Peace in the Gulf - Basil Ph. Papachristidis (1987-1989)
INTERTANKO’s Membership in 1987 totalled 135 million tons of oil carrying capacity, spread over 33 maritime countries.
The figure was down on the peaks of the early 1980s but then so was the tanker fleet as a whole. INTERTANKO maintained that the Association had some 80% of eligible owners - independent tanker owners - in Membership. New additions to the mailing list included Statoil, the Norwegian state oil company, in 1987, and BP Shipping in 1988.
Basil Papachristidis, elected Chairman in June 1987, placed The Tanker War at the top of his list of priorities. The Iran-Iraq War, which was its genesis, continued apace and saw 144 tankers attacked in 1987 - a sharply increased figure from 85 in 1986 - and 64 seafarers were killed in the Tanker War. A new hazard to add to rocketing from aircraft was that of mines laid at random along the Gulf.
INTERTANKO had urged maritime nations to provide naval escorts for tankers on innocent passage in the Gulf. Belgium, the Netherlands, France, Italy, the United Kingdom, the US and the Soviet Union provided naval units. Other major maritime nations with naval forces, such as Denmark, Greece and Norway, did not.
The naval presence did provide some level of deterrence. Kuwait, the most exposed of the non-belligerent Gulf States, reflagged many Kuwaiti tankers to the American flag with American management to take advantage of the protection of the US Navy. It is an interesting argument in favour of retaining ships under national flags of traditional maritime countries that one can hope to rely on the flag’s diplomatic and, if it comes to it, military protection, which "open register" flags like Liberia are not equipped to provide. However, as many of the campaigns against open registers are mounted by developing countries, which are no more able to provide this support, the cutting edge of this argument is somewhat blunted.
Basil Papachristidis started on a tour of meetings with political leaders to seek protection for tankers and their crews from these war risks. In 1987, he met with the administrations of the United Nations and of the US. He also met government leaders in other countries. In Greece he met Prime Minister Papandreou, and in Norway, Britain and Denmark he met with government ministers. At each of these meetings he pressed for action to halt the attacks on shipping and the killing of innocent seafarers.
His view was clear: "The world must now ask itself how long seafarers and shipowners can be expected to continue single-handedly bearing the burden of the protection of the right to engage in seaborne trade and of ensuring that the oil importing world is not held to ransom by aggressors in the Gulf."
In May 1988, INTERTANKO hosted a meeting in New York with the United Nations Security Council to discuss the Tanker War. INTERTANKO’s Chairman told the Council of the importance of freedom of the seas, and that "attacks in international waters on vessels trading between non-belligerent countries are in flagrant violation of international law, of which freedom of navigation has with time become part of the bedrock".
A ceasefire was finally agreed by both combatants. At first it was subject to occasional breaches but in time it was respected. INTERTANKO was realistic enough not to claim for itself the credit for the ceasefire, although the Association had done itself some good by its appearance before the Security Council. The ceasefire arose from a change of heart in Iran, whose casualty rates among boy soldiers at the front had been terrible. There had been no firm demonstration of the willingness to defend the rights of innocent maritime passage and INTERTANKO noted that "the fact that hundreds of innocent vessels were attacked with impunity over a period of several years serves as a sober testament to the lack of resolve among many governments of the world".
The Iran-Iraq War had been "the most intensive assault against neutral shipping since the Second World War", noted INTERTANKO. A total of 250 seafarers had lost their lives and a similar number had suffered injury. Hull damage had been inflicted on some 400 ships - three quarters of them tankers - from 30 maritime nations. A further 62 tankers had been declared total losses, taking the cost to shipping to some $3000m.
INTERTANKO involved itself in 1988 in another case involving violation of innocent passage. A case which reached the US Supreme Court was brought by the oil company Amerada Hess against the Argentinian government over an attack by Argentine forces on Hess’ tanker Hercules during the Falklands War.
INTERTANKO filed a brief as "amicus curiae" to call for compensation from governments attacking innocent ships in international waters. However, Hess’ case was dismissed in January 1989 as Argentina was protected by the Foreign Sovereign Immunities Act of the US.
On other fronts, the tanker market was looking forward to coming healthier prospects. The posted prices for crude oil from the Oil Producing and Exporting Countries (OPEC) fell to $18 a barrel in 1987. Crude oil imports into America rose. In 1987, oil products imports to Japan rose by 43% on 1986 levels, while Japanese crude imports declined.
