KING’S PAWN or KNIGHTSBRIDGE? Analysis of Knightsbridge Tankers, Ltd.

by Geoff Uttmark

A change of monumental proportions in the shipping industry that has taken place gradually over four decades is the transfer of risk of tanker ownership from the oil majors to independent ship owners. What had once been an 80/20 division between owned and chartered-in tonnage has now been reversed by a disinvestment process that presumably enabled the major oil companies to deploy their capital more lucratively elsewhere. Given the essentiality of transporting on the order of 2000 million tons per annum of oil across the globe’s seas, departure from direct ownership of tankers by the oil majors is all the more remarkable, since in the time span in which the companies discovered they need not own tanker assets to derive essential services from them, seaborne transport strategies of most of the companies focused away from period charters in favor of spot fixtures. This turned conventional risk-reward theory on its beam ends because, other things being equal, modest financial returns, which are the norm over time in tanker shipping, are supposed to be accompanied by high likelihood of their realization, and vice versa. Hence, pensioners settle for passbook interest, while Street studs go naked on puts. The tanker industry apparently sees things differently. Not counting rare crises like closure of the Suez Canal or the Gulf war, tanker owners generally earn about 4% on assets while incurring large financial risks, this while the share of oil transported by independent owners has been increasing. The contradiction has been described in bleak terms by INTERTANKO:

“Tanker transportation has not provided the healthy, long-term return on capital that a company involved in industrial shipping would expect to earn.”
- INTERTANKO
Market Research Group 4/99

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