Betting $20 Billion in the Ta-Y

BETTING $20 BILLION IN THE T-A-Y'(ER GLA_!-1E Shipowners won big in last year's market, and then put their winnings back on the table. Now the Arabs have changed the rules. by Lewis Beman Starting a generation ago with some war-surplus ships, nephews. Each fleet is customarily treated as an exten- a few dozen independent oil-tanker operators have built sion of one man's personality-never "National Bulk a great industry and, in some cases, become very, very Carriers" or "Olympic Maritime" but "Ludwig" or rich. Along the way, they have also built a reputation as "Onassis." And it is generally accepted that the head gamblers-men who skillfully play for high stakes in a man is entitled to play his hunches. Norwegian shipown- treacherous and unpredictable market. Last year, the er Erling Naess, who started his tanker fleet on $30,000 independent operators placed their biggest bets ever. in 1946 and sold it to Zapata Corp. for $48 million twenty They ordered $20 billion worth of ships, enough to double years later, is representative of the breed. "I tell my son their tonnage in the next four years. And they did so Michael that he is too intelligent," Naess says. "I use my without any assurance that the ships would be needed. nose." (Michael graduated second in his class at Harvard As things turned out, they could not have placed Business School in 1969.) those orders at a worse time. Shipowners based their Individualists though they are, independent tanker judgment of the need for ships on the assumption operators have worked out a symbiotic relationship with that the oil-consuming countries would import rapidly the giant international oil companies. For reasons of increasing amounts of cheap crude from the Middle East. financial and operational flexibility, the "majors" own The trebling of oil prices after the Arab embargo has, at only about a third of the ships they require to move crude the very least, assured slower growth in demand than the oil and refined products through their distribution sys- industry had expected. To make matters worse, the ship- tems. They get the rest of the ships they need from the owners bet most of that $20 billion on very large crude independents, on time charters or in the spot market. carriers (VLCC's), as they call the giant supertankers designed to bring oil from the Persian Gulf. In the wake of Scandinavians take the big risks the changes that the Arabs are forcing upon the oil busi- This oil-industry practice gives owners sevt~ralstra- ness, many maritime experts think smaller, more versa- tegic options. Accepting a time charter guarantees the tile ships may be needed. Some worry that the VLCC's owner a definite income for a certain period. For a will prove to be as overspecialized as the brontosaurus. VLCC of 250,000 tons, a five-year time charter has averaged about $2.50 per deadweight to11 1)t.r month, or A son too intelligent $7.5 million a year. A single-voyagtl chatrl cr in the spot In any other industry, decisions on investments so huge market, on the other hand, offers thrt possibility of extra- would be wrapped in the full panoply of managerial sci- ordinary profits when there is a. sh~brti~~t*of ships-at ence--economic forecasts, cash-flow projections, feasi- the risk of heavy losses when tht* d~licatrbalance of bility studies, and the like. In shipping, however, the in- supply and demand tips the other way. Tht) owners tend to dividual capitalist still reigns supreme-often at the head develop distinctive strategies for playing the tanker mar- of a family firm that includes his deferential sons and ket, depending mainly on their willingness to accept risk. Reseal-ch associate :An% Hengstenberg That willingness seems to vary roughly by nationality. 'aul Weller FORTUNE August 1974 145 supertanker could have grossed on @.singlevoyage at the top of the market last fall and what it had to settle for at the bottom last winter came to a startling $8 million. The Sit1 Cl~nrlesHa~j&b?.o, a 28@,000-ton supertanker launched from a Norwegian shipyard only last year, has already experienced the best and the worst that the spot market has to offer. The vessel slipped away from the shipyard dock in Bergen on July 4, threaded through the rocky cliffs of the Kloster Fjord, aild took the 11,600-mile passage around the Cape of Good Rope. A month later the ship arrived at the Persian Gulf in the middle of a bull market and picked up a cargo from Gulf Oil at worldscale 250, which netted something like $3 million on the maiden voyage, Returning to the hlf in early October, the