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Shipping cycles and trick cycles

Shipping cycles and trick cycles

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The editor asked for my thoughts on the idea that the ‘shipping cycle’ might become a thing of the past, thanks to improvements in our ability to process data.

My mind went back to 1979, when the idea of ‘research’ into shipping supply and demand was still relatively new. In that year, Drewry, then a mere nine years old, announced that they would carry out research into the future of the tanker Mmarket. This was at a time when most of the world’s tankers were VLCCs and most of those were three or four years old and laid up. Drewry’s new ways of carrying out research offered a new hope to the despairing tanker owners of the globe, most of whom had contracted VLCCs in the expectation that they would be snapped up on lifetime full payout time charters by the Seven Sisters, and who were fending off their increasingly irritated bankers.

There was huge demand for the forthcoming Drewry report – hundreds of copies (remember – the nearest we had to the internet was telex!) were sent round the world by the then newfangled Courier Services. Some owners went so far as to send senior managers to London to stand in a queue, much in the manner of Harry Potter fans, to collect their copy, read it and telephone their waiting boards with Drewry’s invaluable insight.

Moses distributing manna from heaven was no more popular with the Israelites than H.P. Drewry was with the tanker owners.

The hugely popular report did indeed offer fresh insight. Tanker owners opened its pages (this was still in the days of Gutenberg, not Zuckerberg) and found that they had got it all wrong. The balance of power in the oil patch was shifting away from the Seven Sisters to the oil producing nations, organised in OPEC, and they were concerned to add value to their exports by refining their oil before shipment. The future of the tanker business lay, not with the steam VLCCs that were clogging up the anchorages of the planet, but with the product tanker!

My employers read the report, not because they were tanker owners, but because they were in the supply boat business and were looking to diversify, and beat a path to Tsuneishi, who were happy to build them a handy sized product tanker with an IHI Pielstick for $20m. Before she was launched, they were offered $28m. They turned it down. You may see her model today, in the Hong Kong Maritime Museum. It’s quite a nice model. The only time in her life when she made any money was when an Iranian gunboat hit her accommodation block with a missile – she was insured for loss of hire.

What Drewry had failed to predict was the event that briefly made money for that ship and permanently destroyed the market for her kind – the Iran/Iraq War. That killed plans by the oil producers of the Middle East to build refineries in their own nations – it was simpler and almost as effective to buy refineries in the much safer oil consuming nations and ship the crude oil to them in the VLCCs that the tanker owners had made so cheap to charter by building far too many of them.

The extraordinary overordering of product tankers, on the back of a single well researched, well written, and well argued, but, as it proved, much mistaken report, by the industry’s leading research house, an organisation that was expected to put a stop to the shipping cycle by proving owners with hard data on which to base their business decisions, leads me to suspect that perhaps improvements in our ability to process data may not be the whole answer.

The moral of this story is that, in shipping at least, there is always, always, something nasty in the woodshed.

More anon in which we peek into the woodshed.

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Andrew Craig-Bennett

Andrew Craig-Bennett works for a well known Asian shipowner. Previous employers include Wallem, China Navigation, Charles Taylor Consulting and Swire Pacific Offshore. Andrew was also a columnist for Lloyd's List for a decade.

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10 Comments

  1. Captain C. Allport FNI
    August 2, 2016 at 10:08 am

    So stick with the crystal ball then?

    1. Andrew Craig-Bennett
      August 2, 2016 at 2:46 pm

      Chris – I would be wary of the crystal ball – it gives a spurious accuracy to its results!

  2. Paul Mazzarulli
    August 2, 2016 at 11:32 am

    Ease and frequency of access to data has completely skewed the curve. Instead of waiting for the once-a-year book (From Drewry, or Clarkson, or Gibson), soon enough information became quarterly and everyone’s hard-copy fleet registers were filled with scribbled annotations and updates. That was 20 years ago.
    Now, shipyard updates and scrapping confirmations can be checked daily (“Still too many newbuildings?” “Yup.”) if not hourly. So, the sine wave of fleet profiles – newbuilding order decisions – has a narrower frequency and a higher amplitude. There is, unfortunately, no way to go back to less information, so the owners are perpetually at a disadvantage to charterers, financiers, traders, and analysts.
    The only solution is to be more discriminating with the data you DO view, and how you interpret it. That’s hard when you get 15 broker reports a week in any given sector, but sooner or later the smarter ones will resume their advantage based on sharper analysis rather than just data aggregation.

    1. Andrew Craig-Bennett
      August 2, 2016 at 2:16 pm

      A greater amplitude over a shorter frequency is not good news! I concur that data aggregation gets us nowhere, other than to where everyone else is. I also agree that owners are at a near permanent disadvantage to those with less fixed capital.

