Opportunities in the small product tanker market
Teddy H Tsai – Head of Research, Pacific Transport
August 7, 2008
Fundamental change in regulations – double-hull / double-bottom requirements
Demand fundamentals remains strong – oil majors requires high quality vessels that
local owners are not able to provide, many newbuilding are sub-standard and the fleet is
aging (23% of the existing fleet is already over 25 years of age).
Favorable supply side dynamics – orderbook is 29% of the current tanker fleet for the
targeted size range
In-House Commercial Management Team
We will hire 2 commercial managers from top-tier shipping companies such as Stolt-
Nielsen or Eitzen. We are actively looking for personnel and believe there are
appropriate candidates available in the market.
We will partner with a technical manager, such as Anglo-Eastern Ship Management,
than already actively works will all oil majors. The high quality of such external technical
managers will assure vessels are of the quality required by oil majors.
Small Product Tanker
Carries oil products, some types can carry
IMO classification on coating
IMO I – Hazardous Chemicals
IMO II – CPP, food oils, & Fats
IMO III – Moderate containment oil products
These are routes for handysize product tankers.
Small product tankers trade less on the trans-ocean routes and more in the local areas.
Caribbean / US Gulf
Mediterranean, North Sea
Market Opportunity by Region
We envision areas of opportunity includes regional trade in the Caribbean,
Mediterranean, and most importantly, the Asia Pacific.
This project will target the oil products shipping demand for oil majors, globally.
To service this market, we would require IMO II type vessels, with Epoxy coating or
better, but not to the extent of stainless steel coating (which is mostly used for the
We are looking for assets that are at the higher-end of the quality spectrum, mostly built
in Turkey and Japan.
Major Products Carried
We expect many types of oil products to be carried, ranging from bunker, gasoline,
diesel, kerosene, fuel oils, lubricating oils, asphalt, bitumen, etc.
Also fats and vegetable oils such as palm oil, tallow, etc.
For selected vessels with higher specification coating, we may be able to carry naphtha
and other chemical products.
Benchmark Freight Rates
Time charter contracts in excess of US$10,000 / day in 2007
Most recent transactions are 1-2 year time charter contracts
Current market rates are approximately US$1.2-1.3/dwt/day in Asia for 1-2 year time charters.
We aim to achieve acquisitions of ~US$15-25million per vessel, and day rates of
Recent Sale Transactions
Date Name dwt Yr Built Hull Country Engine IMO Type US$mn Owner Country
Jan-08 Nepline I 7000 07 Zhejiang Yanmar 17.5
Jan-08 Vemaoil VIII 4999 83 Hakata MaK 5
Jan-08 Belogorsk 3086 88 Finland Risskiy 3.4
