Superbust

In Supership, the recent bestseller on the profits and perils of ever bigger tankers, Author Noel Mostert raises the harrowing prospect of narrow sea lanes, al ready crowded with vessels of 200,000 tons and more, soon to be joined by monsters capable of carrying as much as 1 million tons of oil. Yet suddenly this prospect is fading. Dozens of supertankers are idle, and others are being laid up almost daily. Last week four 370,000-ton tankers on order for construction at Norwegian shipyards were withdrawn, bringing that nation's cancellation total to 26. For many of the high-rolling ship owners who gambled heavily on it, the great supertanker boom has turned into a painful superbust.

The cause is a sharp drop in the growth of world oil consumption since the cartel countries dictated their four fold price increase last year. A 7% de cline in West European oil imports since then has sent tanker charter rates plunging. Before the oil embargo started in October 1973, the cost of a spot charter (one or two trips) of a 220,000-ton super tanker for the 11,000-mile round trip from the Persian Gulf to Rotterdam reached a record $8.8 million. By mid-November, the rate had fallen to $2.6 million. Today a 220,000-ton tanker can be spot-chartered for the Rotterdam run for as little as $800,000--less than the cost of operating many ships when amortization is included. In fact, the only reason such low rates are offered is that most costs accrue whether the ship is running or not.

Owners who were pocketing profits of up to $11 million on one-month voyages in 1973 are now scrambling for charters at any price or simply laying up their ships. For the past eight weeks about 20 of the world's 479 supertankers (generally defined as ships capable of carrying 200,000 tons or more of crude oil) have been sitting in the Persian Gulf waiting for orders.

Ironically, it was an Arab-Israeli conflict that marked both the rise and decline of the supertanker boom. Before the Six-Day War broke out in 1967, there was only one 200,000-ton ship in existence. But the closing of the Suez Canal created a need for huge ships that could economically carry oil the long way around Africa to the Atlantic. Soon U.S. oil imports began to increase sharply. Then came the October war, followed by the oil price increase and the worldwide recession that it helped cause. Even if oil consumption picks up smartly in the future, the prospects are that more oil will travel in "handy-sized" tankers of 30,000 to 100,000 tons. The Suez Canal, if and when it is reopened, will shorten runs from the Persian Gulf to Europe by 4,800 miles, but the canal will not be able to accommodate the giants.

Cancellation Threat. Shipowners are nervously wondering what to do about the 373 uncompleted but already surplus supertankers they have on order at yards in Sweden, Japan, West Germany and Britain. Large-scale cancellations have been forestalled so far by stiff penalty clauses. But Shozo Doi, vice president of Japan's Sumitomo Shipbuilding Co., gloomily predicts that "about 50% of the tankers on order will become subject to cancellation talks or negotiations to convert to other types."

One welcome casualty of the decline in tanker rates is the as much as $2 per bbl. premiums that the Algerians and Libyans had been able to tack on to their oil price because of the proximity of their wells to European markets; with the drop in rates they have had to cut their premiums to remain competitive with more distant oil countries. Still, the prime beneficiary of the bust may be the oil-producing states. Long intent on acquiring fleets of supertankers, they may soon be able to do so on the cheap.

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