TANKERS AT WAR - JAMES H. RAND 1984-1987
- 12 January 2001 11:21
- 01 September 2011 03:33
Jim Rand was the first American to be elected Chairman of INTERTANKO when he succeeded Carl Rentz-Petersen in March 1984.
In his first ‘Chairman’s Report’, in the 1984 Annual Report, Jim Rand noted that “promotion of free enterprise and safety at sea are key issues for INTERTANKO”.
Further, he added that “free competition has also for centuries been a cornerstone of American society”. Perhaps someone should have told the United States Congress. Although, for a change, no flag preference proposals gained any speed in Congress, American proposals for taxation of foreign shipping were tabled in 1986. These proposals required tax returns from foreign owners and planned to levy taxes according to American theories of the owner’s domicile rather than the ship’s flag - a burdensome intrusion.
American tax was not the main feature of this time. This was provided by the more spectacular events in the Middle East Gulf, where the Iran-Iraq War now made the waters of the Gulf one of its main theatres. Both sides routinely attacked non-military shipping regardless of its association in any way with either of the combatants.
In 1984, eleven Very Large Crude Carriers (VLCCs) were damaged beyond repair by military strikes. More seriously, 25 sailors were killed and 25 more injured in the attacks. Some tanker owners refused to sail their ships to load at the Iranian export terminal at Kharg Island, despite high freight rates obtainable.
In 1985, 65 tankers were damaged, 22 of them being declared total losses. 30 more sailors were killed or missing, and 50 seriously injured. The Iraqi air force rocketed ships trading to Kharg Island. As Kharg’s anti-aircraft defences were strengthened the Iraqis targeted ships in ballast sailing towards Kharg - they presented a larger target in the water, were more likely to burn, and disrupted the export pattern at Kharg by failing to arrive and lift parcels from tanks. The Iranians attacked ships trading to other Gulf ports - including, on certain ridiculous occasions, ships that were delivering aviation fuel to Iran itself. Whilst the Gulf states generally backed Iraq, fearing the size of the Iranian army, most of them turned a blind eye to traders shipping oil products from Gulf ports to Iran.
As more and more owners decided to keep clear of the Iranian terminals, a shuttle service of VLCCs was provided to the Iranian Oil Company by companies willing to risk the voyage from Kharg to Quoin Island at the mouth of the Gulf where they trans-shipped the oil for the onward voyage to consumers.
INTERTANKO prepared and published a guide book for tanker operators on the Iran-Iraq conflict. The book, updated from time to time, listed the maritime exclusion zones, and the pattern of assaults against tankers (as they were not limited to the exclusion zone), the methods of assault and possible counter measures against attack - of which there were no practical ones on board ship - and safety precautions to avoid attack, fight fires, and improve rescue chances. The most damaging rocket hits were in the engine room, which is of course directly under the accommodation. Non-essential crews did not sail up to Kharg, and crews often slept in the fo’c’sle housing.
The sea war escalated in 1986 and 85 tankers were hit. 39 of those hits were outside the combatants’ declared exclusion zones. Iraq hit 49 ships, Iran 36. 51 sailors were killed. Iraq’s attacks spread to other Iranian terminals - Sirri Island and Larak, well to the East of the Gulf. While Iraq principally used the French Exocet missile which had achieved notoriety - but not a very successful hit rate - in the Falklands War, Iran employed aircraft, helicopters and naval frigates. The accuracy of the shooting was variable. Rockets fired from helicopters close up sometimes failed to hit the gigantic target of a VLCC.
INTERTANKO appealed to both combatant parties to cease attacks on innocent shipping, and further called for action in 1986 to the Secretary General of the United Nations, but the responses from Iran and Iraq - blaming each other for the attacks - were far from satisfactory.
Further disruption of oil supplies was threatened in 1986 when the United States Air Force bombed Tripoli and Benghazi in oil exporting Libya in alleged retaliation for Libya’s involvement in international terrorism. Libya’s capability to respond was limited and consisted of attacking a radar station on the Italian island of Lampedusa, and the death in Libya of an Italian chicken farmer.
The Gulf war encouraged oil stock building and the increase of production by the Oil Producing and Exporting Countries, OPEC. Seaborne crude oil transportation stabilised. Industrial production in the consumer countries rose and oil consumption rose with it. World growth at 4.8 percent in 1984 was the highest since 1976, and growth in America was 6.9%. International trade between industrialised countries grew 13% that year.
