update NewS from dNv to the tANker INduStry No 02 2011 - Hays

RS Platou marketsShipping Weekly| RS Platou Markets*provides ship operators with a means bywhich to efficiently prepare for vettinginspections and demonstrate a strongcommitment to safety and environmentalexcellence.On two of the days, the participantsattended Maritime Accident Investigationand Analysis sessions. Based on DNV’sM-Scat methodology (Marine SystematicCause Analysis Technique: effective accident/incidentinvestigation and followup),these sessions offered a practicalapproach towards incident investigationand analysis in the marine environment.The Tanker Week ended with a PracticalMarine Risk Assessment session. Participantswere introduced to risk managementterminology, principles and techniquesand, upon completion of the course, wereable to conduct risk assessments bothonshore and on-board.Participants commented that they reallyenjoyed the training and would like DNVto organise similar events in the future.This feedback is very encouraging for theorganisers, who will be organising a similarContainer week and Bulk Carrier week in2012.The sessions run during Tanker Weekwere based on general DNV courses availableworldwide in several DNV Academies.Please contact DNV Gdynia, your nearestDNV office or www.dnv.com to identifythe most conveniently located DNV Academy.Anna Moen (Anna.Moen@dnv.com)will also respond to questions regardingTanker Week. alualuyuyalalellllyyuyaalyShipping WatchMyth-busters: Speed and earningsIn our June 23 rd weekly we compared the difference in speed for ~2,700 vessels travelling onFebruary 15 th and May 15 th 2011 to see if slow steaming had been implemented Data from RSPlatou Economic Research support our thesis that the combination of weak earnings and highbunker prices in fact has led to slow steaming, absorbing some of the over-capacity andlowering bunker expenses which consequently improve earnings for ship owners Equallyweighted, the average speed declined 2 3% from February to May and data from the samesurvey on August 15 th show that since May speed has been reduced by another 2 4%, bringingthe 6 month speed reduction to almost 5%16151413121114.514.013.0Speed in knots Feb-Aug 2011 Speed and Earnings change % Feb-Aug 201113.612.412.812.712.812.3 12.4 12.4Source: RS Platou Economic Research, RS Platou Markets12.711.815.915.8VLCC Suezmax Aframax Capesize Panamax Supramax LNG15-Feb 15-May 15-Aug BDIThe right hand chart shows development in earnings per day based on our speed assumptionsand speed reduction in percentage over the last 6 months based on the RS Platou EconomicResearch data. Findings from the survey show that VLCCs have reduced their average speedby ~7% to 13 knots currently at the same time as average earnings declined 72% from$42,300/day mid February to $11,900/day on August 15 th . The Suezmax segment shows thegreatest speed reduction of ~9% to 12.4 knots as earnings are 35% lower to $10,700/day.Our earnings per day estimate include the assumption of lower speed and hence explain thedifference to Baltic Exchange quotes for tankers suggesting that ship owners are subsidizing oilcompanies in order to transport their crude, not rational in our view. However, the BalticExchange assumes average speed of 14.5 knots, significantly below evidence from RS PlatouEconomic Research indicating 13 knots average currently.Myth-busters: Does ship owners subsidize oil companies?At speed 14.5 knots as assumed by the Baltic Exchange, a VLCC consumes around 100 tons offuel per day laden (with cargo) and 80 tons on ballast (without cargo). Due to contractualspeed on the cargo transportation leg, slow steaming is mainly implemented on the ballast leg.Ship owners are able to reduce their daily bunker consumption to only 30 tons by slowsteaming to ~11 knots on the return voyage. Hence, through reducing speed by 3.5 knots onthe ballast leg ship owners are able to lower their average daily fuel consumption from 90 tonsat 14.5 knots to 65 tons with slow steaming on the return voyage. Consequently, withunchanged bunker prices and rates the implementation of slower speed reduce fuel cost forship owners by almost 30%. 25 tons per day with current Singapore bunker cost of $630/tontranslate into ~$16,000/day, which explain why ignoring slow steaming implies negativeearnings and willingness of ship owners to subsidize oil companies, both very irrational. Shipowners are paid in dollar per ton delivered. The Baltic assumption that a ship will return withthe same speed and fuel consumption without cargo implies that the higher fuel consumptionwill be compensated through higher earnings over the extra days saved by increasing speed.However, current rates do not justify higher ballast bunker cost and consequently rationalreasoning and empirical evidence suggest that ballast bunker consumption is lower and hencealso earnings higher than the Baltic Exchange indicate. Nevertheless, with zero or negativeearnings we would see high laying up activity, which yet has not occurred with magnitudeindicating that ship owners find it more profitable to keep ships in traffic.We believe the myth of negative earnings for tankers are wrong. Rational reasoningsuggests slow steaming to lower fuel cost, supported by empirical evidence. Hence,we stand by our earnings forecasts which include lower speed and explain whylimited lay-ups have occurred.* Printed with the permission of RS Platou Markets..Earnings change in %80%40%0%-40%-80%-6.9%-72%-35%-8.7%Earnings change60%53%-3.9%-2.4%-15%-3.4%Speed change8%-7.0%38%-1.1%5%9%6%3%0%-3%-6%-9%Tanker update NO. 2 2011 | 29