The Tanker Market

If there were an attack on tankers in the Gulf, it is possible some tankers would be destroyed or significantly damaged thereby limiting the number of tankers available to transport oil in the global market. A shortage of tankers might cause the cost of shipping to increase, resulting in a spike in oil prices.

The tanker market is highly fragmented, with over 80 percent of the world fleet owned by independent tanker companies.[i] The ten largest of these independent tanker companies own 26 percent of the world fleet. Many private and state oil companies maintain their own fleets, owning in total 11 percent of the world's tankers.

Breakdown of Oil Tanker Ownership

Ownership Number of Tankers DWT (millions) Share of total world fleet Avg. Age
Independent 3,588 300.2 84% 11.5
Oil Company 108 14.9 6% 9.0
State Owned 418 32.0 5% 15.9
State Oil Company 211 20.2 5% 15.2
Totals 4,355 370.8 100% 11.5

 

Source: Intertanko Annual Report and Review 2006/2007

Tankers are the most economically efficient means of intercontinental transport, as they maximize economies of scale based on volume per voyage. Numerous factors contribute to the cost of a tanker voyage - fuel is the largest component of a ship's operating costs. In 2004, the average cost of fuel for a VLCC was $14,400 per day.[ii] Other major operating costs include crew, repair and maintenance, insurance, stores, and administrative costs.[iii] Expenditures on crew represent the largest chunk of non-fuel operating costs (46 percent in 2007).[iv]

The cost of transporting oil via tankers is influenced by the amount of slack capacity, or unused tankers, in the tanker market. The shipping industry considers 90 percent utilization of the tanker fleet "full utilization" because tankers must dock routinely for maintenance. While the tankers are docked, obviously, they cannot transport oil. Therefore, if more than 90 percent of the tanker fleet is needed to transport oil, transportation costs would likely increase significantly.[v]

In 2004, the world tanker fleet neared 100 percent utilization, resulting in record high tanker rates. For example, rates for tankers traveling from the Gulf to Japan rose from an average of $35,000 per day to as much as $135,000 per day.[vi] The good news is the utilization rate is beginning to reverse. This reversal is largely due to a spike in tanker orders in 2004 (in response to the record high freight rates), many of which have already been delivered or are expected to be delivered in the next couple years.[vii]

[i] Figures in this section taken from International Association of Independent Tanker Owners (Intertanko), Intertanko Annual Report and Review 2006/2007: Tanker Facts 2007. Online. Available: http://www.intertanko.com/about/annualreports/2006/5.html. Accessed: December 4, 2007.

[ii] Poten & Partners, Gyrating Bunker Prices. Online. Available: http://www.poten.com/?URL=show_articles.asp?id=420&table=tMarket. Accessed: December 4, 2007.

[iii] Ocean Shipping Consultants, Shipping Profits: Mixed Outlook Ahead. Online. Available: www.osclimited.com/releases/ShipProfto2015.pdf. Accessed: December 4, 2007.

[iv]"Operating cost increase has doubled, claims study," Lloyd's List. September 25, 2007.

[v] Matthew Leising, "World's Tanker Fleet is Close to 100% Utilization," Houston Chronicle (November 12, 2004). Online. Available: http://www.energybulletin.net/3157.html Accessed: April 3, 2008.

[vi] Jad Mouawad, "Oil Tanker Shortages Add to Price Squeeze," International Herald Tribune (October 20, 2004). Online. Available: http://www.iht.com/articles/2004/10/19/business/tanker.php Accessed: April 24, 2008.

[vii] Interview with individuals from Intertanko, Austin, TX, November 9, 2007.

This page last modified in August 2008