The growth continued in 1985 at a more modest 3 percent. Whilst oil demand and consequently tanker traffic dipped in 1985, in 1986 it rose again. Oil prices fell over the three years as OPEC attempted to defend its market share rather than maintain prices - in the face of resistance to quota limits of debt-burdened member countries like Nigeria needing to maximise oil revenues.
A feature of the mid 1980’s was the expansion of oil refineries in oil producing countries in the Gulf and Red Sea, resulting in some switch of shipping from VLCC parcels of crude oil to long-haul product exports, increasing in size for Gulf shipments from the standard 30,000 ton parcel to 50-60,000 ton sizes. INTERTANKO’s 1986 Annual Meeting in Rome discussed the product tanker market and for the first time involved a trader charterer in the debate.
Another welcome fillip for the tanker industry was a coal miners’ strike in Britain which led to a boost in fuel oil imports to British electricity generation stations.
The general tanker surplus however remained overwhelming. It was estimated in 1984 that tanker supply was twice tanker demand. The tanker fleet fell in 1984 to 300 million tons of capacity, to 277 million in 1985, and held level in 1986. Scrapping continued apace. 21 million tons of tankers were scrapped in 1984 - 215 ships including 49 VLCCs. 30.3 millions went to scrap in 1985, 229 tankers - including 72 VLCCs totalling 20.5 million tons. 15.2 million tons were scrapped in 1986 - almost all in the first half of the year. Market improvements and optimism choked off scrapping in the second half of the year.
Much of this high scrapping volume came from ships taken out of lay-up, the figures for which fell dramatically. Many laid-up ships lacked vital parts necessary for recommissioning and INTERTANKO floated the idea of buying ships “as is where is” in lay-up and moving them - under own power or towed - to scrapping locations. INTERTANKO made representations to the Suez Canal Authority to make it easier for tankers under tow going to scrap to transit the Canal. China’s scrap industry ballooned and made China the third largest buyer of scrap ships in 1984, and the largest in 1985.
Volumes of ships in lay-up had fallen from 48 million tons in 1984, 259 tankers, to 17 millions in 1986. The bulk of these were VLCCs. 20 million deadweight tons of tankers were engaged in 1986 in floating storage of oil.
The sensitivity of scrapping to market improvements was evident from the sharp reduction in scrapping volumes in the second half of 1986. Although scrap prices rose, improved market prospects and, more particularly, forward optimism meant that second-hand prices of tankers rose to show a gap over scrap prices. Some of the tankers damaged in the Gulf War which would probably normally have been scrapped were now repaired and recommissioned, and other tankers coming up to Class surveys and major works were upgraded and had their lives extended as well.
INTERTANKO was concerned about new ship prices. “The situation in the newbuilding market,” warned INTERTANKO in 1984, “is characterised by temptingly low prices and generous financing terms for ordering of new vessels”. INTERTANKO took out an advertisement signed by Chairman Jim Rand in the International Herald Tribune, addressed to shipping investors and banks to resist offering unduly tempting finance levels. New ship orders increased. In 1985 INTERTANKO repeated the advertisement opposing ship building subsidy in the magazines The Banker and the Economist.
INTERTANKO also wrote to twenty leading shipping bankers asking them to reconsider their lending levels for ship construction. The letter itself was not particularly well received by the banks. However, Banks toughened up their lending policy - or at least said they were doing so in 1985. A Working Party of Shipbuilding at the Organisation of Economic Co-operation and Development, OECD, considered measures to curb the shipbuilding “subsidy race”. The order book grew only slightly in 1986 despite efforts by would-be investors to raise money. Lenders had cut the funds available, and the numbers of banks or institutions engaged in ship finance contracted.
Until 1986 at least, freight incomes remained very poor with Worldscale rates for VLCCs in 1985 dipping into the low twenties, and products charters (30,000 ton cargoes) being fixed below Worldscale 100: poor figures indeed. Improvements in VLCC rates in 1986 were partly blunted by increased fleet speeds. The dollar income to shipowners was under threat as in 1984 the dollar value slid twenty percent.
