Scrap To Survive - Carl Rentz-Petersen 1982-1984

INTERTANKO faced the pressure of further declines in oil shipment. Oil prices had stabilised but consumer demand was stagnant and short-haul oil production - North Sea, Alaska, Venezuela, Mexico - increased, shutting out some Middle East long-haul oil. Production in the Oil Producing and Exporting Countries, OPEC, fell below 16 million barrels a day. Use of the Suez-Mediterranean pipeline, SUMED, grew and a new pipeline across Saudi Arabia to the Red Sea port of Yanbu started service, cutting out a further voyage distance for some oil.

The ton mile measure of oil shipments dropped 18 percent in 1982 and the result showed in freight rates - expressed in the Worldscale index measure. Worldscale provides an index rate against which owners and charterers agree a “points” figure, or percent of the Worldscale index figure, as a freight rate. Rates of 20 Worldscale points (WS 20) or less were common for Very Large Crude Carriers (VLCCs) on voyages from the Middle East Gulf to United States or Europe throughout the year, and at one point reached WS 14. Period chartering dried up as existing period charters to oil companies expired and were not renewed. Some of the major oil companies were involved in wide-ranging restructuring of their operations and severe slimming-down of their shipping fleets.

The economic recovery which began in 1983 - particularly in the United States - brought little cheer for tanker transport. The higher overall level of oil prices since the last major recovery led to substitution of energy sources and energy conservation. Oil had quadrupled in price in 1973 and doubled again in 1979-1980. Thus the revival did not call for a big increase in energy oil to fire it up, and such extra oil as it did need still came from near at hand.

OPEC attempted to control the supply by cutting oil prices to 29 dollars a barrel - down from the 36 dollar peak of 1981 - and a production level of 17.5 million barrels a day. They achieved a limitation of 18.4 million in 1982 but much of the “new” oil - North Sea and Alaska - was outside the OPEC cartel. Organisation of Economic Co-operation and Development - OECD - oil consumption had fallen from a 1979 level of 41.6 million barrels a day to 33.6 million in 1983. The OPEC limits in 1983 were more blatantly broken with overproductions from Libya, Iran, Nigeria and Venezuela, and prices were forced down more.

Although transport demand did rise for shipments to the United States and to Japan, the tanker surplus was so enormous that the upward move in freight rates was very modest.

71.4 million deadweight tons of tankers were in lay-up in 1982 and 62 million in 1983. Floating storage of oil absorbed more ships. The United States enlarged the Strategic Petroleum Reverse programme, with ships chartered for a voyage followed by optional periods of floating storage. By 1983, 75 ships were engaged in storage. The deadweight of the tanker fleet fell by 22 million tons in 1982 and 22 millions more in 1983, to 322 million tons. The tonnage in membership of INTERTANKO, incidentally, fell in parallel.

Actual new ship deliveries were modest over these years and scrapping - 25.1 million tons in 1982, 26.6 million in 1983 - was encouragingly high. 126 VLCCs were scrapped over the two years 1982 and 1983. However an estimate made by INTERTANKO in 1983 suggested that 332 of the existing 567 Very Large and Ultra Large Crude Carriers (VLCCs and ULCCs) were surplus to requirements. Even higher levels of scrapping were needed.

The opportunity was considered propitious. The Intergovernmental Maritime Consultative Organisation (IMCO) had been reborn as the International Maritime Organization, IMO, in 1982. IMO’s Marine Pollution Convention, MARPOL 73-78, had achieved the necessary ratifications to come into force in 1983, and the Safety of Life at Sea Convention, SOLAS 74-78, had entered into force in 1981. Combined with low freights, the anticipated high costs of conversions to comply with MARPOL and SOLAS were expected to render many tankers uneconomic and candidates for scrap. The value of a ten year old VLCC in 1982 had plummeted to 3 million dollars. Class renewals for large tankers were also expected to drive ships to scrap. INTERTANKO had meetings with the Classification Societies to discuss new survey rules to detect corrosion in VLCCs.

The ‘Paris Memorandum’ on port state inspections and sharing inspection results was signed by 14 European countries in 1982. The signatory countries undertook to endeavour to inspect 25 percent of all foreign ships calling in their ports. In a meeting with the French Minister of the Sea in 1982, INTERTANKO Chairman Carl Rentz-Petersen welcomed the Paris agreement and said that “Shipowners who have been able to maintain the safety standards are currently facing unfair competition from those who do not hesitate to operate substandard ships. Furthermore the world tanker fleet is undergoing structural changes that will make it more accident prone”. Port State Control might kill off more bad tankers.

