Single-hull phaseout casts shadow

The United Nations ban on single-hull tankers came into effect on April 5. This could worsen the rate situation.

According to an International Maritime Organisation (IMO) report, Asian shipbuilders have been struggling to meet demand for container ships amid soaring global demand for fuel.

Under the UN rule, all single-hull ships must stop sailing by 2010.

Shipowners must scrap 169 tankers with a combined capacity of about 6.9 million tonnes this year, about 2 per cent of this year's global capacity.

By 2010, as many as 1,402 ships carrying 104.6 million tonnes, or a quarter of global tanker capacity, would have to be scrapped, according to a recent report issued by the London-based ship broker E.A. Gibson.

South Korean shipbuilder Hyundai Heavy Industries, which runs the world's largest shipyard, and other shipbuilders have limited capacity to build new tankers as they struggle to meet demand for more profitable container ships and liquefied natural gas carriers.

"The problem now is that shipowners will have to wait until 2008 to get any delivered, with the South Korean shipyards already full with orders," said Kang Sang Min, a shipbuilding analyst at Tong Yang Investment Bank in Seoul. "Shipowners have already put in orders for most of the tankers they would need with the new regulation."

Captain Malek Far, of the Islamic Republic of Iran Shipping Lines (IRISL), said, his company has placed orders for 12 large ships with South Korean shipbuilders, including Hyundai Heavy Industries.

The United Nations International Convention for the Prevention of Pollution from Ships was amended to accelerate the phase-out after a ship named the Prestige sank off the coast of Spain in November 2002 while carrying 77,000 tonnes of fuel oil.

Double hulls, mandatory for all tankers built since the mid-1990s, reduce the risk of pollution if a ship is damaged in an accident.

The phase-out of ships is staggered by their age. Tankers built before 1977 and those with certain kinds of cargo tank structures were required to cease operation on April 5.

As tankers reach the 26-year mark over the next five years, they must be phased out.

All remaining single-hulled tankers are set to be abolished in 2010.

The move by the United Nations "will have some impact on the oil tanker rates because this ruling will affect the supply and demand of these vessels," Kang said.

Oil tanker rates, which usually fall in the second quarter, may climb in the next three months as the Organisation of Petro-leum Exporting Countries bolsters oil output to meet US and Chinese demand.

With rising steel costs and demand for ships that exceeds yard capacities, the price of building a 2-million-barrel oil tanker, or a very large crude carrier, has more than doubled since September 2002.

Under the convention, individual flag states may authorise single-hulled tankers less than 25 years old to carry on trading until 2015.

Since April 4, Singapore's has required all single-hull oil tankers to announce their arrival 24 hours in advance.

The city's Maritime and Port Authority said that these tankers of more than 5,000 tons must inform the authorities of the nature of their cargo 24 hours before they arrive.

Ships that do not comply may be denied entry to the port or may be detained, it said.

About one-tenth of the 133,185 vessels that arrived in Singapore last year were oil tankers.

In 2004, 12,930 oil tankers with total capacity of 286.54 million gross tonnes arrived in the city, 6.6 per cent more than the previous year in gross tonnage terms.

Singapore will also waive port dues to help cut costs for double-hulled oil tankers, Lim Hwee Hua, minister of state for finance and transport, said last month.

South Korea will deny entry into its ports of single-hulled tankers.

Starting April 5, South Korean companies have been banned from operating single-hull oil tankers that have a capacity of more than 5,000 tonnes, the Ministry of Maritime Affairs and Fisheries said.