency of tanker markets?

Answer 13

Stable trade routes, such as the Middle East to Asia for crude oil, create predictable demand, allowing for efficient fleet deployment and steady freight rates. Tanker owners can plan voyages more effectively, reducing idle time and optimizing ship utilization. However, when trade flows are disrupted—due to geopolitical tensions, sanctions, or shifting energy policies—uncertainty increases. This can lead to inefficiencies such as vessels traveling longer ballast legs (empty return voyages), increased waiting times at ports, and greater fluctuations in freight rates, all of which reduce the overall efficiency of the tanker market.

Question 14

What role do ballast legs play in the efficiency of the tanker market?

Answer 14

A tanker market operates most efficiently when vessels can optimize their voyages to reduce ballast legs—periods when a vessel is traveling without cargo. Ideally, tankers follow triangulated routes, allowing them to pick up cargo in different locations and minimize the time spent sailing empty. However, if major oil-importing regions shift their sources of supply—such as Europe reducing its imports of Russian crude—tankers may need to travel greater distances without a backhaul cargo, leading to increased fuel costs, wasted time, and reduced overall efficiency in the market.

Question 15

How do seasonal demand fluctuations affect tanker market efficiency?

Answer 15

The demand for oil and petroleum products varies seasonally, impacting the efficiency of tanker markets. During winter months, oil demand in the Northern Hemisphere rises due to heating needs, increasing tanker utilization and freight rates. Conversely, during periods of lower demand, tankers may struggle to find employment, leading to lower utilization rates and a more inefficient market. Additionally, severe weather conditions, such as hurricanes or ice formation in key shipping lanes, can disrupt tanker schedules, causing delays in port operations and reducing the overall efficiency of the fleet.

Question 16

How does port congestion and infrastructure affect tanker market efficiency?

Answer 16

Efficient trade patterns rely on well-developed port infrastructure and smooth turnaround times. When congestion occurs at key terminals—such as in China or the U.S. Gulf Coast—tankers are forced to wait longer to load or discharge their cargo, delaying subsequent voyages. Additionally, bottlenecks at critical waterways, like the Suez or Panama Canals, can force vessels to take longer alternative routes, increasing costs and reducing the availability of tanker tonnage in the market. Poor infrastructure, slow customs procedures, or inadequate storage facilities further reduce efficiency by prolonging turnaround times and disrupting scheduling.

Question 17

How have shifting oil production and demand centers impacted tanker market efficiency?

Answer 17

Changes in global oil production and refining hubs have reshaped tanker demand and efficiency. For example, the rise of U.S. crude exports has increased the need for VLCCs (Very Large Crude Carriers) to transport oil across the Atlantic, leading to new trade patterns. Similarly, if major refining operations relocate closer to consumption centers, tanker routes may become shorter, reducing overall ton-mile demand. On the other hand, if production moves to more remote locations, tankers must travel longer distances, which can increase costs and reduce market efficiency.

Question 18

How does the wait time between vessel fixtures impact the tanker freight market?

Answer 18

Shorter wait times indicate strong market demand and higher rates, while longer wait times signal oversupply, leading to lower rates and reduced efficiency in the tanker market.

Freight Rate Volatility – When ships experience long wait times between fixtures, it indicates excess vessel supply relative to demand, leading to lower freight rates. Conversely, when wait times are short, vessel availability tightens, pushing rates higher.

Market Efficiency – Frequent delays between charters reduce the overall utilization of the global tanker fleet, making the market less efficient. Owners may need to reposition vessels or accept lower-paying voyages to avoid prolonged idle periods.

Operating Costs and Cash Flow – A vessel that remains unfixed for extended periods still incurs operational costs (crew wages, maintenance, insurance, etc.) without generating revenue. This strains cash flow for owners and may force them to accept lower rates to keep ships employed.

Charterer Bargaining Power – When many vessels are waiting for employment, charterers have greater negotiating power, as owners compete for available contracts. However, in a tight market with minimal wait times, owners can demand higher rates and better terms.

Fleet Utilization and Layups – If wait times become excessive, some owners may temporarily lay up vessels (taking them out of service) to reduce operational costs. This can gradually tighten supply and help stabilize or increase freight rates over time.