Hamb?.o arrived near the peak of a wild scramble for tonnage and took on a cargo for Shell at worldscale 380. Brokers estimate that the trip earned more than $7 million, a triumphal voyage that ranks beside Sir Francis Drake's return with the Spanish treasure. "I was in the best pmltion" The Hantb~~oset out on a third voyage after the Arabs had unsheathed their "oil weapon" and returned with a record of a different sort. Starting for the Persian The moat daring of Norway's rnterpr~srngshipowners, Hilrnar Gulf in mid-November, the ship did not get another cargo Reksten has comm~llcdnlne supertankers to seeking cargo in until mid-May, and even then had to accept worldscale Ihe spot markel, where rates Iluclu~!cw~ldly, from gloriously 52.5, barely enough to cover the operating costa for the profitable lo below breakeven. Many shipowners consider Rek- trip back home. Brokers estimate that the wait cost the sten too daring To lhem he replies "I've been in the business for thirty years-and lhal counts lor something " Hambs.o's owner, a Norwegian named Hilrnar Reksten, more than $3 million. Like a high-stakes poker player who has survived more Chinese and Japanese owtiers tend to run very large than his share of second-best hands, Hilmar Reksten can fleets on relatively couservtiti ve p1.i nciples. They have contemplate the vagaries of fortune with philosophic de- generally orclerecl ships olily after securing a long time tachment. Six years ago, after a long depression in freight chartei. from H mtt,ior oil coniptt~ty,rind they almost rates, people in the industry were saying Rek~tenwas never ru1111ship 011 the hnrl.owi~~glyvolttlile spot mnrket. near bankruptcy. Legend has him actually on the way to Some Greeks haw also I)uill up huge fleets oti the churter- tell his bankers the bad news on June 6, 1967, the begin- first policy, but most have tendetl to concentrate on tliiig of the Six Day War, But the closing of the Suer, smaller and olcler vessels, running many of them in the (:atla1 generated a huge demand for additional tonnage, spot, market (see "The (hime of the Greeks" on page "People called me broke," Reksten says, "but I was in 148). But the real gttrnb1ei.s are the Sc~nclir~uvians,who the best position of any owner-I had 1.7 million tons have been forced by circumstances illto the riskiest game. 011 the starting line." With that appraisal most in the Norw7egians ow11 less th~n15 percent of the world industry agree. Says C. Y. Chen, founder of what is now tanker fleet, but account for ttetirly 50 pellc.eltt of the ton- the shipping subsidiary of General American Transporta- nage in the spot market. tion : "Mr. Reksten overnight made more money than Talking about the spot market, a IJonclon tanker broker anyone, probably, in the history of the business." observes with only milt1 exagger~rtioi~ : "One ship too few Virtually unknown outside the tight community of in- in the Persinu Gulf cii11 setid rclles so;rring through the ternational shipping, Reksten, at seventy-six, has earned roof: one ship too mnny call sent1 thtlm crashing through a certain notoriety among his peers. They know him, in- the floor." The i'ctter. are calci~lriteclon a complex "world- deed speak of him with awe, as the only man who ever scale" intlex atloptcd by inrlusti*).~gt~comi~nt and designed dared to commit an entire fleet of supertankers to the to equ~lizethe revenue pel. ton prr (lily on any voyage. pot market. In an industry that discusses the quirks and During three weeks iti May, 1073, the index rose for foibles of shipowners the way sp~~tswriters talk about VLCC's from worldscitle 92.5 to wt)~~ldscale210 ; over a quarterbacks, Reksten tends to be put in a special cate- similar period last fall, rates fell from worlclscale 410 to gory. Being unique, his business strategy is generally worldscale 57. The difference betweeti what a 250,000-ton attributed to personal eccentricity of an extreme sort. 146 FORTUNE August 1974 I Reksten says his strategy was not entirely a matter of and was interested in three of our ships. I took the phone, choice, but was compelled by economic necessity. "It's said, 'It's me,' and asked, 'What is the rate?' The broker been said I'm a gambler," he says. "I admit that, if you said 140. I liked the rate and asked whether Exxon wanted understand why." According to his account, he was forced to take on another ship, too. Exxon's man said simply, into the spot market because he could not compete for 'It's a deal.' The whole transaction took only a few min- time charters with such Greeks as Onassis and Niarchos.

Load more