Editorial

Editorial published in Riviera Maritime on 19 December 2022

Tankers International senior vice president commercial and operations Matthew Smith explains that if charterers pick by CII rating, owners need access to resources to reach the required level, which ultimately is good for the environment, too.

IMO’s Carbon Intensity Indicator (CII) provides an easily comparable, benchmarked environmental indicator for charterers as they focus on shipping’s role in their scope 3 emissions.

At the same time, emissions have become an increasingly important factor for charterers and cargo owners and could create a real premium for green tankers – which can, on top-line performance at least, now be easily signposted by CII scores.

Yet there is no clear path to ongoing performance improvement for shipowners.

There is a bewildering array of operational, digital and hardware offerings on the market, with little solid evidence of their benefits. Often, shipowners have little time and few resources to investigate them anyway.

Most new fuels and efficiency technology are relatively new to the market. Often these options come with technical and commercial risks that a shipowner has to understand before choosing which direction to take. At the same time, some will face operational issues masked by the fact they are still new to the market. Given the costs associated with installing new systems on board a vessel – and the costs associated with an issue – can be astronomical, charterers and regulators are often asking shipowners to take huge commercial risks.

Charterer demand represents an enticing reward for decarbonisation but cannot justify owners’ decisions that have not been properly evaluated against their vessels and operational profile. The vast majority of tanker owners do not have enough flexible operational resources to do these complex assessments and may have to build out new teams.

Pooling can free up a shipowner’s operational resources, allowing them to redeploy staff to tackle these assessments and to organise any retrofits they result in. This can allow a shipowner the flexibility to tackle challenges like decarbonisation without waiting for new staff or bringing in external consultants.

A pool participant can also benefit from enhanced technical support and information sharing that can help them to understand and mitigate operational issues with decarbonisation technologies. At Tankers International, we organise technical forums among our pool participants to facilitate this open information sharing.

Cash flow is another pivotal challenge for tanker owners seeking to decarbonise their fleets. Inconsistent earnings in the spot market can make it difficult for owners to plan technical retrofits profitably, with drydocks often coinciding with particular cash flow droughts. Pooling combats this challenge by providing shipowners with a regular income that is paid at scheduled intervals through revenue sharing between a pool of vessels.

Yet even the most ambitious tanker owners will take time to decarbonise. Some charterers and cargo owners do not have that time and face added scrutiny from the public, investors, and regulators to cut their supply chain emissions now. These charterers and cargo owners need innovative options available today.

The Tankers International’s Climate Compensation Voyage Programme was recently launched in partnership with specialists Vertree to provide these options. The scheme uses scientifically recognised methodologies and proprietary data to calculate a specific VLCC’s emissions on a voyage on a monthly or annual basis. Charterers can compensate for their carbon emissions via a range of nature-based and community-led solutions.

Shipping is changing, and tankers will decarbonise. This transition will take time, and will not happen overnight, but it requires careful planning and evaluation work from every shipowner to start today. Shipowners must use all the tools available to help them through the monumental challenges ahead – including pooling.

By Matthew Smith, VP Commercial & Operations, Tankers International

Our Senior Vice President, Matthew Smith, recently discussed how VLCC pooling could play a pivotal role in shipping’s decarbonisation in the latest issue of Clean Shipping International.

With increasing pressure on shipowners to reduce their carbon footprint, there is much-needed urgency to comply with or exceed carbon reduction targets. Yet this will require shipowners to build technical knowledge and divert significant amounts of resource to emissions reduction technologies and practices.

Pooling can move many operational obligations away from the shipowner and simplify their decarbonisation journey. The Tankers International VLCC Pool also facilitates high level technical information sharing amongst participants, which will help them to prepare for new technologies required to comply with regulations.

To learn more about how we can help shipowners, read our article on page 36 here: https://lnkd.in/eUKXmBVA

Editorial published in Transport & Logistics Middle East on 7 October 2022

It was widely predicted that we would finally see the VLCC market recover this year. After two years marred by challenging oil demand and Covid restrictions, this year seemed to promise a return to ‘normal’ as restrictions were lifted, and OPEC committed to continuous supply increases.

Happily, as we enter the latter stages of 2022, we can say that VLCC demand is well on the way to recovery. Rates have risen exponentially in recent months, in contrast to the historic lows at the start of the year. Interestingly, these headline figures have masked another story; VLCC trade routes are changing.