Question 19

Describe the impact ship size has on trade routes

Answer 19

In short, the further cargo needs to be shipped, the larger the vessel needs to be to carry it economically in order to take advantage of economies of scale. If commodities are produced far away from the consuming area, transport costs per unit must be as low as possible to remain competitive against products from nearby. Larger ships make it easier to carry goods over longer distances within physical port restraints (such as draught, beam or LOA)

Question 20

Discuss the weaknesses of pipelines as a method of shipping oil

Answer 20

Particularly in the Middle East, pipelines have affected the structure of the tanker market since the 80s, but political instabilities mean that these can be vulnerable
One example is the ESPO pipeline; this is in the Far East and exports Russian oil from Siberia via the port of Kozmino to the Pacific
* One factor to consider is the cost of pumping oil through pipelines, the cost of creating pump stations, and the energy required to operate them
* Other weaknesses of pipelines include:
* Vulnerability to attack
* Damage at one point impacts the whole pipeline
* Increased handling cost, e.g. pumping en route
* Low/fixed capacities
* Pipeline fees
* Contamination risk (e.g. organic chlorides in the Urals pipeline)

Question 21

Who are the three main players in the chartering market?

Answer 21

The three main players are owners, charterers, and brokers. Owners provide vessels, charterers hire them for cargo transport, and brokers facilitate negotiations between the two.

Question 22

Can an organisation act as both an owner and a charterer?

Answer 22

Yes, some organisations operate as both. For example, oil majors typically act as charterers but may own vessels as well. Similarly, shipowners may charter in additional tonnage to cover contracts when their own vessels are unavailable.

Question 23

How do companies manage surplus or out-of-position tonnage?

Answer 23

Charterers may re-let vessels under their control when they are out of position or temporarily surplus, effectively taking on the role of an owner. Shipowners may also charter-in vessels via time charter (TC) or spot contracts to meet their contractual obligations (spot charters are usually only used to cover single legs of CoAs when an owner’s vessels are all out of position)

Question 24

Why is good market information critical in chartering?

Answer 24

The chartering market operates in a free-market environment, making access to real-time information essential. Owners need to evaluate available cargoes in their region, potential ballast opportunities, market rates, and competition to maximize profitability.

Question 25

What role do brokers play in the chartering market?

Answer 25

Brokers provide essential market intelligence and facilitate deals between owners and charterers. They help owners assess available cargoes, market rates, competition, and alternative trade routes. In complex markets, owners may rely on multiple brokers for a single trade.

Question 26

How do oil majors interact with the chartering market?

Answer 26

Oil majors typically do not negotiate directly with shipowners. Instead, they work through selected brokers, known as panel brokers, to manage their chartering requirements and stay informed on market conditions.

Question 27

Why do most companies rely on brokers rather than in-house teams?

Answer 27

Maintaining an in-house brokerage team with 24/7 worldwide coverage is expensive and impractical for all but the largest owners and charterers. Additionally, firms acting as both brokers and principals may face information blockages from competitors, limiting their market insight.

Question 28

Why and how do oil majors avoid chartering substandard vessels?

Answer 28

* Oil pollution events are likely to lead to intense criticism of oil companies * To reduce this risk/exposure, companies maintain internal databases of tankers they may look to charter * This information usually includes SIRE reports (which tracks vessel inspections) and the ship’s Q88 (a form filled out by the shipowner or operator and includes data about the vessel's characteristics, equipment, safety systems, and operational capabilities) * Oil majors further avoid chartering substandard vessels by employing internal vetting procedures * Many ship owners prefer to fix with oil majors rather than run the financial risk of dealing with lesser-known charterers despite the higher vetting requirements

Question 29

Define and explain laycan

Answer 29

Laycan is short for "laydays and cancelling date." **Laydays**: The earliest date the charterer expects the ship to be ready for loading. **Cancelling date** (or "cancelling"): The latest date the charterer will accept the ship's arrival for loading. The laycan window is the agreed-upon time frame during which the ship must arrive at the loading port and be ready to load. If the ship arrives before laydays, the charterer doesn’t have to accept it yet. If it arrives after the cancelling date, the charterer has the right to cancel the contract.

Question 30

What factors should be considered when choosing a vessel to load multiple grades?

Answer 30

* Number of pumps, number of tanks * Pipeline system * Hull strength, trim and ballast (when deciding which order to load/discharge in) * Heating capability * Where an owner has agreed to carry multipple grades, it is their responsibility to ensure they are carried safely - charterers may request a stowage plan, especially in chemical trades, to assess safety/contamination risks/what grades are to be carried in adjacent tanks

Question 31

What does "trim" mean on a ship, and why is it important during cargo operations?

