Background And Business Overview

Mr. Kapil Sud and Captain Rogelio J. Diaz, his Director of Maritime Operations, have over 60 years of experience in each and every aspect of buying/selling crude oil, the shipping of crude oil, refined products such as aviation fuels and diesel fuels, the loading and documentation requirements for traversing the globe to deliver shiploads to destination points, maritime captaining of ships of virtually all dimensions, tonnages and carrying capacities, and selling the liquid bulk to awaiting buyers internationally at substantial profit margins.

The world’s waterways from inland lakes and rivers to oceans and seas carry goods and people worldwide. Freighters and container ships move cargo; tankers move oil; roll-on/roll-off ships move cars and other vehicles; and cruise ships carry people to far-flung destinations. Unless you live near ocean ports or busy river ways, you might not realize the reach of impact of this business sector, also called the maritime industry.

As of 2010, the U.S. was the world’s largest importer of containerized cargo and its second largest exporter, behind China, according to the World Shipping Council. Liner shipping was estimated to contribute about $ 183.3 billion to the U.S. gross domestic product (GDP) and support 4.2 million jobs. Those numbers jumped to $ 436.6 billion and 13.5 million when indirect contributions are factored in. In 2009, about 78% of U.S. exports were transported by water.

In the U.S. shipping industry, cargo is transported on America’s domestic waterways and on international waters among U.S. holdings and territories. Deep-sea foreign shipping of general cargo, and dry and liquid bulk is part of the U.S. shipping industry as well.

Employment in water transportation occupations is expected to grow by about 20% through 2022, which is faster than the average, as the economy continues its recovery. New types of ships requiring smaller crews and increased use of foreign companies for international shipping may limit growth in some branches of the industry. Although shipping overseas faces special challenges such as bad weather and piracy, it remains one of the greenest and least expensive means of moving goods around the world.

A Brief History of the Shipping Industry

From the turn of the century until World War II, the United States was a star in the maritime industry. During wartime, the government relied upon merchant vessels to assist the Navy in carrying out procedures such as delivering war materials and other supplies. The world wars gave shipbuilders the motivation to build high-quality vessels, which were ordered by the defense industry. Even today, the government relies on merchant marine vessels to be prepared to help if war occurs. Therefore, in the United States, the Federal government has traditionally nurtured its shipping industry by giving subsidies to the merchant marine and passing laws that protect U.S. shipping companies. In 1920, the U.S. Congress made it a requirement that cargo moving between U.S. ports had to be carried in ships built in the United States, owned by U.S. companies, and operated by U.S. crews. The government also eliminated a lot of the competition among U.S. shipping companies by allowing them to join and set prices and coordinate services. In 1936, the Merchant Marine Act gave cash payments to U.S. vessels to offset the increasing cost of building vessels in the United States.

The world’s waterways from inland lakes and rivers to oceans and seas carry goods and people worldwide. Freighters and container ships move cargo; tankers move oil; roll-on/roll-off ships move cars and other vehicles; and cruise ships carry people to far-flung destinations. Unless you live near ocean ports or busy river ways, you might not realize the reach of impact of this business sector, also called the maritime industry.

Many believe that the industry shouldn’t be regulated by the government in this way; they believe that such regulation has caused the success of the U.S. shipping industry to decline since the 1940s. The United States is no longer the greatest merchant marine power in the world. The industry is not as cost-effective as it used to be. To begin with, ships built in the United States are at least twice as expensive as foreign ones. In fact, the United States depends on foreign ships and tankers to carry most of its cargoes.

The U.S. shipping industry, also known as the water transportation industry, is responsible for transporting cargo on the country’s own waterways (known as domestic transport) and to foreign countries (usually known as deep-sea foreign transport). The domestic trade involves shipments of cargo on the Great Lakes, the St. Lawrence Seaway, inland waterways such as the Mississippi and Ohio rivers, and other local waters. Deep-sea foreign and domestic shipping includes three categories: general cargo, dry bulk, and liquid bulk. General cargo includes various types of traded merchandise, such as steel, clothing material, and food items. Dry bulk includes items such as grain, loaded onto ships by large pouring mechanisms. Liquid bulk includes merchandise, such as fuel oil, loaded in tankers rather than shipped in packaged forms like barrels, as in the past. It’s hard to imagine modern life without petroleum. From the gas in our cars to the asphalt on the road, from bicycle helmets to mobile phones to medical equipment, almost everything we use today is in some way made from a barrel of oil. And how does much of that oil reach America? By tanker. Today there are thousands of tankers working safely to transport their cargo. Smaller tankers transport gasoline and other specialized petroleum products while tankers measuring as long as the Empire State building transport crude from far and wide across the globe. Few people connect the dots between the everyday products they use to the men and women of the maritime industry and the vessels they operate – around the clock and across the world – to ensure safe and timely delivery at minimal cost. Roughly 5,800 gallons of crude oil per second – that is what America requires to live, prosper, and enjoy the amenities essential to everyday life. This is what the people of the tanker industry deliver to our shores largely out of sight and out of mind every day.