A geographic shift

Oil demand and production increased dramatically during the first half of 2022. This was primarily driven by the easing of Covid-19 restrictions that had artificially depressed global demand since late 2019, alongside the impact of the Ukraine invasion, which has affected energy security.

Tankers International proprietary data shows that this has created a definite global increase in VLCC fixtures on the spot market. We saw an additional 27 monthly VLCC spot market liftings during the first half of this year globally, when compared to the 2021 average. This leaves the sector very close to matching pre-Covid average fixing volumes.

Yet, this recovery has not been uniform. The Arabian Gulf has seen the fastest recovery in volumes to date. This is unsurprising, given that many OPEC members in the region initially cut oil supply levels in response to Covid-related decreases in demand and are now increasing production at a steady pace.

The number of VLCC fixtures in the Middle East has increased steadily over the last two to three years and has now surpassed pre-Covid levels (2019 averaged 156 liftings per month). In the Arabian Gulf alone, we counted an additional 26 liftings per month in the first half of this year compared to last. We note further expansions going into the third quarter and count 189 VLCC liftings in the Arabian Gulf in September this year.

While Europe has not historically been a major receiver of crude oil in VLCC parcel sizes, this year we have seen a marked shift. As the continent has reduced the amount of Russian oil taken in the wake of the country’s conflict with Ukraine, we have seen a dramatic increase in demand from alternative suppliers, such as the Middle East but also the US and South America. Much of this volume has moved on VLCCs as freight levels in the segment have been competitive compared to the smaller tanker types, that have traditionally carried crude oil to Europe.

Traditional VLCC receivers east of Suez have also seen increased volumes, including India and Singapore. During the first half of the year we noted a reduction in VLCC cargoes heading to China, this trend has however reversed and September saw a surge in activity into the country. This latest demand surge is driven by a declining oil price and move away from sanctioned Russian oil.

Staying ahead of a moving market

Where this rate of change is unusual, it is not completely unsurprising. Tanker markets have always moved quickly and will continue to do so well after the global economy has moved forward from the consequences of Covid-19 and recent geopolitical issues.

The past few years have proven that not all paradigm-shifting events are reasonably foreseeable. Yet, detailed analysis is still critical in navigating the VLCC market – ultimately, profits are driven by understanding how fundamentals are evolving and likely to evolve in the medium to long term and understanding the exact market conditions as you negotiate a fixture.

It can be easy to miss out on potentially lucrative market movements if you do not have the data to create strategy and informed decisions. Negotiating positions may leave the other side in a particularly advantageous position, or longer-term decisions – such as on time charters or dry docks – could leave you missing out on headline rates.

Harnessing this data is one of our core values at Tankers International. By leveraging the strength and unique scale of our VLCC pool, we can secure data and information that would otherwise not be available to any of our pool participants – which we turn into actionable insights, that help maximise earnings.

This approach was the motivator behind the development of our VLCC Fixture app, which we believe is creating a healthier market by opening information on fixtures up to the wider shipowning, chartering, broking, cargo owning, and investing community. Subscribers benefit from segmented and searchable information on fixtures updated every 5 minutes that was previously the preserve of a select few. This includes TCE breakdowns and cargo forecasts – which can allow users to reliably take advantage of an evolving market.

Oil logistics is now facing unchartered territory, especially in the Middle East. Capitalising on today’s market requires tools to succeed – such as the weight of a tanker pool, ideally combined with a robust set of data to enable informed decisions.

By Charlie Grey, Chief Operating Officer (COO), Tankers International

Editorial published in Marine Log 22 July 2022

Shipping’s role in the global supply chain is increasingly under the spotlight when it comes to ESG. Today, most large energy companies have formal environmental targets. Many of these targets are notable for their ambition, or the way that they underpin new branding and strategy. Most of these companies are already reporting their emissions to the public, to shareholders, and to regulators—and these targets and reports are now focusing on every aspect of the supply chain.

This is highly symbolic of the industry’s new decarbonization dynamic. Environmental issues are increasingly driving commercial decisions for cargo owners and their customers, which in turn means that the efficiency and emissions credentials of shipping represents tangible value for charterers and their stakeholders. Increasing demand-side pressure is neatly coinciding with a growing focus from regulators. The shipping industry faces a series of landmark regulations over the next few years, with every indication suggesting that there is more regulation to come.

Sadly, this dynamic is creating significant challenges for shipowners. At a fundamental level, zero-carbon ship technology and investments are still in their infancy and the sector is not going to be able to go green overnight—even if many of our stakeholders need green options today. This is where Tankers International’s VLCC pooling model is uniquely placed to help shipowners, charterers, and the wider industry today.

