Opportunities in floating power stations
Shipping companies must cut overheads as fuel costs rise, and diversify into niche markets such as building floating power stations to ride out the current depressed market, top shippers said on Tuesday.
Oil tanker freight rates have hit their lowest levels since 2009 in recent months and dry bulk earnings have also struggled as a glut of vessels hitting the market has outpaced demand.
Profitability in shipping has also been hurt by rising operating costs resulting from a spike in oil prices which are near multi-year highs due in part to political unrest in the Arab world.
"The market today is the worst since the Black Plague," quipped Tor Olav Troeim, vice-president of Frontline, the world's biggest independent oil tanker group, during a shipping conference, revealing the mindset of many shippers.
He added that the downturn in the oil tanker market had only begun and could take five years before it may improve again.
"How we can survive this cycle? We need to make sure costs are low ... This will be important in the years to come."
Another executive expected the market to pick up earlier than Frontline anticipated.
"One would hope that by 2013 you start seeing the (supply-demand) gap closing and the market improving," Graham Westgarth, head of INTERTANKO, an association whose members own the majority of the world's tanker fleet, told Reuters.
"We have to anticipate that 2011 and 2012 are potentially going to be fairly weak markets."
Peter Evensen, chief executive of major crude oil and petroleum product transporter Teekay, shared Troeim's view on the importance of cutting costs.
"Fuel costs we see going forward are going to be higher than the capital costs," Evensen told the conference. "We are moving into optimisation ... We are thinking about fuel-efficient ships ... specifically designed for future trades."
Another way forward, both executives said, was to move into markets in which the shipping industry is only beginning to develop, such as building floating power stations or build more liquefied natural gas (LNG) ships and production vessels, as energy demand rises, especially in Asia.
"I see much more growth in niche areas, especially those related to offshore development," said Evensen. "We are going to see (more) floating LNG terminals."
Oil major Shell said earlier this week it would go ahead with building the world's biggest ship, Prelude, in order to produce gas offshore Australia, in the first project of its kind.
"The next thing will be floating power stations. This is an opportunity we see," added Troeim.
Russia is mulling floating nuclear power stations to cope with the country's growing needs for energy.
"LNG is under-shipped, there is not enough tonnage," Troeim said. "The whole market is eaten up in one year of demand. it is a promising market."
In the meantime, the oil tanker market is in need of consolidation and Troeim expect it to happen soon.
"We see that consolidation works when a lot of people have problems and that's what we see these days," Troeim said.