Consolidation among oil tanker owners will accelerate as a result of tough shipping and financial market conditions, one of the sector’s key figures has predicted.
The comments by Morten Arntzen, chief executive of New York-listed
Overseas Shipholding Group, come amid a glut of sharp profit falls for the large tanker operators.
Mr Arntzen said that banks’ reluctance to lend would force weaker owners to sell out to stronger ones. OSG has the world’s second-largest tanker fleet by ship numbers.
The process would favour listed companies that could raise capital on public markets, Mr Arntzen went on. His views contradict traditional shipping market wisdom, which values the benefits of the secrecy enjoyed by the sector’s hundreds of private owners.
“Finally, being a public company has value,” Mr Arntzen told the Financial Times. “The advantage is the access to an additional source of finance other than the traditional ship mortgage.”
Declining demand for oil and oil products and an oversupply of ships have hit large tanker operators’ profitability.
OSG itself on Monday revealed net profit down 78 per cent to $70.2m on turnover down 36 per cent to $1.09bn.
Frontline, the market leader,announced net profitdown 85 per cent to $103m on Friday, and
AP Moller-Maersk is likely to announce either severe profit falls or losses at its tanker division on Thursday because of its heavy exposure to the troubled market for oil product tankers.
However, Mr Arntzen insisted large, publicly-owned companies such as his would have significant advantages in the next few years over the hundreds of small, privately-held companies – many Greek – that still form the bulk of the world tanker fleet.
Large operators have gradually been buying up rival companies or their ships in recent years as growing environmental concerns have pushed major oil companies to prefer bigger, safer operators. However, Mr Arntzen said that process would speed up as small operators found the shipping banks on whom they relied for finance were no longer willing to lend.
“The companies that can tap the bond market, the equity market – they have an advantage,” Mr Arntzen said. “That will lead to an acceleration in consolidation.”
OSG was exploiting its relatively stronger financial position by watching out for problems with the payments on ships ordered by financially fragile competitors, Mr Arntzen told the Marine Money Hamburg ship finance forum last week. The company bought a pair of completed oil product tankers from one shipyard after their intended owner was unable to finance its final pre-delivery payment.
Growing regulatory pressure on banks would only increase their tendency to prioritise lending to the biggest, best-capitalised companies, Mr Arntzen told the FT.
“The regulatory thing is going our way,” he said.
Shortage of capital remained a far bigger problem for most tanker operators than the market downturn, Mr Arntzen insisted. Many owners are struggling to finance instalments on orders placed with shipyards during shipping’s 2001-08 boom.
“The tanker market is just poor,” Mr Arntzen said. “The real crisis is in the banks.”