The current round of discussions on shipping at the United Nations Conference on Trade and Development, UNCTAD, gradually drew to some sort of a conclusion. The Group of Experts studying developing countries’ access to the tanker trades had concluded in 1984 that there were no bars to access for newcomers. UNCTAD now proposed to meander off into a study of current supply-demand imbalances in tanker shipping, their causes and remedies, and to see if subsidies could be switched away from shipbuilding to ship scrapping - a move blocked by ship building interests.
The Conference on Ship Registration - the thinly disguised effort by UNCTAD’s Secretariat to eliminate open ship registers - continued. INTERTANKO produced a barrage of printed material defending efficient maritime administrations which promoted ship safety and crew welfare and encouraged safe investment, regardless of whether they were “open” or national registers. The Conference remained deadlocked throughout 1985 on the questions of nationality links for manning, management and ownership.
Finally in 1986 a Convention was concluded which settled the conditions for registration of ships as requiring “ready identification and accountability of those responsible for the operation and management of vessels and a requirement for a flag state to have an efficient and competent maritime administration”. The Convention required ratification by 40 states accumulating 25 percent of shipping tonnage: levels not so far achieved. So far as tanker shipping was concerned, UNCTAD wandered off into the night never to be heard of again.
Other international efforts exercised INTERTANKO: a Diplomatic Conference of the International Maritime Organization, IMO, brought forward new Protocols to the Conventions covering liability and providing compensation for oil spills from tankers - the 1969 Civil Liability Convention (CLC) and the 1971 Fund Convention. Some adjustments had been made to the Conventions, but the main change was raising the liability ceilings both for tanker owners (under the CLC) and oil companies (the Fund). INTERTANKO urged states to ratify the new Protocols, in a series of meetings in Paris, the Middle East and Indonesia.
The main obstacle to the 1984 Protocols entering into force was the high threshold of ratifications required. The threshold required combined a minimum number of ratifying countries, and tonnage of ships and oil imports. Much of the work to bring about these Protocols had been done by the United States delegations and effectively the threshold provisions meant that without American ratification they would not enter force. The United States dragged its feet and, for reasons yet to unfold, never ratified the 1984 Protocols.
Changes in the Conventions required changes in the voluntary agreements, TOVALOP and CRISTAL. The oil companies wanted to cancel CRISTAL, and produced a proposal called PLATO, which tanker owners perceived as placing more burdens on the tanker owner, to the relief of the cargo owner. INTERTANKO said the oil spill victim’s coverage for compensation would be cut while the tanker owner’s liability would rise: thus the oil companies would score a double benefit. High profile lobbying efforts were mounted by oil companies for PLATO and by INTERTANKO against it. In 1986, PLATO failed to gather the necessary minimum number of tankers entered and was shelved. Amendments to TOVALOP and CRISTAL to mirror the Convention compensation provisions were embodied into Supplementary Agreements. INTERTANKO continued in 1986 to press countries - including the United States - to ratify the 1984 Protocols.
Extra safety and anti pollution measures entered into force for more tankers under the Marine Pollution Convention MARPOL 73 and Safety of Life at Sea Convention SOLAS 74, as modified in 1978. Inert gas systems became mandatory for tankers over 20,000 tons deadweight, and permanent clean ballast tanks were required for older types of tanker over 70,000 tons. In America the rules were stretched further, despite INTERTANKO’s calls for standardisation of requirements to the international, IMO, ones.
MARPOL had been ratified by 90 percent of the world’s shipping tonnage by 1986 but the issue of provision of reception facilities for oily wastes was still unresolved. Repeating previous advice, INTERTANKO pressed for the use of surplus tankers as floating reception facilities. INTERTANKO worked with the Regional Organisation for the Protection of the Marine Environment, ROPME, in the Middle East Gulf, and took part in United Nations Development Programme meetings on the issue.
In 1985 INTERTANKO paid for an advertisement in Lloyd’s List calling for compliance with the MARPOL requirement for waste reception facilities. “Shipowners have spent billions of dollars ensuring their ships meet MARPOL standards. It is high time governments behaved equally responsibly,” said INTERTANKO. Some ports even banned ships from carrying out Crude Oil Washing - COW - and Jean-Pierre Page, Chairman of INTERTANKO’s Safety and Technical Committee, wrote strongly to Lloyd’s List about the environmental consequences of this ban.