Answer 31

Trim is the difference in how deep the ship sits at the bow (front) vs the stern (back). A ship can be 'trimmed' by the stern, by the bow, or be on even keel. Trim affects the ship’s stability, structural stress, and how efficiently cargo can be loaded or discharged — especially since pumps may not function properly if the trim is too extreme. Trim is controlled by carefully planning the loading/discharge order of cargo grades and adjusting ballast water to keep the vessel balanced and safe throughout the operation. Hull stregth should also be considered to avoid over-stressing the structure as well as ballast (which can be used to adjust trim and improve stability)

Question 32

What is the main role of a tanker broker, and what additional services do they provide?

Answer 32

A tanker broker acts as a communication link between shipowners and charterers, helping to facilitate a free and efficient market. They collect and distribute market information, may assist in negotiations, and often offer post-fixture operational support

Question 33

Summarise a London broker's typical day

Answer 33

Handover from Asia Read overnight messages to establish a picture of overnight developments, potentially adding any fixture information into the company’s database Contact list of owners; advise them of market information (it is good practise to stay in touch with owners even when they do not have a vessel to fix). Most brokers will also be in contact with some charterers, usually those particular to their main region of focus Brokers should know their principles and whether or not they’ll want a full synopsis of current market conditions, and which developments will interest specific individuals. Maintaining good relationships with principles is key; meeting regularly in person etc. Problems are more easily resolved by two people who know each other Brokers then need to update lists of tonnage and cargoes available, and keeping their owners up to date constantly (proactive communication is required to maintain a competitive edge – it is important to be seen doing business in their principles’ areas). 2pm GMT is 9am EST; this is when London brokers will start passing information to NY based brokers The market usually closes around 6pm, bar late duty/last minute negotiations.

Question 34

Name key tanker chartering hub cities/locations

Answer 34

London, Tokyo, Beijing, Shanghai, Hong Kong, Seoul, Singapore, Piraeus, Genoa, Paris, Hamburg, New York, Connecticut, Houston, Los Angeles, Australia, India and the MEG

Question 35

What are some examples of unethical broking practices?

Answer 35

* Using ploys to gain business * Working out when a charterer’s next cargo is likely to be and quoting it to an owner before the cargo is ready to work * Using the name of the charterer * Working/putting vessels on subs without the principle’s authority

Question 36

What is typical commision/brokerage?

Answer 36

* Commission is usually 1.25% address plus 1.25% brokerage, with 5% being the top end * Low commission levels encourages the development of small, independent brokerages

Question 37

What is a recap and what does it stand for?

Answer 37

The final fixture is referred to as the ‘recap,’ short for fixture recapitulation

Question 38

Where are charter parties still being drawn up and signed? Why has this been phased out in most areas?

Answer 38

* Fewer CPs are being drawn up and signed (or ‘executed’), but are rather added as an administration clause during negotiation, allowing recaps to be sent promptly * Exceptions to this are Brazil, India and South Korea where charterers will generally insist on an executed hard copy of the charter party for tax law

Question 39

How is the original recap stored and protected?

Answer 39

Recaps are stored electronically – once principles log on and approve what has been agreed, the document is watermarked ‘original’ and locked. This can be printed and disbursed as required

Question 40

What are the two parts of most standard charterparty forms?

Answer 40

Widely used standard CP forms such as ASBATANKVOY usually consist of two parts; the first is a series of blanks relating to the key terms of the fixture, which must be agreed during negotiations, and the second is the detailed terms and conditions (which are usually unaltered, or with minor adjustments)

Question 41

What additional terms may be included?

Answer 41

Many charterers’ companies will have additional terms covering matters not fully specified on the standard form, and imposing duties, terms and obligations on the shipowner In times of stronger markets, owners have more bargaining power over these additional terms, and may add their own

Question 42

Why is WSc used in tanker trades?

Answer 42

* In tanker markets, it is usual for the cargo to be sold at least once between loading and discharge, meaning that the destination of the vessel will not be known until after it has sailed from its load port * Charterparties will typically define discharge areas, e.g. NWE, or ranges, e.g. any safe port between Bordeaux-Hamburg * All of these ports have different costs for the same ship, meaning it’s impossible to calculate total freight due for every possible port * Instead, WSc is typically used, which takes into account different port costs and steaming times * For any given WSc rate, the owner will earn roughly the same time charter return

Question 43

How/when was WSc created?