Jan-08 Nittan Maru No 4999 89 Naikai B&W 4.2 Indonesian
Jan-08 Svodobnyy 3086 89 Finland Risskiy 3.4
Jan-08 Sky Ace 8765 97 Usuki Mitsubishi 17 Korean
Feb-08 Fair Astro 5100 78 Minami Makita IMO II/III
Feb-08 Jikor 6704 84 Taihei Mitsubishi IMO III 2.6 Nigerian
Feb-08 Vinga Helena 6400 85 W Germany MaK IMO II/III Turkish
Feb-08 Arabian Sun 4574 90 Atlantis Mir+G282rlees
Feb-08 Marianne Theresa 3232 91 Denmark MaK IMO II German
Mar-08 Oana 6400 08 Zhenjiang Sopo . IMO
Mar-08 Astor 2542 81 W Germany MaK IMO II
Mar-08 Katabami Maru 5698 88 Iwagi Akashi dbl btm 4.2 UAE
Mar-08 Hafetzah 6500 91 Malaysia Mirrlees IMO II 3.1 Nigerian
Mar-08 Jian She 32 9927 94 Daedong B&W dbl btm 8.9
Mar-08 Jian She 31 9927 94 Daedong B&W dbl btm 8.9
Apr-08 Samho Ibis 3423 05 Samho Hanshin 12
Apr-08 Sol Lueshing 4040 81 W Germany MaK IMO III
Apr-08 Jian She 31 9927 94 S Korea B&W 8.9 Greek
Apr-08 Jian She 32 9927 94 S Korea B&W 8.9 Greek
Apr-08 Neptra Premier 6537 94 Atlantis . IMO III Nigerian
Apr-08 Meridian Mira 5877 94 Malaysia Wartsila coated . 4.6 Nigerian
Apr-08 FS Victoria 3740 99 S Korea Alpha IMO III Russian
May-08 Keilir 6019 02 Jiangnan Alpha dbl btm 14 Swedish
May-08 Maria Erika 5879 83 Higaki Akasaka dbl btm Nigerian
May-08 Oram Bricks 7111 88 Kurinoura Mitsubishi IMO II/III 5
May-08 Osco Tiger 5261 92 Japan Hanshin 10.6
May-08 Carbon Tiger 5261 92 Kumanoto . dbl hull 10.6
Jun-08 Trust Honor 7087 85 Higaki . IMO III
Jun-08 Woo Lim 8710 96 Usuki Mitsubishi 13.8 Vietnamese
Jun-08 Bow Bahia 5846 96 Portugal B&W 15 Norwegian
Jun-08 Multitank Bolognia 5846 97 Portugal B&W 15 Norwegian
Recent Ships on Offer Country Seller's Price
Date Nam e DWT Year Built Built Class Draft LOA Beam Hull type IM O Spec Coating Engine Cargos (m n USD)
5-Jun-08 Resale 8,500 dw t IMo 2 Chemical Tanker 8,500 Aug-08 Japan DH IMO II Epoxy/ ML Oil/Chem 22.0
26-Jun-08 8,700 dw t Oil / Chemical Tanker x 2 units Resale 8,700 Oct-08 Korea DH Epoxy Oil/Chem 21.5
26-Jun-08 8,700 dw t Oil / Chemical Tanker x 2 units Resale 8,700 Jul-09 Korea DH Epoxy Oil/Chem 21.5
8-Jul-08 MV SJ ACE 5,000 delv Oct 2008 China CCS 6.0 101.9 16.0 DH Heavy Oil 10.25
8-Jul-08 SMALL ASPHALT TANKER RESALE 3,500 Resale Japan Asphalt 23.5
8-Jul-08 MT. NING HUA 406 3,335 Aug-93 Korea CCS 5.8 81.9 14.0 DB PHENGUARD MAN Oil/Chem TBD
8-Jul-08 MT. NING HUA 416 3,328 Aug-96 Korea CCS 5.3 85.3 14.0 DB PHENGUARD MAN Oil/Chem TBD
9-Jul-08 MT FENG HAI YOU 3 6,412 2008 China CCS 6.9 113.1 15.7 DH Epoxy China CPP, Bunker high 9's
9-Jul-08 Bitumen Tanker Resale 6,000 end of 2008 China CCS 6.5 106.8 17.6 Yanmar Bitumen, PP 19.5
9-Jul-08 2x Bitumen Tanker Resale 6,000 2H 2009 China CCS 6.5 106.8 17.6 Yanmar Bitumen, PP 18.5
9-Jul-08 NB RESALE 7,800 DWT OIL/CHEM TANKER IMO 2 7,800 delv Aug 2008 China BV 6.9 122.7 17.2 DB/DS IMO II Marineline MAK Oil/Chem TBD
