INTERTANKO: Tanker Owners "In Really Dire Straits"

Many VLCCs continue to operate despite losing money on each trip

With average daily earnings dropping far into negative territory, the oil tanker industry needs renegotiated charter contracts if it is going to operate effectively, Katharina Stanzel, managing director of the trade group INTERTANKO, told Reuters.

The organisation, which represents companies owning a majority of the world's tanker fleet, said very large crude carriers (VLCCs) that trade on the spot market have accumulated about $5.5 billion in losses since 2009.

"A lot of our very, very high quality members are currently in really dire straits," Stanzel said.

"In particular, we are seeing very large crude carrier rates are absolutely rock bottom on key routes. So, people are just losing money the whole time."

"That is something that is very worrying."

The build-up of ship orders between 2007 and 2009, when earnings in the tanker market were strong, has left an oversupply of capacity in the market, and rising bunker prices have raised owners' expenses at the same time that rates have fallen.

Despite negative earnings - including a recent drop to a record low of -$8,000 per day - ships have continued to operate so that they can be positioned to keep getting work, Reuters reports.

"We are actually paying oil companies to transport their oil," Stanzel said.

In many cases ship owners have had difficulty keeping up with their financial obligations, but banks have not found it worthwhile to seize vessels and have instead extended loan terms.

Stanzel said INTERTANKO wants to ensure the industry's sustainability by reworking some freight contracts with charterers, something she said the industry's customers should recoginise is in their own interest.

"If we break the supply chain because members go to the wall it affects everybody," she said.

"It is the quality tonnage they will lose."

Teekay Marine Markets predicted in December that, despite some increases in crude tanker demand, a strong market recovery will take until 2014, while Herbjørn Hansson, chairman and CEO of Nordic American Tankers Ltd. [NYSE:NAT] (NAT) said last month that the tanker market had hit bottom.

Shipping billionaire John Fredriksen said in January that product tankers will lead the industry toward recovery over the next 15 to 20 months, but for big crude carriers it "will take much more time."