Answer 43

Tanker freight rates were introduced by the US and UK in WWII to enable tanker voyages to be performed without having to calculate each individual $/t rate for multiple possible discharge ports. The US version was called the USMC and the UK’s MoT These indices evolved into the New Worldwide Tanker Nominal Freight Scale, or Worldscale for short The present method of calculation was established in 1989, the basic rate is described as the flat rate of WS100, so that a rate of WS120 is 20% more than the flat rate

Question 44

Describe the functions of the Worldscale Association

Answer 44

The Worldscale association revises its schedule once a year on Jan 1st, listing over 400,000 possible voyages The Worldscale association’s corresponding terms and conditions have become industry standard The association adds new routes according to demand Traditionally these rates were published in book format, however the last book issued was 2021. All rates are now quoted on the website and calculated automatically, making a broker’s job quicker/easier

Question 45

What vessel information does the worldscale association use when calculating its rates?

Answer 45

The Worldscale association uses a hypothetical vessel of 75,000dwt, steaming at 14.5kts. Bunkers are calculated on 55 tonnes of 0.5% VLSFO per day, plus 100 tonnes per round voyage (for manouvering, waiting time and as a safety margin) and 5 tonnes per port involved. Since the changes in MARPOL regulation, the calculation is based on 0.1% LSMGO in emission control areas. Bunker prices used are the average from 1st Oct - 30th Sep prior to publishing

Question 46

Besides vessel size, speed and bunkers, what other factors are considered in WSc calculations?

Answer 46

* Total port time of four days per round trip, plus 12 hours for each extra port * Port costs, supplied by port agents and port authorities * Canal transit time; 30hrs for the Suez, 24 for Panama * Canal rates, under fixed rate differentials

Question 47

What is the daily rate WSc flat is aiming for in its calculations?

Answer 47

$12,000

Question 48

How does WSc work when there are alternative routes?

Answer 48

Where different routes can be taken (e.g. transiting via the Suez vs the Cape), two rates are shown, and the rate to use must be agreed by both parties

Question 49

What are the fixed rate differentials included in the WSc calc?

Answer 49

Fixed rate differentials are additional costs added to freight that are not altered by the WSc rate. E.g. if a vessel is fixed at WSc75, the charterer would still pay 100% of the fixed differentials. These cover complex/specific tariffs

Question 50

Explain how to calculate total cost of a voyage where that voyage has a fixed differential added

Answer 50

* Multiply the worldscale rate by the agreed percentage * Multiply this with the qty to be carried * This is total freight without the fixed diff * Multiply the fixed diff rate with the qty * Add the result of this to the total freight previously calculated to get the full cost

Question 51

Summarise some key benefits and pitfalls of the WSc system

Answer 51

* Worldscale is an easy reference point for the strength of the market; if a route goes from WSc 50 to WSc 55 it’s easy to see a rise in the market * WSc does supply a list of demurrage rates, however it is more common to agree a lump sum per day * By agreeing a WSc rate to any port within a range, the owner knows any additional steamtime or port costs are accounted for in the calculation, and that their daily return will be very similar regardless of which port is used within that range (note that extreme differences in port costs can impact daily rate on shorter voyages) * WSc calculations are all based on their standard ship; if the actual vessel varies in size, speed or fuel consumption, the daily rate can be considerably different from WSc’s goal rate of $12k/day * On larger ships, port costs on short trips are disproportionate compared to smaller ships

Question 52

What is overage and how is it calculated?

Answer 52

* Overage is an excess payment to the shipowner when a charterer loads more cargo than agreed in the charter * The payment is always WSc100, regardless of the rate in the charter * Bonus contribution to earnings that cannot be budgeted for

Question 53

What is TCE?

Answer 53

Time charter equivalent - the daily earnings of an employed vessel. WSc aims to normalise this to around $12k/day.