Developments in the fleet were promising. A strong dry cargo market meant most of the combination carriers deserted liquid bulk trades. The fleet size reduced a little, though new ship ordering increased - mainly in the Suezmax sizes (120-150,000 deadweight tons - the maximum size which could the transit the Suez Canal fully laden). Both lay-up and storage employment fell. Voyage chartering increased to about 550 million tons in 1987.
However, the average freight rates in 1987 were lower than 1986 and there were a number of bankruptcies as banks began to squeeze out bad debts.
Stock market crash
The October 1987 worldwide stock market crash gave discouraging signals as deflationary measures by governments were expected to reduce economic growth and thus to reduce oil demand, in tandem. Economic attention was strongly focused on the problems of debts from developing countries, which had become unbearable for borrower and lender alike.
However, ship values rose. In 1987, the second-hand value of an old Very Large Crude Carrier (VLCC) rose to figures of around $10m compared with an obtainable scrap price of $7-8m. New building prices for VLCCs topped $50m. Investment schemes, like the K/S (Kommandert-selskap, limited partnership) scheme in Norway encouraged fresh money into shipping, inflating prices.
In 1988, oil trade volume rose again, more sharply. In ton-mile terms, the increase was 10%. Oil imports to the US and to Japan rose.
By the end of the year the daily hire rate for a VLCC was reaching $30,000. However, this was still not a good enough return to fully finance a new building contract. Over the years, 200 million deadweight tons of tankers had been scrapped but now scrapping activity was modest due to the rise in second hand prices. New contracting was also limited though, as ship building capacity - yards and skilled workers - had been cut. Contract prices in Japan and South Korea rose. In Korea, new building prices rose by 30% in 1987, and 40% in 1988. Credit availability was also tightened.
A perception was developing of an ageing VLCC fleet. By 1988, over 40% of the VLCC fleet was over 15 years old, and concern began to be aired about the need and capacity for building replacement tonnage.
Even INTERTANKO, which had spent so long discouraging ship ordering, started to talk in 1988 of the need to order new ships to modernise the fleet. Owners were looking at options for life extension of ships which might otherwise have been scrapped. The benefits to an owner of carrying out work which might double, or treble, the remaining life of a 15-year-old ship were self-evident.
The reduction in ships going for scrap forced scrap prices up to record levels. The principal buyer was China, now that in 1988 Taiwan, China and South Korea closed down their scrapping capacities as their economies developed into more sophisticated activities.
At the International Maritime Organization (IMO), INTERTANKO was busy trying to control the tendency of the body towards over-regulation. In 1981, IMO passed the A.500 resolution that urged new regulations for shipping should be introduced only when a pressing need had been identified, and that endeavours should be concentrated on the ratification and implementation by governments of existing Conventions and rules.
Most sections of the Marine Pollution Convention (MARPOL 73-78) had entered into force in 1983 but in wide areas of the world MARPOL had not been ratified and did not, therefore, apply.
MARPOL provided for declaring certain particularly vulnerable marine environments to be "Special Areas". Discharge of any oily water was to be forbidden in these areas - the Mediterranean and the Middle East Gulf foremost - as soon as adequate reception facilities existed in the ports in the area to handle the needs of shipping. However, these facilities were still absent in major areas.
The Mediterranean Sea was then closed for oily waste discharge regardless of the reception facility provision. Major Mediterranean oil loading areas, such as most of the North African terminals, lacked adequate provision. The difficulty for older tankers trading in the Mediterranean was considerable, particularly on short voyages across the Mediterranean when the ballast voyages are too short for oil and water in the tanks to separate. It was an added complication that the stricter enforcement of safety and anti-pollution requirements in the US, North West Europe and Japan meant that older ships, not equipped with Segregated Ballast Tanks to keep oil cargo and water ballast apart, predominated in the Mediterranean trade.
In the Gulf, the provision of these facilities was even patchier. The problem was less acute though, as ships sailing there to load generally had longer voyages in ballast to allow the oil and water to separate. A survey in the Gulf had shown little demand for establishment of reception facilities but this depended on the continued ability to discharge some oil-contaminated water - legally (and therefore also illegally, because who could detect the difference?) - at sea on voyage.
