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4 Economic Impact of the Oil Pollution Act of 1990 on the International Tanker Fleet
Pages 65-96

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From page 65...
... ~ Accordingly, demand, supply, iThe competitive structure arises from: (1) the large size of the tanker market with units owned or controlled by independent owners and ship users (oil companies and oil producers)
From page 66...
... . In addition, combined carriers designed to carry ore, dry bulk, or oil as cargo, totaling 25 million DWT, raised the potential capacity to 280 million DWT.
From page 67...
... Source: Navigistics, 1996. schedule of 13G.3 The retirement by year of international tankers as a consequence of 13G is shown in Figure 4-4, where it is compared to the impact of Section 4115.4 Regulation 13G will have the greatest impact during the period 2004 to 2008, when vessels constructed during the shipbuilding boom of the mid1970s will reach the 30-year age limit.
From page 68...
... 300 250' 0 200 150 . _ c' coy cry 1 00 ~ 50 IL o -~__ __` 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 \ 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 Year FIGURE 4-3 Impact of OPA 90, Section 4115, on size of international tanker fleet eligible to trade in U.S.
From page 69...
... _ ~ 150 . _ Q 100 ~ 50IL O 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 i 995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 Year · MARPOL Eligible ~ OPA90 Eligible -- No HBL FIGURE 4-5 Impact of HBL alternative on the size of the international tanker fleet through 2015.
From page 70...
... Figure 4-7 shows projected crude and petroleum products oil flows to 2005. Crude oil movements, which account for about 80 percent of the tanker trades, grow at an annual rate of 3.3 percent, whereas oil products continue relatively flat.
From page 71...
... of Middle East crude exports and resulting in a substantial reduction in longer-haul shipments. The shift from long to shorter hauls notably in trade to the United States, China, Southeast Asia, and Japan indicates that for the next few years, the increasing oil flows traced by Figure 4-7 will not be translated into corresponding increases in tanker demand because individual tankers traveling over shorter distances will be able to carry more oil per year.
From page 72...
... Tanker demand in the projection remains stagnant to the end of the 1990s and resumes growth in the next century. SUPPLY-DEMAND BALANCE Impact of HBL Requirements for New Construction Tanker supply is defined here as the existing fleet of international tankers and combined carriers, augmented only by newbuildings on order as of October 1995 and diminished only by the mandatory phaseout provisions of OPA 90 and MARPOL.
From page 73...
... Source: PIRA, 1995. Under competitive conditions, when current demand approaches current supply, freight rates rise (see Appendix G)
From page 74...
... Some owners may forgo the HBL alternative and scrap their tankers earlier to avoid paying the high price of the special surveys required for a shortened period of service in a market increasingly favoring modern tankers. The self-adjusting market mechanism notwithstanding, the unsynchronized decisions of owners planning newbuildings and those facing scrapping of old ships
From page 75...
... Moreover, seasonal spurts in demand (see Appendix H) could temporarily put pressure on capacity and cause freight rates to rise, inducing some shipowners to place early orders for newbuildings.
From page 76...
... In Figure 4-13, the apparent shortage in tanker capacity from 300 280 260 240 220 200 180 160 140 120 100 80 0) 60 40 20 - ~ 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 Year ~10-40kDWT · 40-80 kDWT ~ 80-150kDWT ~150+kDWT FIGURE 4-12 International tanker requirements for all size segments, 1995-2005.
From page 77...
... RFR is defined as the rate required to cover tanker operating expenses and realize a desired return on capital, assumed in this case to be 10 percent. The charts show that actual freight rates during the period averaged around 60 percent of the RFR, with VLCCs averaging about 57 percent, Suezmax tankers 65 percent, and the others in between.
From page 78...
... _ ~ 27 Q Q cn 30 29 l 26 25 _ _ = _ ~ 1 1 1 1 1 1 1 1 1 1 T I 1 r T 1 r T ~ * ` 1 ~ 1 ~ l ~ 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 Year · Potential Supply ~95% of Supply ~Demand b / 24 1 1 1 1 1 1 1 1 1 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 Year · Potential Supply ~95% of Supply ~Demand FIGURE 4-13 International tanker requirements for individual size segments, 1995-2005.
From page 79...
... ECONOMIC IMPACT ON THE INTERNATIONAL TANKER FLEET 80 78 76 O 74 ~ 72 ~ 70 ct ~ 68 a) ~ 66 Q 64 In 62 60 160 150 140 130 o A 120 cat Q cn 110 1 1 100 - \ 90 ~ 80 ~ 70 - i< 60- 1 1 1 1 1 1 1 1 1 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 C ~ , ;~ ~1 ~ l I\; 1 1 1 1 1 1 1 1 1 T I r r T r T 1 1 1 ~ 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 Year · Potential Supply E 95%of Supply ~ Demand d in _ _- We'd 1 \ ~ , Year · 95% of Supply (w/HBL)
From page 80...