9-Jul-08 NB 10,600 DWT D/H OIL TANKER FOR SALE 10,600 delv Jul/Aug 2008 China 8.3 123.0 19.4 DH B&W Oil TBD
9-Jul-08 PROD TANKER FR SALE 7,000 Delv Jun 2009 China BV 6.6 118.0 17.6 Yanmar Oil TBD
9-Jul-08 PROD TANKER FR SALE 7,000 delv Sep/Oct 2008 China BV 6.6 118.0 17.6 DH Epoxy Yanmar Oil TBD
10-Jul-08 MODERN 3.6K CHEM/CPP TANKERS 3,600 modern CPP, Bunker TBD
10-Jul-08 M/T FALCON 2,076 MTDW BLT 94 DB HULL 2,076 Nov-94 Korea RINA 4.9 78.5 12.0 DH IMO II Phenolic Epoxy AKASAKA Oil/Chem TBD
2 X 14,000 DWT IMO II RESALES SHALLOW delv nov-2008,
10-Jul-08 DRAFT 14,000 dec 2008 China 7.8 146.0 22.0 DH IMO II Phenolic Epoxy B&W Oil/Chem 27
10-Jul-08 20K STAINLESS STEEL TANKER 20,000 2004 Japan NK 9.6 144.0 24.2 DH IMO III Stainless Steel Oil/Chem 41
11-Jul-08 5.5K CHEM TANKER SUNNY KITTY BLT 05 5,555 Nov-05 Korea NK 6.5 101.0 16.0 DH IMO II/III Pure epoxy T-800 Oil/Chem TBD
14-Jul-08 MT Chem Rigel - st/st tanker for sale 4,065 1998 Japan NK 5.9 97.4 14.0 DH IMO II/III Stainless Steel B&W Oil/Chem 12.5
14-Jul-08 quot;Dumlupinarquot; - modern chemical tanker 11,258 delv 3Q08 Turkey BV 7.9 129.5 19.8 DH Marineline MAN Oil/Chem TBD
14-Jul-08 6,400dw t Product/Chemical IMO II tanker 6,450 delv Aug 2008 China BV 6.5 103.0 16.0 DH IMO II Epoxy Yanmar Oil/Chem 13
14-Jul-08 4999dw t New building asphalt Carrier for sale 4,999 delv Aug 2008 China CCS 8.0 101.9 16.0 Guangzhou Bitumen, PP TBD
15-Jul-08 5.6K IMO II RESALE DELY SEPT 08 5,600 Delv Sept 2008 Korea KRS 6.0 98.1 16.6 DH IMO II Phenolic Epoxy MAK Oil/Chem 15.5
16-Jul-08 2X 5,600 DWT CHEMICAL IMO2 TANKER 5,600 end of 2008 Korea KRS 8.6 105.6 16.6 DH IMO II Phenolic Epoxy MAK Oil/Chem 17.5
16-Jul-08 NB 10,600 DWT D/H OIL TANKER FOR SALE 10,600 Jul/aug 2008 China 8.3 123.0 19.4 DH B&W Oil TBD
16-Jul-08 REDUCED PRICE-7K CHEMICAL RESALE 7,000 Jun-09 China 6.6 118.0 17.6 Yanmar Oil/Chem 13.5
17-Jul-08 Chinese High Spec Product Tanker 6,200 Sep-08 China BV 6.5 102.7 17.8 DH Epoxy Himsen Oil 16.5
17-Jul-08 Chinese High Spec Product Tanker 6,200 Nov-08 China BV 6.5 102.7 17.8 DH Epoxy Himsen Oil 16.5
17-Jul-08 Chinese High Spec Product Tanker 6,200 Jan-09 China BV 6.5 102.7 17.8 DH Epoxy Himsen Oil 16.5
17-Jul-08 TBN STAINLESS STEEL SMALL TANKERS 4,065 1998 Japan NK 5.9 97.4 14.8 DH IMO II/III Stainless Steel B&W Oil/Chem TBD
17-Jul-08 TBN STAINLESS STEEL SMALL TANKERS 4,994 1996 Singapore GL 6.4 97.0 16.0 DB IMO II/III Stainless Steel B&W Oil/Chem TBD
17-Jul-08 5.6K Chemical/IMO II New building Resale 5,600 Delv Sept 2008 Korea KRS 6.6 105.6 16.6 DB/DS IMO II Phenolic Epoxy MAK Oil/Chem 17
Fundamental change in regulations – double-hull / double-bottom requirements
Demand fundamentals remains strong – oil majors requires high quality vessels
that local owners are not able to provide, many newbuilding are sub-standard and
the fleet is aging (23% of the existing fleet is already over 25 years of age).