INTERTANKO began to take a stronger line on tanker quality. In October 1985 INTERTANKO marked its Fifteenth Anniversary with a Conference on the tanker market. Important presentations highlighted the responsible tanker owner’s dilemma. Michael Tusiani of shipbrokers Poten & Partners, New York, said of current tanker chartering “not much seems to matter except the rate. Charterers won’t pay a premium for quality, or reputation, or relationships, or the long term. The only way an owner can get voyage business is to quote at a lower rate than anyone else.”
Charles Barton of Bergen chemical tanker owner Jo Tankers quoted from an open letter from a major operator to its customers, which said “we find that hazardous cargoes are being entrusted to shipowners with no history of performance or standards of operations. We must interpret this to mean that only the lowest rate counts with little or no concern for safety, professionalism, operational excellence, or preparedness for reacting to possible marine casualties.”
At a later meeting - in November 1985 - Philip Owen of Shell International Marine remarked that under prevailing conditions “the quality owner will be unable to gain a sufficient premium for his tonnage in order to maintain his standards and will be forced to quit the industry.” A chartering manager from a trading company speaking at the 1986 Annual Meeting however expressed it differently: though there was not much of a premium for quality tonnage, there was a premium for reliability, which was not always associated with a ship’s age. The calibre of a ship’s owner based on past experience is a far better pointer. Owners needed, he said, to make their own advantage out of modern units - lower manning levels, lower maintenance bills, cheaper insurance and lower bunker consumptions for example.
There was a recognition that laxer inspection and policing of shipping - in areas such as ship insurance and classification - were contributing to a perceived growth of substandard shipping. INTERTANKO met with the International Association of Classification Societies, IACS, to discuss ways of eliminating “class shopping” - switching classification society to avoid complying with recommended works to ships.
The Bill of Lading Registry pilot - SeaDocs - which was designed to obviate problems for oil trading and for delivery of oil cargoes to receivers not holding bills, started a trial run based on oil loaded at the Phillips Petroleum North Sea terminal, Seal Sands, in 1985. Chase Manhattan had obtained insurance against errors in the registry and worked with INTERTANKO and others on requirements for participation, based on a membership fee.
Sixty companies agreed to participate in the SeaDocs pilot. INTERTANKO had a seat on the Advisory Committee. However in 1986 the financial costs of this pilot overcame Chase Manhattan. Additional sponsors were sought and when none was forthcoming, the pilot scheme was ended and the SeaDocs project collapsed. Attempts to interest P.& I. Clubs in rescuing the scheme failed.
Another novel scheme launched in 1985 was “Tanker Biffex”. The Baltic Exchange had set up a Freight Futures Exchange - called Biffex (and now operating on the London Commodities Exchange) - to enable shipowners and shippers - charterers - to commit their ships or cover their cargo shipping needs forward and “hedge” against freight fluctuations. The same concept was put in front of the tanker industry. Tanker owners expressed an interest in it but charterers, traders, who were limited to two representatives on the discussion committee, found it less interesting. The trader members suggested - at the Working Committee and at Intertanko’s 1986 Annual Meeting - that the clean products chartering market should be used as the basis, but the owners decided to go with the large crude and fuel oil ship market. Without the participation of the charterers “Tanker Biffex” never obtained the necessary trading volume and it failed.
INTERTANKO was concerned with freshly introduced chartering clauses covering short delivery of oil cargoes, cargo mismeasurements, and cargo water content from certain terminals, all of which were perceived as ways of making tanker owners pay for otherwise unrecoverable oil losses - apparent or actual. A publication “Oil Cargo Losses and Problems with Measurement” was issued by INTERTANKO in 1985.
By 1985 the Freight and Demurrage Information Pool had intervened in 200 cases since its formation, helping owners recover an estimated 2 million dollars.
Despite adoption of some published standards for bunkers, bunker fuel quality was continuing to decline as vacuum distilling and cracking in refineries took out more and more “light ends” - the best bits - at the same time increasing sulphur content percentages and adding damaging metals like vanadium to the bunker fuel. INTERTANKO published “Guidelines for Marine Fuel Oil Purchasing”.
In his last year in the Chair, Jim Rand achieved some unexpected publicity when he and Marine Transport Lines parted company and for the residue of his term until June 1987 he sat as Chairman without a sponsoring INTERTANKO member company. On handing over to Basil Papachristidis, Jim Rand was elected an Honorary Member.