Question 54

Explain why, in times of strong freight, it is better for an owner to take several short voyages with high port costs rather than one long voyage

Answer 54

* If a vessel is 80kt and does 5 very short voyages between ports with very high port charges and the WSc rate is high (e.g. 300) the owner will make a lot of extra money; this is because the element in WSc allowing for port charges is based on WSc100, and the owner will be paid that three times over. This can lead to a higher TCE rate than a longer voyage at WSc300 * E.g. – if WSc 100 is $5/t and port costs are $1/t, the owner’s remaining freight is $4/t. If WSc 300 is paid, equivalent to $15/t, the owner still only has to pay $1/t, leaving $14/t – a large amount of extra profit * Similar concepts are true even with cheaper ports; in the E Med, suezes often load at Sidi Keriri, where port costs are 0, or at Ceyhan, where they are high. In times of strong markets, it is better for owners to load at Ceyhan, whereas in weaker markets it’s better to load at Sidi (at WSc 60 for example, 60% of 0 is still 0; whereas they’d have to accept a 40% loss of port costs for loading at Ceyhan)

Question 55

Describe the opportunities presented by the 2021 UK light dues cap

Answer 55

* UK light dues are capped at 40k net tonnage, at 0.39 GBP/T, and only payable on a maximum of 9 port calls per year * This means max port costs in the UK for a year is 40kt x 0.39 = 15,600 GBP * N Sea Afras can easily do 50 trips in a year (Sullom Voe > Rotts round trip is approximately 1 week), and 40 of those could be in the UK, making ~30 of their trips' port costs free * In effect, shipowners have hefty discount for the majority of their UK trips taken (around $3,345 per day based on an afra doing 50 trips, 40 of which include UK stops)

Question 56

Why/when are Average Freight Rate Assesments used?

Answer 56

* AFRA rates have been published continuously by the London Tanker Broker’s Panel since 1954 * They are the only assessments of their kind recognised by tax authorities as an acceptable method of charging freight between affiliated companies of multinational groups * They are also used by government agencies to assess the freight element in various types of oil sale agreements

Question 57

What rates are published as part of Average Freight Rates (groups of tonnage)?

Answer 57

They are published on the first business day of each month and cover the following Metric dwt groups: * Handy; 25-42kt * MR; 42-60kt * LR1; 60-80kt * LR2; 80-125kt * Suezmax; 125kt-185kt * VLCC; 185-325kt In each of the groups, tonnage is split into three categories; long term charters, short term charters and single voyage charters

Question 58

How are AFRA rates calculated? | Average Freight Rate Assessment

Answer 58

The AFRA results incorporate data for oil cargoes being carried between the 16th of one month and 15th of the following month and are published on the first of the subsequent month

Question 59

What routes have the biggest impact on tanker prices in each sector? | VLCC, Suez, 70-80kt DPP, 50kt DPP, general CPP

Answer 59

* **VLCC**; AG-West, AG-Est, WAF-East * **Suez**; WAF-West, Black Sea-Med * **70-80kt**; AG-East, UK-Cont, x-Med * **50kt**; Caribs-USAC * For **clean** trades, these are generally AG-East, Caribs-US, UK/Cont-Med

Question 60

Discuss the impact of political events on tanker prices with an example

Answer 60

* Out of all factors influencing rates, political events typically have the greatest impact, however they are unpredicible and their impact can be difficult to measure even in hindsight given the range of other influences on the market * The trade war between the US and China in 2019 had minimal impact on crude oil trades becase the US only supplied about 1% of China's total imports. China could easily subsitiute US crude, and India and South Korea imported more US crude to offset this shortfall * The more serious impact was in LNG shipments, with LNG from the US to China coming to a halt

Question 61

Describe the impact the Evergiven Suez Canal incident (2021) impacted freight flows and prices

Answer 61

* The Evergiven got stuck in the Suez Canal in March 2021, blocking it completely. It took almost a week to remove the stuck ship and resume traffic * Nearly 800kbd of ME crude destined for the US and Europe transits the canal usually, and 700kbd of N Sea and Russian oil bound for Asia * Despite these large volumes, impacts on rates was minimal and temporary, as tonnage demand is usually weak during spring refinery maintenance season and there was ample tonnage avalible in the Med and AG

Question 62

Why does war typically increase demand for shipping?