Meeting the regulatory challenge

The Energy Efficiency Existing Ship Index (EEXI) and Carbon Intensity Indicator (CII) regulations will be shipping’s first global decarbonization rules when they enter into force on January 1 next year. Targeting a vessel’s design and measuring and benchmarking its carbon efficiency in operation, these rules will have a radical impact.

Ships that are not able to demonstrate EEXI or CII credentials may be restricted in their trading options. At the same time, they provide easily comparable benchmarked indicators for charterers—and thus make it easier to make decisions based on climate impact.

The dramatic potential impact of these regulations is making carbon efficiency a priority for even the most resistant shipowners. Yet, even the most progressive may find compliance a challenge.

Continual measurement and benchmarking will invariably occupy a shipowner’s operational resources, while planning for vessel efficiency improvements can in itself take up resource. For many, EEXI and CII rules will also require costly specialist software and new analysis techniques that cannot be learned overnight.

Shipping’s regulatory journey toward decarbonization is just beginning, and future rules will add more complex challenges. For example, the EU is now expected to add shipping to the EU Emissions Trading Scheme with the proposed legislation recently passing several hurdles. By explicitly tying carbon to costs, and by requiring the purchase of credits based on solid data, these rules will create even wider-reaching obligations.

Maximizing resource and sharing knowledge

The Tankers International Pooling model frees up operational resource for a shipowner. As a pool we will take over a significant amount of day-to-day commercial and operational responsibilities surrounding a vessel, which would otherwise need to be handled by an in-house team. With pooling, these staff can be redeployed as appropriate to focus on strategic priorities.

As new environmental regulations are creating more complex obligations for shipowners, the operational benefit of pooling will only increase. For example, the Tankers International VLCC Pool will assist participating shipowners in calculating and monitoring efficiency to help optimize ships for CII rules and will support in meeting future EU Emissions Trading Scheme requirements.

Cash-flow is another pivotal advantage, especially in the context of meeting ambitious environmental goals. High environmental standards represent clear value for charterers and will represent a growing premium for the highest rated VLCCs, yet landmark technology investments are naturally capital expenditure intensive.

Our model combats this challenge by providing shipowners with a regular and scheduled income, through revenue sharing between vessels. We provide transparent and equitable insights into how the revenue-sharing works with all our pool participants. This is based on zero-commission, no hidden fees or unexpected costs, leaving them with a clear understanding of their financial position.

Improving cash flow also boosts total earnings, allowing a vessel to take advantage of longer voyages that often represent better freight rates. As an example, bunkers must be purchased by the shipowner before the vessel embarks on a voyage, and freight is only paid after the voyage is completed. This leaves the owner with poor cash flow and can limit a tanker’s income potential. Our pool will leverage its scale and financial strength to take care of these expenses and maximize total earnings.

Participants can also benefit from enhanced technical support and information sharing that can help owners to identify and optimize any investments required to adhere to environmental regulation. For example, Tankers International offers regular technical forums to give insights on new technologies, which helps shape purchasing decisions and best practice.

Although charterers are seeking green solutions zero-carbon shipping will take time. In the meantime climate compensation can offer an immediate solution.

Tankers International’s Climate Compensation Voyage Programme was recently launched in partnership with specialists Vertree. The scheme uses scientifically recognized methodologies and proprietary data to calculate a specific VLCC’s emissions on a voyage, monthly, or per year basis. Charterers are then provided with the option to compensate their carbon emissions via a range of nature-based and community led solutions.

Climate compensation alone will not solve shipping’s decarbonization problems, however it can play an immediate and meaningful role in giving charterers the green tools they need to succeed today.

Decarbonization is set to be an era-defining issue for the entire shipping industry. Shipowners will need to dedicate huge operational, technical, and financial resources to meet the challenge—and many will see their bandwidth and cash-flow stretched to breaking point. It is critical that tanker owners maximize the support that is available to them as the pressure to deliver results intensifies. Pools are crucial tools that can help drive shipping’s sustainability revolution.

By Matthew Smith, Senior Vice President Commercial and Operations at Tankers International

Editorial published in Splash 247 on 19 April 2022

Matthew Smith from Tankers International makes the green case for clubbing together.

As consumers and financiers have better understood the pervasive nature of emissions, measuring, monitoring and ultimately reducing the carbon footprint of every step in the supply chain has become “table stakes” for end-users of oil and public stakeholders who drive regulators.