  3. Tom Skowronski
    August 3, 2016 at 6:11 am

    Not only tanker owners but the Seven Sisters themselves were caught up in the hysteria of VLCC building when world scale worked up over 400 in the early 70’s as evidenced by an order for 24 of them by Chevron to MHI.

    1. Andrew Craig-Bennett
      August 3, 2016 at 11:46 am

      Tom – a very good point, and a shining example of what you should never do – the Seven Sisters “put a ruler on a graph”, assuming that, as more people owned cars and used electricity, oil demand would go on rising. The independents saw the seven sisters building tankers and thought “They must know best”, because they always had known best.

  4. Captain C. Allport FNI
    August 3, 2016 at 9:50 am

    One of the early jobs I was given when first coming ashore with one of the seven sisters in 1980 was to find floating storage locations for all the crude tonnage we had that was filling up rapidly due to our term contracts in Saudi. The next task was to identify lay-up locations for 50 of our 51 U/VLCC’s. By 1990 we had disposed of most of the fleet!

    1. Andrew Craig-Bennett
      August 3, 2016 at 11:48 am

      Chris – that’s a bit sobering! In those days there was, at any rate, a list of “official, approved” lay up anchorages, maintained by the Salvage Association… today, there is no such list!

  5. Ed Enos
    August 3, 2016 at 6:38 pm

    Excellent Op-Ed. Enjoy your insight and historical assessment. It is apparent, still today, as seen from comments posted here, there are many people within our industry (primarily shoreside, some form of management) that are still obsessed with BIG DATA. They immerse themselves with “live streaming data” and “instant notifications” from the other side of the world, trying to stay ahead of the game and their competition. It’s all understandable, given the ‘real-time’ world we live in and information that is becoming increasingly available to us, whenever we want it.

    But do these people ever lift there head up, look outside the office, put their mobile phones and laptops down, and absorb what’s going on in the world? The global issues of economics, politics, wars, civil strife, et al, that impact OUR industry, more than any other; are shoreside management actually paying attention? Based on what we see around us today, it would appear the answer is … NO.

    Sine waves????? Really guys? Maybe you’re being facetious.

    As you articulate so wisely in your piece, even the best data can be absolutely wrong, if not taken in context of everything else.

    Given the well known containership “permanent overcapacity” (a term coined by a shipping exec much smarter than me), why do owners continue to build? We can already see the tanker market (certain sectors) starting to replicate the same mistakes as box ship owners. Is greed, delayed as it may be due to build/launching times, overruling common sense and good judgement?

    How bad does the bulk ship market have to be, before owners finally decide to ‘collectively’ lay-up some of their tonnage, in an effort to eliminate excess capacity and raise rates?? Competition between owners is maintaining a slow, long, painful death of many businesses.

    As a harbor pilot, I hear a wide variety of opinions from many different (foreign) Masters in constant communication with their home office (too much, probably). Most all bemoaning the money losing environment their companies are in. Although, most clean product tankers are still enjoying great rates, worries are already creeping into the conversation.

    When teaching a new apprentice pilot the job of ship handling, we frequently advise them to NOT be overwhelmed by electronic data, ECDIS systems, digital readouts, and all the other readily available computer aided information overload. Hi-tech navigational equipment providing an abundance of digitized information, updated every second, is to be used as an ‘aid’ to genuine ship handling skills. Too often we see young ship’s officers (including Masters) staring into a TV screen watching a vessel transit “electronically”, with all the requisite digital gadgetry. We teach apprentice pilots to LOOK OUT THE WINDOW and watch the real world coming at you. BIG DATA is good to know, but it shouldn’t be the sole source of your decision making process. It’s an “aid” to your talents, skills, experience, and well founded personal knowledge.

    Seems to me that more executives ashore might start to consider doing the same.

  6. Andrew Craig-Bennett
    August 3, 2016 at 7:19 pm

    My word, Ed! How I do agree!

    One of the troubles with “Big Data” is that it cannot know when it is being spuriously precise. A few million years of evolution have given our primate brains the circuitry to round things off, to estimate, and to discard detail that fogs up the picture that we need to see. Be it a voyage estimate or the depth over a shoal, our own experience – nothing else – tells us to dump the detail and look round for the big threat that isn’t in the picture, just as two million years ago we didn’t count the bananas, but looked for the tiger in the bamboo clump. Big data only knows what it knows.

    The history of attempts to rationalise the dry bulk market through co-operation between owners is a very interesting one. Unlike the history of the liner conferences, it’s a history of failure, for the most part, but not quite entirely.

    I sense another article coming on…