Tag Archives: Shipping industry

Tales of the South Atlantic II.

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World oil supply has increased faster than has demand, so prices have fallen.[1] All sorts of changes have resulted. For example, most counties maintain some kind of petroleum reserve to be able to respond to emergencies. Many oil-consuming countries are seizing the opportunity presented by the fall in world oil prices to complete or expand those reserves. Asian countries, in particular, are buying oil where they can get it. Often, that means buying on the West Coast of Africa. “Years ago, you never saw the Chinese chartering [tankers] in West Africa,” said one shipping expert. “Now they are the largest charterer here.” The four chief oil export ports in West Africa are Luanda Oil Terminals in Angola; Warri Port , and Port Harcourt Terminals , in Nigeria; and Sogara Oil Terminal in Gabon.[2] All of them face out onto the South Atlantic.

The tankers themselves make an interesting story. Between the 1950s and the 1970s, tankers grew in size from about 500 feet in length and a capacity of 16,500 Dead Weight Tons to the “Very Large Crude Carriers” (VLCC) that run about 1,100 feet in length and can hold up to two million barrels of crude oil.[3] At Spring 2015 prices, that is a cargo worth $120 million. There are about 600 VLCC afloat at the moment.

Why did oil tankers grow in size? “Previously on LA Law,” Middle Eastern oil flowed to Europe and other Western ports through the Suez Canal. The Six Days War closed the Suez Canal for an extended period, forcing tankers to make the much longer voyage around the Cape of Good Hope.[4] To increase the efficiency and lower the transportation costs of oil, shipping companies started ordering bigger and bigger tankers. Then the oil port facilities had to be re-built because there was no way to bring these giants into any conventional port. (Indeed, the largest tanker built, the “Seawise Giant,” couldn’t use the English Channel.

The break-even charter rate for VLCC is about $25,000 a day. The global financial crisis caught tanker companies by surprise. The world economy—and demand for oil—slowed down, while they had to take delivery of a bunch of expensive ships that they had contracted for several years earlier. In 2013, average shipping rates for the VLCCs ran about $12,000 a day; in 2014 they averaged $22,000 a day. For the shipping companies, Asian entry into the West African oil market means more of their ships are making the longer runs to the Far East and back, rather than more and shorter runs across the Atlantic to ports in the Americas. This leaves fewer ships to handle that business, so the freight rates go up. In early 2105, the added Asian demand pushed rates up to $69,000 a day. More normal off-season rates run $40,000 a day.

Weird story: Speculators want to buy oil while it is cheap and sell it when the price rises. Where to store it in the meantime? Normally, in a tank farm ashore. However, there are a limited number of empty storage tanks, so the price charged by the owners tends to rise as more people want to use the tanks. Also, at some point, all the storage tanks are filled up, but the speculator still has to take delivery of the oil s/he bought low in order to sell high. Now what? Somebody chartered the VLCC “Alsace” and had it anchored off the Orkney Islands in February and March 2015. What did the crew do all day? Play cards, check on the anchors, watch the flat-screen TV? How would you like to be captain of an anchored ship? Garrr.

[1] Stanley Reed, “Oil Glut Benefits Those Who Ferry It,” NYT, date misplaced.

[2] http://globalenergyobservatory.org/list.php?db=Transmission&type=Oil_Ports

[3] By way of Ultra-Large Crude Carriers (ULCC) that were over 1,300 feet in length a capacity of 500,000 Dead Weight Tons.

[4] Avoiding that long, costly voyage had been why building the Suez Canal had been a good idea in the first place. Egypt’s loss of toll revenue from the re-routing of that traffic hasn’t helped the country’s always-struggling economy. “Thanks President Nasser!”

Avast me Hearties!

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Piracy is a story about the importance of policing in crime suppression.  Piracy abounded when there were rich cargoes afloat, but no one to protect them or pursue the criminals.  Piracy withered when the navies of imperial powers (British, French, American, Dutch) went around making the world safe for peaceful commerce.  “Blackbeard” famously ended up with his head nailed onto the bowsprit of a British warship.  Still, piracy never ended in some parts of the world, notably in parts of East Africa and Southeast Asia.  After the end of the Second World War, the retreat of the European navies from “Eastern Waters” began to take the lid off of piracy.  Post-colonial governments were just as ill-equipped to fight piracy as to do anything else.

Consequently, piracy has increased from fewer than one hundred reported attacks on ships in 1997 to two hundred reported attacks in 2007.  In such attacks during 2006 15 seamen were killed and 188 taken captive; $15 billion in lost goods is a fair estimate of the material cost.  “Reported” is key here: lots of shipping companies would rather not report the attacks because it will only drive up their insurance costs without getting the generally dysfunctional governments of the countries from which the pirates operate to solve the problem.  The same goes for fighting back against a pirate attack.  Kill one of the sea-borne bastards and the pirates-in-suits ashore will be slapping injunctions all over you at your next port of call.

So, who becomes a pirate these days?  Pretty much the same people who became pirates in the Caribbean in the 17th Century: local poor people who know something about boats.  Dockworkers, fishermen, and beached merchant sailors provide much of the crew for pirate attacks.  Occasionally they are government coast guard units run amuck.  Many of these pirates call Indonesia or Somalia home because shipping must pass through narrow straits, rather than being able to stand well-out to sea.  Oddly enough, there is a “pirate season”: the Indian Ocean is tossed by great monsoon storms in early Fall and early Spring, so pirates tend to stay ashore during these seasons, chewing khat and bothering the wife.  Only when the seas calm do they return to their trade.

Rather than sailing the Seven Seas under the Jolly Roger, however, they operate in speedboats from ashore.  Photographs taken from merchant ships under attack often show the pirates driving high-powered outboard boats and armed to the teeth with automatic weapons and grenade launchers.

Somalia is the Promised Land of modern piracy.  There hasn’t been a real government in twenty years; everybody has guns and is dirt-poor; and oil tankers from the Persian Gulf pass by on their way to the Suez Canal.  In April 2010 Somali pirates captured the “Samho Dream,” a South Korean supertanker.  In November 2010 the owners paid a LeBron Jamesian $10 million to get the ship, cargo, and crew back.  Each pirate got $150,000, minus whatever the pirate-boss had fronted him for rice and beans during the intervening seven months of gastro-intestinal catastrophe.

Lest anyone see this as a silver-lining-to-a-black-cloud story about impoverished Third World villagers getting together to cut through the red tape accompanying foreign aid, the pirate crews appear to be operating at the behest of local crime lords.  In places like Somalia, the pirate-bosses use the ransom money to buy weapons so that they can set up as local war lords.  Having hijacked ships, they’re now thinking about hijacking countries.  (See: Normans.)  Then some Paki scientist probably will sell them nukes.