Refining capacity expansions in 2007-2012, with the focus being in Asia
China’s capacity to grow by 550k-600k bpd in 2008, 3m bpd to be constructed by 2012, resulting
in a total capacity of 10.3 bpd
Total Asia capacity addition to be 1.6mn in 2008, 1mn in 2009, 644k bpd in 2010, 970k bpd in
2011, 950k bpd in 2012.
Oil products likely to change as well.
Cracking capacity should be 55% of the new crude-distillation capacity over 2007-2012, up from
30% now. This implies that residual fuel oil capacity will decrease in the refining system, while
gasoline and diesel surpluses will continue over the next three years.
Refinery Capacity Additions
Capacity expansion for refineries are focused in Asia, with close to 6 million bpd forecasted to be
built from 2007-2012.
Total Asia capacity addition to be 1.6mn in 2008, 1mn in 2009, 644k bpd in 2010, 970k bpd in 2011,
950k bpd in 2012. By products, residual fuel oil capacity is expected to decrease while gasoline and
diesel surpluses will continue over the next three years.
Asia Capacity Additions
Lack of quality oversight
on ships built in China
will result in a rapid
demand for high quality
The initial target base is
the non-domestic oil
majors which, with
international, local and
regulations, have a
profile to that of the
incumbent, national oil
Shifts in Oil Products Demand
Cracking capacity should be equivalent to 55% of the new crude-distillation capacity over 2007-12.
At present, global cracking capacity represents only 30% of crude-distillation capacity, which implies
that there will be a very large destruction of residual fuel oil in the refining system. In our view, this
will exacerbate the gasoline and diesel surpluses over the next three years.
Global Demand for Oil Products
Refineries and storage areas are also increasingly far from fast growing urban areas,
leading to an increase in the need for smaller ports and distribution nodes in a larger
Global Demand for Palm Oil
Palm oil supply-demand balance
YE Sept, mn tonnes 2001 2002 2003 2004 2005 2006 2007 2008E
Opening stock 3.7 4.2 3.9 3.8 4.4 5.1 5.7 5.1
Malaysia 11.9 11.9 13.4 14 15.2 15.6 15.3 16.7
Indonesia 7.8 9.4 10.6 12.4 13.5 15.5 16.7 18.4
Others 4.1 3.8 3.8 3.5 4.7 5 5.5 5.9
Total 23.8 25.1 27.8 29.9 33.4 36.1 37.4 41
EU 2.8 3.3 3.5 3.7 4.2 4.5 4.8 5.1
China 2.1 2.5 3.2 3.4 4.3 5.1 5.7 6.5
India 3.8 3.5 4.1 3.6 3.4 2.9 3.5 3
Indonesia 2.9 3.1 3.2 3.3 3.5 3.7 3.8 3.8
Others 11.9 12.8 13.9 15.3 17.3 19.1 19.9 19.9
Non energy related 23.5 25.2 27.9 29.3 32.7 35.3 37.8 40.75
Total 27.9 29.3 32.7 35.3 37.8 40.8
• China: China is the world’s largest consumer of palm oil, expected to use over 6.5
million tonnes in 2008, mostly imported from Malaysia and Indonesia.
• Malaysia & Indonesia: These two countries account for 87% of world production in
Other Demand Drivers for Small Product Tankers
• Asphalt: asphalt plants are increasingly far from areas of urban growth and
infrastructure projects; high, sustained heating required
• Chemicals: a sharp increase in demand for consumer goods has increased
demand for chemicals for manufacturing and other processes.