INTERTANKO began a programme of intense activity to encourage countries to start up scrapping industries. Sir Yue-Kong Pao had already impressed upon the Chinese government the benefits of starting scrapping. In September 1982 a delegation led by former chairman Jørgen Jahre headed East on a tour of existing and possible scrapping locations.

The tour included Taiwan, China, which had for some time been the largest buyer of ships to scrap. Taiwan, China’s position was so strong that a national cartel - the China Dismantled Vessels Trading Corporation, CDVTC - was formed to drive down scrap prices by cutting competition between Taiwan, China scrap yards. Not what INTERTANKO had in mind at all.

More fruitful visits were made to Pakistan, India and Bangladesh, where some scrapping was already in operation, but opportunities to expand were seen. South Korea, also a force in ship scrapping, was identified as having more capacity, as was Thailand, which had only a small pre-existing scrap industry. China started to scrap ships in 1983, using the scrap metal in its domestic civil engineering, road and bridge building programmes opening up the Chinese economy.

Alternative uses for tankers were still under study by INTERTANKO. Following the 1981 paper “Storage of Coal in Tankers”, a wider-ranging publication, “Alternative Tanker Opportunities” was issued. Fresh water shipping was studied, where INTERTANKO assisted the Gulf Co-operation Council in analysing the costs of using tankers to ship water in to the Middle East Gulf. Fresh water consumption in the area had risen by 20 to 30 percent due to increased industrialisation and population, as well as local governments’ targets of self-sufficiency in home-grown food. INTERTANKO assisted in a study with Mitsui of Japan and the Institute for Scientific Research in Kuwait. Fresh water was available for export, it was found, from Britain, France, the Netherlands, Japan, Norway, Spain, Italy and Dominica.

Although new ship delivery levels were low, INTERTANKO was still concerned at the continued availability of “cheap money” and heavy shipbuilding subsidies. Low prices and soft credit were seen as a strong inducement encouraging speculative ordering. Instead, INTERTANKO urged the financial institutions to promote scrapping of ships. “Financial institutions should not neglect their responsibility nor fail to see their own best interests in this respect” said INTERTANKO in 1982.

The deliberations of the United Nations Conference on Trade and Development, UNCTAD, were still exercising INTERTANKO. After a “Group of Experts” had concluded that there were no barriers to access for developing countries to dry bulk shipping trades - evidently not the result desired by UNCTAD’s Secretariat - a new “Group of Experts” was convened to look at oil shipping. INTERTANKO nominated Derek Hall of P.& O. Steamship and Vice Chairman of INTERTANKO, and Douglas Hogg of Michail A. Karageorgis to the Group. Bjørn Wilhemsen of Bergen Steamship Company and Birger Nossum ofFearnleys also gave valuable assistance in this work. The Group of Experts’ study was not presented until 1984 and, as with the dry bulk trades study, concluded there were no barriers to competitive entry.

The “UNCTAD VI” Conference in Belgrade in 1983 rejected cargo preference plans and noted the growth in developing countries’ tanker fleets at a time when reductions in tanker capacity were called for. Once again the United States Congress introduced flag preference ideas but President Ronald Reagan’s administration hastened to dismiss the proposal.

On the question of open registers for ships, UNCTAD’s Intergovernmental Preparatory Group on Conditions for Registration of Ships - United Nations bodies eschew snappy titles - worked on principles for an international agreement on the issue. Tormod Rafgård, INTERTANKO’s General Manager, addressed the Group. “The merits of the open registries for the world economy should not be underestimated,” he said. “What other industry than the tanker trade can in an inflationary world refer to a decrease in the price for services even measured in nominal dollars during the last 25-30 years? Has the competitive edge of the open registries fleet resulting in low freight costs been fully appreciated? With reference to the dramatic effect of increasing oil prices during the last years on the world economy, it has been our view that a comprehensive cost/benefit analysis should at least be worked out before an international conference is convened on the open registries”. True of course but the collapse in freight rates over the past years had hardly been an objective of INTERTANKO!

A year later the open registries study was still floundering. There appeared to be no broadly acceptable solution to the problem of how to link a ship and its flag state. Developing countries sought national equity participation, elements of national crewing, and national and resident management of the ship. These countries resisted any references to “internationally agreed rules and standards” for ship operations, safety, crew qualifications and conditions or pollution prevention. Compulsory national registers, UNCTAD-style, looked likely to threaten to adopt lower standards than the internationally agreed standards adopted by most open registers.

The Iran-Iraq war was now affecting tanker shipping in the Gulf. In 1982, 65 tankers were damaged by war action - 12.6 million tons of carrying capacity. However, pollution from these attacks was minimal. Few ships caught fire and most of them were salvaged. Oil pollution did reach the Gulf though, from attacks on the Iranian Nowruz oil field.

