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Tanker Shipping & Trade

Tanker Shipping & Trade

Denmark: all-conquering in the products sector

Mon 31 Jul 2017 by Barry Luthwaite

Denmark: all-conquering in the products sector
Norden has taken advantage of weaking assets values to boost its MR2 fleet

Four Danish owners dominate the global product tanker trades

Expansion by Torm, Norden, Maersk and Hafnia Tankers continues apace, forming the backbone of the nation’s tanker mercantile marine. The Danish-owned trading tanker fleet totals 301 vessels aggregating 11,490,361 dwt – a record total. The picture is strengthened even further if managed, pooled and chartered vessels are included. A moderate ordering programme comprises 44 newbuildings for delivery by 2019, totalling 1,947,596 dwt.

Hafnia Tankers, the youngest owner, recently celebrated its seventh birthday. Two newbuilding MR2 tankers are on order at New Times Shipbuilding, with rumours (denied by the owner) of two more recently placed. Concentrating the mind are talks between Hafnia and US-based Diamond S Shipping, which could see the latter’s 33 MR2 product carriers transferred to the Danish owner, creating a huge complement of 70 vessels with an estimated value of US$1.4 billion. Diamond S Shipping is a private company backed by Wilbur L. Ross, who is heavily engaged in financing big deals.

Hafnia hit the heights when Lauritzen Tankers withdrew from the market

Hafnia hit the heights when Lauritzen Tankers withdrew from the market and the whole fleet was sold to compatriot Hafnia in 2013. These talks join a long list of mergers in the products trades, indicating how red hot this business is at the moment.

Hafnia Management also controls vessels on charter from pool partners Rederi AB Gotland, Marenave Schiffahrts AG, Kirk Capital, Hafnia Tankers A/S, Valles Steamship Co Ltd, Donnelly Tanker Management, Nordic Shipholding and Eletson. Excluding Hafnia Tankers’ contribution, the seven other partners contribute 28 more vessels. Under a joint venture arrangement, Straits Tankers LR1 pool is run with Mitsui OSK. Complementing the joint owners are Marinvest, UACC, Reederei Nord Limited and Oldendorff Overseas Operations, each of which joined within a year. The Straits pool now operates 48 LR1 product carriers and two Aframax LR2 vessels. The scale of Hafnia-associated growth is underlined by the fact that the three pools increased by 41 per cent to 106 vessels in the space of just one year. This rapid expansion has made Hafnia the world’s third-largest products pool operator.

Hafnia is gradually expanding its presence in Singapore. Close co-operation has been established with Thome Ship Management, with the latter entrusted with management of six Handysize 38,825 dwt vessels offering seven grades of cargo and a capacity of 41,635m3, and 14 MR2 49,999 dwt product carriers offering six grades of cargo and 53,530m3 capacity. The last of these – Hafnia Mikkala – will deliver from China in late summer this year. Hafnia has also entrusted Thme with eight MR vessels recently delivered from GSI shipyard in China.

Mergers and strength in big fleets are partly designed to convince investors that commitments of funding would find a secure earnings base, but it is still difficult to secure commitments. New York IPOs are failing to generate reserve levels of capital, and this route is blocked at the moment. Over-the-counter (OTC) dealings through Oslo are proving the best route for most owners.

Torm Line, having been rescued by Oaktree Capital Management (now the majority shareholder), continues to stand out strongly and is a valuable contributor to the Danish economy. While it is acknowledged that there is currently a strong capital market, it is not necessarily supported by a strong products market. This is partly why pooling arrangements work in Denmark. But fears have been raised over the plethora of product carriers on order for all owners, which totals as many as 678 vessels of all sizes.

Torm would like to file an IPO public listing

Torm would like to file an IPO public listing to raise funds, but does not consider the climate to be strong enough. Torm’s fleet strength numbers 76 product carriers, with four newbuilding LR2s on order at Guangzhou Shipyard International (now CSSC Offshore Marine), China. The first of these LR2s, Torm Herdis, will deliver at the end of 2017. Torm is pursuing a cautious policy with ship sales, with three vessels disposed of but under a lease-back deal to Torm. The rationale for this policy is confidence in stronger earning power in the long term, when more tonnage may be needed. The Danish owner will continue with this form of sale policy, but is not expected to part with many vessels (it will be on an age basis).

Norden has taken full advantage of weakening asset values

Norden has taken full advantage of weakening asset values to swoop for MR2 product carriers. The company favours acquisition of Japanese-owned tonnage and also builds many vessels in Japan. The company continues to draw strong earnings from its Cyprus-based partner Norient Product Pool. Two ships purchased secondhand from Japanese interests joined the fleet, and operate in the Norient pool. Deliveries were made in July. Norden’s favourite business ploy was invoked for seven 52,000m3 MR2 product carriers under construction at Japan Marine United (2), Onomichi (2) and Hyundai Vinashin (3), where the vessels will be taken under charter deals with purchase options by Norden. The newbuilding LR1 product carrier Nord Lavender (80,106m3) is due to join the fleet in December from Sungdong Shipyard. So the conservative policy of Norden is paying dividends. Including chartered vessels, Norden now offers the market 42 product carriers, with eight newbuildings due to be added.

Maersk Tankers has been busy disposing of older tankers

The Maersk fleet will always be the jewel in the crown for Denmark. Maersk Tankers has been busy disposing of older tankers and investing in newbuilding product carriers. Last year a decision was taken to increase participation in product carriers and compete head on with rivals. Ageing MR2 tankers are being disposed of, but only if Maersk can get the highest possible value. The focus has been on vessels of 15 years or older, as it is becoming much more difficult for reputable Scandinavian owners to reclassify ageing units if they trade in Europe under tight regulations.

Maersk has invested heavily in MR2 and LR2 product carriers and is seeking to attract more owners into its trading pools. Including chartered vessels, its Handytanker fleet totals 105 vessels ranging from 32,000m3 to 53,000m3 capacity. The LR2 fleet complement comprises 19 vessels including five overseas vessels. Efforts are underway to attract more LR2 owners into the pool. Newbuilding commitments cover 10 LR2 Aframax vessels under construction at Dalian Shipbuilding Industry, and nine MR2 units from Samsung Ningbo. Investment is unlikely to stop there, and options for more units are attached with the orders.

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