• Bio fuels: a hot topic, but of increasing importance, bio fuels are steadily
increasing as bio fuel refineries take hold world wide
Distribution by road / rail often impossible: urban growth has been greatest in
developing countries where infrastructure has not caught up with urban growth
Age & Fleet Size Profile
Fleet Age Profile - Total Fleet Age Profile - Total
# of Ships
>25 21-25 16-20 11-15 6-10 1-5 <1 >25 21-25 16-20 11-15 6-10 1-5 <1
Age of the Ship Age of the Ship
365 Vessels over 25 years of age
2 million dwt over 25 years, versus fleet of 9.1mn dwt
Fleet Replacement Profile 3000 to 8999
# of Ships
Existing Newbuildings >25
365 Vessels are over 25 years old, versus existing fleet of 1587 vessels.
Supply Outlook – Fleet Replacement Profile (Table)
Fle e t Re place m e nt Profile (# of Ships )
Tank e r Tank e r Tank e r Tank e r Tank e r Tanke r Total
3000-3999 4000-4999 5000-5999 6000-6999 7000-7999 8000-8999
Exis ting 314 205 364 356 171 177 1587
Ne w buildings 53 34 75 133 66 71 432
>25 79 39 110 84 27 26 365
>25 as a % of e xis ting 25.2% 19.0% 30.2% 23.6% 15.8% 14.7% 23.0%
NB as a % of e xis ting 16.9% 16.6% 20.6% 37.4% 38.6% 40.1% 27.2%
Fle e t Re place m e nt Profile (m ln Dw t)
Tank e r Tank e r Tank e r Tank e r Tank e r Tanke r Total
3000-3999 4000-4999 5000-5999 6000-6999 7000-7999 8000-8999
Exis ting 1.1 0.9 2.0 2.3 1.3 1.5 9.1
Ne w buildings 0.2 0.2 0.4 0.8 0.5 0.6 2.7
>25 0.3 0.2 0.6 0.5 0.2 0.2 2.0
>25 as a % of e xis ting 24.6% 18.4% 30.6% 23.4% 15.6% 14.5% 22.1%
NB as a % of e xis ting 17.3% 16.9% 20.6% 36.6% 37.2% 39.5% 29.3%
3000-6000 dwt range is most attractive, with oldest fleet
NB vessels concentrated on larger sizes.
Regulations: International (IMO) and local regulations, and as well as oil company and
terminal policies, are changing, and the phase out of single hulled ships is accelerating.
IMO MARPOL Regulation 13 is a consequence of the Exxon Valdez oil spill. It is split
into several parts the most relevant of which are 13F and 13G regarding the distribution
of a protective void space around the cargo tanks of a ship, as well as the dates by
which it is to be accomplished. The regulations were originally envisaged for tankers
above 20,000 dwt, but in light of several recent oil spills and collisions, it is now relevant
for all tanker sizes, including the 1,000 to 10,000 dwt range.
The timeline of regulatory changes indicates that ships delivered in (or before)
1986, would not meet requirements by 1 January, 2012.
Regulation 13F states:
– “(1) (a) This regulation shall apply to oil tankers of 600 tons deadweight and above ... (3) (a) wing
tanks or spaces shall extend either for the full depth of the ship's side or from the top of the double
bottom to the uppermost deck, disregarding a rounded gunwale where fitted. They shall be arranged
such that the cargo tanks are located inboard of the moulded line of the side shell plating, nowhere
less than the distance “w” which ...the minimum value is 1 meter ... (3) (b) [and] ... the distance “h”
between the bottom of the cargo tanks and the moulded line of the bottom shell plating ... is not less
than ... 1.0 meters. (7) Tankers of less than 5,000 tons deadweight shall: (a) at least be fitted with
double bottom tanks or spaces having such depth ... of ... 0.76 m; ... and (b) be provided with cargo
tanks so arranged that the capacity of each cargo tank does not exceed 700 m2 unless wing tanks or
spaces are arranged ... with .. a minimum value of “w” = 0.76 meters.”