Another port-related anomaly was drawing INTERTANKO’s attention. In many ports the dues are assessed on Gross Register Tonnage (GRT) - a volumetric measure of a ship based on complicated international rules. Tankers provided with segregated ballast tanks (SBT) have a higher GRT for the same cargo carrying capacity than non-SBT ships because of these extra tanks which could not be used for cargo. The result was that the port dues for an SBT ship were higher than for the non-SBT ship of the same capacity. INTERTANKO pointed out that this penalised SBT ships which were acknowledged as being "cleaner" and called for ports to adjust their dues to remove this "penalty on environmentally-friendly tankers".
IMO accepted this argument and passed a resolution recommending ports to adjust their charges to avoid penalising SBT tankers. Ports resisted this, however, for a variety of reasons, including arguments about autonomy in setting calling fees. Perhaps the most reasonable argument on the side of the ports was that SBT tankers are physically bigger than non-SBT vessels.
Repeated questions in the Norwegian Parliament initiated by INTERTANKO led to the Norwegian government removing the discriminatory dues. Then Rotterdam, the biggest port in the world, adopted the principle. However, the policing of the claims for deduction of SBT spaces was inadequate and Rotterdam lost money on dubious claims for the discount. The experiment was terminated, full GRT-based dues were reimposed, and it was not until 1994 that Rotterdam relented and offered discounts to some SBT tankers.
Chemical Tanker Owners’ Advisory Group
INTERTANKO started a Chemical Tanker Owners’ Advisory Group in 1987. Annex II of MARPOL 73-78 came into force in April 1987. This Annex covered the discharge of chemical wastes (as Annex I covered the discharge of oily wastes). IMO was working at this time on a convention to cover shipowner and cargo owner liability for carriage of "Hazardous and Noxious Substances" - essentially, chemicals. A draft Convention presented in 1984 had failed to obtain acceptance and work in 1987 and 1988 fared little better. INTERTANKO pointed out anomalies in draft regulations for "flame arrestors" on chemical tanker ventilation pipes, intended to prevent flash fires. Detailed technical items inextricably bogged down the discussions.
The 1984 Protocols to IMO’s oil spill compensation Conventions, which increased maximum fund levels for compensation payments to oil pollution victims, still lacked ratification. INTERTANKO made major efforts to persuade the US to ratify. American ratification was the key to success. A bill came before Congress that would ratify and pre-empt the right of States to pass or maintain legislation conflicting with the Federal law.
Jim Rand, the previous Chairman, addressed the House of Representatives Subcommittee on Water Resources urging ratification.
In 1988, INTERTANKO engaged the services of retired Rear Admiral Sidney Wallace, now with a Washington law firm, to help secure the passage of the bill to ratify the Protocols and generally to work for INTERTANKO. The US still presented problems to shipowners in other areas. For example, the tax changes tabled in 1986, requiring complicated returns to the America tax authorities from non-American shipowners trading with the US, still caused alarm and concern.
Worldscale, the tanker freight rate reference index, was revised in 1987, and "New Worldscale" was introduced. The major reform - long awaited by owners - was to replace the "nominal tanker" of 19,500 tons capacity earning a daily hire rate of $1800 with a 75,000 ton capacity ship earning $12,000 a day. Bunker fuel price assessments were also now made on worldwide market prices. Previously they were based on prices in the actual ports of call. The change better reflected contemporary practice of shipowners in more competitive bunkering, worldwide term contracts with suppliers, and hedging bunker risks.
INTERTANKO’s Freight and Demurrage Information Pool (FDIP) was kept busy. An expanding amount of its work involved credit checks on potential charterers as owners sought information before accepting charter business from unfamiliar companies. The Pool continues to work on an information-exchange basis, with INTERTANKO Members providing the information on which data is based.
The Documentary Committee published Tankervoy 87, an updated charter for based on the old Intertankvoy. Also published was a Tanker Voyage Chartering Questionnaire referred to as Q88. While neither form gained widespread use, they contributed to the debate and many of their provisions were incorporated, to a greater or lesser extent, in other chartering terms.
The Port Information Office published the first edition of International Tanker Trading Regulations, a reference book on requirements, prohibitions and boycotts among oil ports, terminals and producer and importer countries.
In January 1989 INTERTANKO moved into new premises. The Association had acquired a villa in Oslo’s Embassy District and was able to leave the Norwegian Shipowners’ Association building in central Oslo where the staff had outgrown the available space. INTERTANKO’s house flag flew immediately next door to buildings flying the Egyptian, Iranian and South African flags. By the end of 1988 INTERTANKO’s staff numbered 14, still led by Tormod Rafgård, now styled Managing Director.