Virtually every large company connected to the energy industry today has an environmental policy that covers emissions throughout their logistics chain. The supermajors and national oil companies especially have implemented ambitious policies, and emissions are now a real factor in their chartering decisions.

This has radically changed shipping’s decarbonisation dynamic. The most visible sign of this shift is increased regulation, as the industry faces a series of incoming new landmark rules. However, this is coupled with a dramatic change in customer demand – whereby demand-side pressure for lower carbon solution is creating a real commercial advantage for those who go beyond minimum standards.

Yet fundamentally, zero-carbon ship technology and investments are still in their infancy and cannot be implemented overnight. This creates uncertainty for shipowners, and a difficult challenge in planning for installing new technology, as well as a challenge for charterers in search of climate conscious options today. It is critically important that the industry gets the support it needs; Tankers International’s pooling model is uniquely placed to play this role.

The decarbonisation dynamic

Shipping’s first major global decarbonisation regulations are set to enter into force on the first of January next year. The Energy Efficiency Existing Ship Index (EEXI) and Carbon Intensity Indicator (CII) regulations will target a vessel’s design and measure its operational efficiency next to set standards.

If a vessel is not able to demonstrate its EEXI or CII credentials, it may be restricted in trading options. This is making carbon efficiency a priority for even the most resistant shipowners and will make it easier for charterers to benchmark the carbon intensity of any voyage.

Complying with decarbonisation rules will inevitably take up operational resources from shipowners. EEXI and CII rules will require constant tracking and, for many, specialist software.

The EU is expected to implement even more robust rules soon, with plans to add shipping to the EU Emissions Trading Scheme currently progressing. Those plans would explicitly tie carbon to costs and impact operational resources. These rules will aid shipping’s transition to net-zero, and could arguably create even wider-reaching obligations.

Pooling as an enabler

The pooling model supports shipowners by moving most of these operational obligations away from the shipowner to the pool operator. For example, the Tankers International VLCC Pool will assist participating shipowners in calculating and monitoring efficiency to help optimise ships for CII rules and will support in meeting EU Emissions Trading Scheme requirements.

Clearly, meeting environmental goals will pose cash flow challenges – especially when targeting above the minimum ambition. Pooling with Tankers International provides shipowners with the ability to better optimise voyage selection as they are less constrained by cash flow. Vessels operating in a pool can more easily take advantage of longer voyages that often represent better freight rates.

An owner outside of a pool will receive income only when a vessel has discharged, leaving them to cover expenses for bunkers and port calls in advance. A pool will take care of these expenses, while ensuring consistent cash flow to the shipowner through revenue sharing between all the pool vessels.

This regular income can make it easier to plan for investment-heavy emissions reduction technologies, while increasing earnings. At Tankers International we provide technical support and encourage inter-owner knowledge sharing by offering regular technical forums to give insights on new technologies – and help shape purchasing decisions and best practice.

Yet, pooling can benefit the industry beyond shipowners. Charterers are looking for green solutions today, while work on zero-carbon shipping will take time. Climate compensation can offer an immediate solution.

Tankers International’s Climate Compensation Voyage Scheme was recently launched in partnership with Vertree – a subsidiary of longstanding pool partner Hartree. The scheme allows us to offer tailored, voyage specific climate compensation packages alongside normal quotes.

The scheme uses scientifically recognised methodologies and proprietary data to calculate an emissions baseline on a per voyage, monthly or annual basis. This allows charterers to choose from a range of nature-based options to offset the carbon, tailored to price, geographies and impact targets. Where climate compensation is not a total solution to climate change on its own, it can play an immediate and meaningful contribution.

The scale of the decarbonisation challenge is set to stretch many shipowners’ bandwidth and cash flow close to breaking point, while many parts of the industry are already facing pressure to deliver. It is critical that tanker owners maximise the support that is available to them – from technical, to practical, to cash flow – and that charterers are provided with more options. Pools are crucial tools that can help drive solutions today.

Environmental regulations and demand-side pressures from end-users of oil have created new challenges for VLCC owners and charterers. Owners are faced with new administrative and technical requirements, while charterers need new carbon mitigating options today.

Matthew Smith, our senior vice president commercial and operations, recently wrote an editorial for Tanker Operator about how pooling can help the sector to manage this transition towards zero carbon for Tanker Operator.

Read the full article on page 19 of the May 2022 edition:

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