Regulation 13G states:
“(4) An oil tanker not meeting the requirements of a new oil tanker ... shall comply with the
requirements of regulation 13F ... not later than 25 years after its date of delivery .. [and] ...
compliance with regulation 13F is required not later than 30 years after its date of delivery.”
• In other words: segregated ballast or double bottom or double sides until the 25th
anniversary, and double hull by the ship's 30th anniversary.
We see our main competition as being from a mixture of local ship owners and international players.
The industry is fragmented although some consolidation is occurring. The main players are the
Eitzen Group, James Fisher & Sons, Clipper Group, Brostrom, Erria, and Odfjell. However, these
main players primarily focus in the European market, and do not have significant exposures in the
Caribbean and Asia.
On the next page is a list of top owners in the small specialized tanker and small tanker segments
from Clarkson Research Services. As indicated, with a fleet of 10-20 vessels, we would be able to
be a top 5 player. In addition, the fleet is quite old for many second tier players, and with a modern
fleet, we would be in a strong competitive position versus our peers
In our analysis, comparing different sub- Most Fragmented Markets in
Shipping Top 50 Others Others (dwt) Total (dwt)
types of shipping sectors, the top 50 Handysize Bulker 38.3% 61.7% 47,048,990 76,256,542
owners as a percent of total fleet is the Small Tanker 39.3% 60.7% 4,916,593 8,099,196
2nd and 3rd lowest for small tanker and Small Specialized Tanker 40.9% 59.1% 1,490,777 2,520,667
Log Fitted Bulker 42.2% 57.8% 12,353,206 21,375,878
small specialized tankers.
Multipurpose 44.2% 55.8% 13,746,229 24,652,703
General Cargo Tramp 44.6% 55.4% 3,568,920 6,446,038
Small uncategorized product tankers and Panamax Bulker 45.3% 54.7% 60,048,110 109,848,456
IMO II chemical tankers are relatively Handysize Tanker 45.6% 54.4% 45,797,788 84,164,701
Other Chemical 45.7% 54.3% 1,168,708 2,151,156
fragmented at ~50% of top 50 owners as
Handymax Bulker 45.9% 54.1% 42,269,295 78,110,332
a percent of total fleet. Small Product Tankers 47.8% 52.2% 2,021,864 3,875,257
IMO II Chemical 50.4% 49.6% 13,799,860 27,804,087
The average of 60+ shipping sub-sectors Lakes Fitted Bulker 50.8% 49.2% 5,829,358 11,857,681
Pass/Car Ferry 51.3% 48.7% 1,265,751 2,600,116
indicates that the top 50 owners
Unknown IMO Chemical 51.6% 48.4% 1,138,579 2,353,157
represent about 68% of total fleet. Ro-Ro Freight 53.6% 46.4% 3,917,513 8,444,590
Epoxy Coated Chemical 53.9% 46.1% 15,442,075 33,510,855
MR Product Tanker 56.5% 43.5% 20,215,971 46,519,081
Feeder Container 56.6% 43.4% 1,009,969 2,326,583
Feedermax Container 57.1% 42.9% 3,480,520 8,118,991
Source: Clarkson Research Services, CLSA Capital Partners
Conclusions / Next Steps
We have performed due diligence on our targeted segment.
We have approached ship brokers to find appropriate tonnage.
We are evaluating potential purchases of fleets or companies in this segment.
Hire commercial expertise from top players such as Stolt-Nielsen, Eitzen
We would built out our commercial management team in-house, and at a faster pace,
and focus on our Asian expertise.
Establish company name and legal entities
Purchase assets and execute business plan
Sign technical management contract with qualified technical manager such as
Anglo-Eastern Ship Management
Maintain our asset acquisition plan
Apply best practices in operations.
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