A more spectacular tanker casualty was the Spanish VLCC Castillo de Bellver which in 1983 caught fire and sank off South Africa with a full cargo of crude oil.

As MARPOL 73-78 entered into force in 1983, some higher standards began to be applied. The Liberian Maritime Authority revoked the certificates of one particularly offensive tanker owner’s ships. The owner had been a member of INTERTANKO but not since 1976. Port state inspections under the Paris Memorandum were carried out on 8,839 ships, and 271 of them were detained. INTERTANKO continued to press for application of IMO’s Conventions and to “Standardise for Safety”. “Safety is dependent on clear uniform rules so that everyone knows that to do” explained INTERTANKO.

IMO’s Legal Committee began a review of the oil pollution compensation liability conventions. The Civil Liability Convention (CLC) and the International Oil Pollution Compensation Fund Convention (“Fund”) were now over ten years old. Compensation claims from the Amoco Cadiz oil spill of 1978 had exceeded the limitation funds available from shipowner and from cargo owner. The debate at IMO centred on increasing the compensation levels, but the dispute was whose contribution - ship owner or cargo owner - should be increased more. The Oil Companies International Maritime Forum, OCIMF, wanted to triple the shipowner’s limitation ceiling - the maximum financial sum the owner was obliged to pay in compensation. INTERTANKO argued at IMO that the oil industry’s contribution should rise.

The benefits of the international pollution compensation regimes - CLC and Fund - and the voluntary agreements in place where CLC and Fund do not apply, TOVALOP and CRISTAL, are well expressed as providing access for victims to swift and certain compensation without the need for drawn out legal action. In return for acceptance of strict liability - acceptance to provide compensation for oil pollution damage without proof of fault - owners can limit the liability.

One might speculatively wonder today whether these Conventions, which also bar further actions by spill victims except for wilful acts, perhaps hinder improvements in ship standards. A claimant might otherwise consider suing a cargo owner whose negligent selection of a substandard ship, and ordering it to the place where it spilled the oil, led to the accident and the pollution  damage done, not by the ship, but by the cargo-owner’s oil.

The Bill of Lading Registry projects developed and was launched to a wider audience as SeaDocs Registry Limited, still backed by Chase Manhattan Bank. An English Court case, ‘The Sagona’, highlighted the problems of delivering cargo without receiving proper bills of lading at discharge port. The Sagona had been under arrest for two months in a dispute between claimants over alleged misdelivery of her cargo.

INTERTANKO launched a new service in 1983. The Freight and Demurrage Information Pool, FDIP, was set up to help members recover unpaid freight and demurrage and to advise members on the payment record of potential charterers. The burgeoning of new oil trading companies led inevitably to declining standards of contract compliance and longer delays and evasions in paying demurrage - the agreed sum for the charterer’s slow port handling of the ship. Not that the speed of settlement by the oil companies was exemplary. Within 1983, information had been gathered on 46 chartering companies, and FDIP had helped with 70 claims totalling 5.5 million dollars in outstanding demurrage payments.

Bunker quality problems were reported to INTERTANKO. In 1983 the British Standards Institute, BSI, agreed a standard for marine bunkers, “BS MA 100 Petroleum Fuel for Marine Oil Engines and Boilers”. The fuel testing programme started by INTERTANKO and Det Norske Veritas now covered 650 ships, and other Classification Societies, Lloyd’s Register and American Bureau of Shipping, were offering similar testing services. In 1982 INTERTANKO started the “Bunker Information Letter” news-sheet for members. The Port Information Office was also helping INTERTANKO’s members, in recovering overcharged port calling fees.

INTERTANKO’s published information was now reaching an even wider audience. 76 broking firms subscribed to the INTERTANKO publications. Also on the mailing list in 1983 were 13 Banks, 12 other international associations, 12 P.& I. Clubs or their managers, 10 law firms, 7 research institutes, 12 national shipowners’ associations, 4 shipyards, and 49 “other shipping interests” which included a small handful of oil companies - Spanish company CEPSA, Neste of Finland, Petrobras of Brazil, Petroleos de Venezuela, Soponata of Portugal, and Transworld Oil. None of the 7 “major” oil companies were on INTERTANKO’s published mailing list.

Carl Rentz-Petersen of Danish shipowner A.P.Møller was elected Chairman. He had succeeded Mærsk McKinney Møller on INTERTANKO’s Executive Committee in 1974.

Source: Intertanko. By Carl Rentz-Petersen. Published: 12 January 2001. Updated: 01 September 2011

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