Answer 62

**Disruption of usual trade routes**: Ships may need to take longer, alternative routes to avoid conflict zones, increasing tonnage demand (more ships needed to move the same cargo). **Stockpiling and strategic reserves**: Countries often start importing more oil, food, and raw materials to build reserves in case supply chains are cut off. **Military logistics**: Increased movement of military equipment, fuel, and supplies boosts demand for specialised or general cargo shipping. **Shift in trade flows**: Sanctions, blockades, or destroyed infrastructure force cargoes to be rerouted through longer or less efficient paths. **Risk premiums and delays**: Insurance costs rise and ships may slow down or avoid certain areas, effectively reducing available shipping capacity. **Demand for alternative suppliers**: If one country can’t supply a commodity due to war, buyers turn to more distant sources, again increasing voyage lengths and shipping demand.

Question 63

Why might a war not increase freight rates?

Answer 63

**Shorter or more efficient alternative routes** might become available, reducing tonnage demand. **Decreased consumer demand** due to economic uncertainty or recession can lower trade volumes. **Disrupted exports** from a war-torn region might mean there’s simply less cargo to move overall. **Oversupply of ships** in the market can keep freight rates low, even with war-related disruptions. Government subsidies or **intervention** (e.g. releasing oil reserves) might stabilise supply and reduce shipping needs.

Question 64

Describe how the value of a VLCC changes over time, from newbuild to scrap | Depreciation

Answer 64

* A new VLCC will cost around $100 million * It takes approximately two years for a new order to be built and delivered, and the economic life of a VLCC is usually taken as 15 years, meaning investors making decisions now must consider the market for the next 17 years * The highest price a ship will achieve is typically its newbuild price, or potentially first resale, and its lowest will be its scrap value * If a newbuild VLCC costs $92.5m has a lightweight of 40kt and is sold 20 years later for scrap at $245 per lightweight tonne = $9.8m total. The depreciation is $82.7m = $4.14m/year or $11k/day

Question 65

How can the risks of investing in a physical vessel be mitigated?

Answer 65

* Newbuilds are often placed on long term TCs or CoAs, guaranteeing a certain income for the duration (which both avoids the risk of market slump but at the cost of capitalising on market booms) * Asset speculators are cash-rich investors who place orders for newbuilds when prices are at historic lows or below certain thresholds whilst never intending to take delivery of the vessel; part-built they sell a part built ship or even a booked construction berth for an immediate profit * It is possible to buy a second-hand ship of 5-9 years old for approximately $76-$56m respectively (based on $100m full value). The new owner can expect to take delivery in 2-3 months and will need to forecast the market over the next 6-10 years, by which time the vessel will be nearing the end of its economic life. This depreciation risk is much lower than ordering a newbuild and the second-hand price will be more related to current market levels, rather than waiting two years for delivery

Question 66

How do shipowners typically follow market movements?

Answer 66

* Daily fixture lists are shared by brokers with minimal detail, however about 25% of fixtures remain private * Weekly reports summarise market activity by region and are often used as historical reference points * Monthly reports from brokers offer deeper analysis with charts and trends, usually for paying/select clients * Market info is also available from journals (e.g. Lloyd’s List, Tradewinds) and Baltic Exchange indices are avalible to subscribers Shipowners now rely on brokers, banks, and real-time tools like MarineTraffic instead of outdated government data, which is usually published with at least a month's delay

Question 67

Summarise factors influencing future freight rates

Answer 67

**Future demand for oil, CPP, and any substitutes** Higher demand means more cargo to move, which boosts freight rates; a shift toward substitutes (e.g. renewables) may reduce tanker demand over time. **Changes impacting the areas of production or consumption** If oil is produced or consumed in different locations, voyage distances may change — longer routes increase tonnage demand and freight rates. **Future newbuild activity** A surge in new tankers increases fleet supply. If demand doesn't keep up, rates can fall due to oversupply. **Future scrapping activity** More scrapping reduces the active fleet size, which can tighten supply and push freight rates up, especially in older vessel segments. **Technical specifications of ships** Ships with better fuel efficiency or those that meet stricter regulations (e.g. emissions rules) may be preferred, affecting which vessels can command higher rates. **Efficiency of existing fleet** If the fleet operates more efficiently (e.g. faster turnaround, less idle time), effective supply increases, potentially reducing freight rates. **External environmental issue**s Regulations (e.g. IMO decarbonisation), climate events, or geopolitical restrictions can reduce available tonnage or shift trade patterns, influencing rates. **Oil company policy, changes, mergers** Consolidation or changes in chartering strategy can centralise or reduce demand for tonnage, affecting rates. Strategic shifts (e.g. focusing on cleaner fuels) may also impact cargo volumes.