Long considered the workhorse of the global economy, the tanker industry only seemed to attract attention when something went wrong. But that may be changing. For the first time, tanker operators, shipbuilders, regulatory authorities and class societies are working together to transform the industry

Towards common rules: The new rules have been sent out for hearing to the industry, and are expected to come into force in July 2005.

Jan Koren, DNV's business director for tankers.

After several disappointing years, the tanker industry is enjoying strong growth thanks to an improved global economic situation driven in part by the surging Chinese economy. At the same time, increased sensitivity to safety and the environment have created ever-stricter maritime regulations and increasingly complex class rules. For an industry that is increasingly dominated by fewer, larger players, managing these dramatic changes has required a fresh approach. Today, tanker operators have surprised many analysts by showing a willingness to work with each other, regulatory authorities and class societies to raise the standards of the industry as a whole.

Goal based standards
Increasingly strict maritime regulations remains a global trend and the complexity of managing and staying in compliance with various standards enforced by different regional authorities and class societies has been a particular challenge. Yet for an industry understandably sceptical of any new regulations, many have been surprised by how quickly tanker operators have supported efforts by the IMO to establish goal-based standards.

Indeed, according to Peter Swift, the managing director of INTERTANKO, his organisation supports the process."Goal-based standards prescribing high-level goals of safety and pollution prevention are very much supported by INTERTANKO, with class societies establishing specific solutions and prescriptive requirements to meet these goals," he says.

However, Swift cautions against the implementation of any new regulations that are not consistent with changing market realities. "We need to communicate that regulations need to be subject to continued development," he says."The process should be flexible enough to allow for alternatives which will be guided by a combination of regulation and self-regulation designed to achieve our objectives."

The triumph of common sense
Swift also believes the process should not be driven in reaction to specific events but on common sense."We believe it is important to ensure that we avoid situations where new standards are put in place in reaction to highprofile incidents," he says."Over time, goal-based standards should incorporate an evaluation process which would allow governing bodies to amend standards as needed, in an orderly and thoughtful manner.

"We certainly see that over time we should be looking at machinery, equipment and systems in a similar fashion to the way we have looked at structures.We accept likewise that we should be talking about establishing standards for maintenance and operation," Swift says.

Working together
A related cooperative effort is currently underway among the world's three largest class societies, DNV, Lloyds, and ABS. Covering an estimated 65 percent of the world fleet, these class societies are currently at work on an initiative known as the Joint Tanker Project (JTP) which seeks to harmonise structural rules for all tankers.

According to Jan Koren, DNV's Business Director for Tankers, JTP has its origins in the so-called 'Ten Commandments' issued by ABS, Lloyd's and DNV in March 2001. "The driving force behind these initiatives was to ensure that classification societies would not compete on standards," he says. "A particular emphasis was placed on greater transparency, consistency of approach and the improvement of the overall quality of the world fleet."

Gaining industry support
Koren says that so far, JTP has been well-received by the industry. "The JTP is unusual in that its goal is to harmonise class rules, not create new ones," he says. "In a period of increasing regulations and complex classification rules, this is a welcome change." Koren says the new rules will be released on January 1 2005 and are scheduled to go into effect on June 1 the same year. He hopes that the effort will be embraced by other class societies.

If adopted, JTP will have a profound effect on the relationship between ship owners, shipyards, tanker operators and class societies interact. "Class will no longer compete on rules, but on services and additional class notations," he says. "For example, DNV has developed rules for vessels operating in challenging environments, enabling us to classify vessels for operation in cold climate under icing conditions."

Koren explains that until recently, maritime regulations were drafted in response to accidents. "This 'regulation by disaster' approach is not sustainable," he says. At the same time, Koren notes, tanker companies realise that if one company operates sub-standard vessels, the whole industry is at risk. "We all benefit by working together to get this right," says Koren.

Consolidation
In the past five years, the tanker segment has seen a remarkable trend toward consolidation. With fewer, larger players dominating the industry, smaller players have been acquired, squeezed out, or forced to seek niche markets serving specific regions. The result has been a general improvement in quality, standards and professionalism of the industry as a whole.

According to Sverre Svenning, managing director of a Fearnley's Consulting, this trend may have its roots in a similar trend that swept through the oil and gas industry in the late 1990s. "When the oil industry began to consolidate to capitalise on economies of scale, they began to seek agreements with tanker companies with the capacity to manage their increased transportation demands," says Svenning. "Big players like to do business with companies their own size."

As the tanker industry has become more professional, transparent and devoted to quality HSE programmes, they have placed additional demands on suppliers. Svenning notes that some segments of the European shipping sector have fragmented, (such as the proliferation of oil traders serving the Russian market), the consolidation trend has spilled over into brokerages, chartering companies and shipowners. "This trend has already had an impact on how both service and equipment suppliers do business," he says.

Taken together, the improved global economy, the industry's fresh cooperative approach to managing new regulations and a trend toward consolidation will continue to stimulate growth for the tanker industry."European-based companies remain the world's leading provider of quality marine equipment and services," he says."So long as the economy remains robust, they can expect good results."

Date: 2004-09-28