... Two-Tier Freight Rate Market Shortly after enactment of OPA 90, it was anticipated that modern tankers in general, and double-hull tankers in particular, would charge a higher freight rate to compensate for their higher quality and to help cover their higher cost of construction. The committee has obtained information from several experts and has reviewed available data to determine if any such rate premium was paid for newer
From page 81...
... ECONOMIC IMPACT ON THE INTERNATIONAL TANKER FLEET C 25 ~ 20 Q 15 10 ~5 En o 5 o d 20 I,, 1 5 Q to o In s 10 5 ~ 0 FIGURE 4-14 Continued 1992 1993 1994 Year 1995 1 996 ~ Actual 1 Yr.T/C rate ~ Deficiency 19921993 1994 Year Actual 1 Yr.T/C rate ~ Deficiency 81 1995 1 996 ships, for double-hull construction, or for trading to the United States. In general, ship brokers and other experts declined to affirm the existence of a rate differential for tankers in these categories (Jones, 1995; Loucas, 1995; Shawyer, 1995~.
From page 82...
... performed to determine whether a quantifiable premium was paid for modern, double-hull tankers in general and for tankers trading to the United States in particular (Tamvakis, 1995~. The study examined 14,000 crude oil spot fixtures covering 1,600 crude oil tankers of 60,000 DWT or more from January 1, 1989, to June 30, 1993.
From page 83...
... Prevailing freight rates and changes in market structure have contributed to a significant reduction in orders for new tankers. Construction orders as of July 1, 1996, are shown in Table 4-3.
From page 84...
... states that capacity fell during the 1980s to a low of approximately 15 million compensated gross tons (CGT) 7 by 1990 but that it has been 7Compensated gross tons is a term used to describe the capacity of a shipyard that reflects the complexity of vessel construction a cruise vessel, for example, will require more cost and time than a tank ship.
From page 85...
... Figure 4-15 shows the actual increase in capacity over the period 1990 to 1994 by geographical area and projections to the year 2000. The expansion of capacity is attributed to several factors, including regular increases in productivity in Western Europe, Japan, and Korea; the creation of several large new yards and additional dry docks in South Korea; and the reentry of Eastern European, former Soviet Union (FSU)
From page 86...
... _ . _ 5 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 Year 1~1 Capacity ~ Deliveries FIGURE 4-16 Comparison of shipbuilding capacity and forecast newbuildings European estimate.
From page 87...
... Surplus Capacity Peak at 2000 Other Korea - EC Japan 1 1 1 1 1 1 1 1 1 1 1 1 1986 1990 1994 2000 Total World Shipbuilding · Maximum Building Capacity FIGURE 4-17 Comparison of shipbuilding capacity and forecast newbuildings Japanese estimate. Source: JAMRI, 1995.
From page 88...
... Incremental Operating Costs In comparing the operating costs of double-hull and single-hull tankers of similar size and age, the committee found that maintenance and repair (M&R) and hull and machinery (H&M)
From page 89...
... Small 10-60 40.5 713 649 64.0 9.0 2.60 Aframax 60-100 48.6 400 343 57.0 16.7 2.80 Suezmax 100-200 46.9 337 288 49.0 17.0 2.30 VLCC 200+ 125.4 268 233 35.0 15.0 4.40 Total 261.4 46.3 12.10 Source: Fleet distribution from Clarkson Research, 1996; cost per DWT from previous table.
From page 90...
... The annual incremental operating cost of a double-hull fleet comparable to the existing fleet is estimated to be on the order of $900 million. TABLE 4-8 Increase in Operating Costs for Double-Hull Tankers Operating Costs Increases Attributable DWT f ($ thousand/year)
From page 91...
... Incremental capital cost 0.6 12.1 Incremental operating cost 0.9 18.7 Total incremental cost 1.5 30.8 91 Table 4-9 summarizes the incremental cost of both constructing and operating a double-hull fleet comparable in size and composition to the existing fleet. The committee estimates the incremental cost to be on the order of $1,500 million per year, or about 10 cents per barrel of oil transported.
From page 92...
... A number of factors would maximize the impact of early scrapping due to Section 4115: · Current tankers are in good condition, and the owners wish to operate them longer than the regulatory age restrictions allow. · There are no non-International Maritime Organization (IMO)
From page 93...
... Shipowners scrap tankers before they reach the regulatory age restriction. The importance of this factor depends on how many tankers successfully complete their fourth and fifth special surveys.
From page 94...
... lightering zones or at the deepwater port. If the tanker is in reasonable condition it will pass the fifth special survey, and if future freight rates appear favorable, it will be operated for another five years.
From page 95...
... prevailing freight rates are inadequate to provide the resources needed for new double-hull vessel construction; (2) there is no significant rate premium for double-hull vessels; and (3)
From page 96...
... 1990. The supply, demand, and freight rates in the bulk shipping market.


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