Over the past century, shipbuilding procedures and system advancements have improved through incorporating new technologies to enhance the safety and efficiency of petroleum transportation. Today’s tankers signify these advancements in every component of the ship, from antifouling hull coatings to engines that generate fewer emissions than their predecessors, from sophisticated navigation and communication systems to double hull protection. But even the newest ships with the most advanced equipment cannot operate on their own. Ensuring that the latest technology safely and cost-efficiently delivers the energy to port: this is the irreplaceable role of the mariner.

Tankers and the people who run them work hard to provide the energy resources that power American industries and fuel our domestic economy. They provide gas for our cars, heat for our homes, fertilizer for our farms and toys for our children. Often unnoticed by us, tankers and the men and women who operate them are an important and principal link in our American and global supply chain. Touching our lives in many ways every day, they dependably and affordably deliver the products Americans need to keep moving forward.

The Oil Tanker Business

The movement and storage of crude oil in large volume needs oil tankers, which are large sized transport ships. There are different categories of oil tankers: a crude tanker is used for transporting bulk volume of unrefined crude oil from the oil extraction facilities to the refineries. Whereas, a product tanker is used to carry refined products from oil refineries to the markets/consumer facilities. A replenishment oiler is used for refueling ships at the sea, and the old nonoperational oil tankers which are used as floating oil storage notes. The crude tanker business falls under the oil services industry and is often classified under the subcategory of oil and gas storage and transportation. (Source: The Industry Handbook: The Oil Services Industry).

The crude tanker business involves firms which own, operate or lease the crude tankers for their requirements of oil transportation and storage. Different entities get into detailed business contracts, which are based on duration of the lease, the quantity of the oil to be transported or stored, the route of transport, or a mix of all such factors. Contracts also include details of which party bears the operational expenses, including fuel costs, crew payments, and insurance. Along with all the abovementioned factors, the demand and supply of oil across various regions of the globe also impacts the crude tanker business.

Before an oil tanker takes on a single drop of cargo, the company that owns the ship enters into a highly detailed agreement called a charter. Several types of charters exist. There’s the bareboat charter, in which a company that wants to use a ship agrees to pay all of the boat’s operating expenses for a set amount of time, usually measured in years. Other options include the spot charter, in which the ship is contracted to deliver a specific amount of cargo between one port and another within an agreed time frame; and time charters, in which a party pays the ship’s owner to use the ship for a specified amount of time. In the oil shipping business, profits are made through shrewd understanding of the markets. For the most part, there’s greater demand for tankers than there is capacity, so long-term charters of several months to several years are common.
Oil Tanker

Shipping U.S. Crude Oil by Water:Vessel Flag Requirements and Safety Issues John Fratelli Specialist in Transportation Policy July 21, 2014 United States Congressional Research Service Shipping U.S. Crude Oil by Water

Oil tankers range from general purpose to ultra-large crude carriers on AFRA scale

Source: T. Mason Hamilton, U.S. Energy Information Administration

The global crude oil and refined product tanker fleet uses a classification system to standardize contract terms, establish shipping costs, and determine the ability of ships to travel into ports or through certain straits and channels. This system, known as the Average Freight Rate Assessment (AFRA)

system, was established by Royal Dutch Shell six decades ago and is overseen by the London Tanker Brokers’ Panel (LTBP), an independent group of shipping brokers. AFRA uses a scale that classifies tanker vessels according to deadweight tons, a measure of a ship’s capacity to carry cargo. The approximate capacity of a ship in barrels is determined by using an estimated 90% of a ship’s deadweight tonnage, and multiplying that by a barrel per metric ton conversion factor specific to each type of petroleum product and crude oil, as liquid fuel densities vary by type and grade.

Tankers and the men and women who operate them are an important and principal link in our American and global supply chain. Touching our lives in many ways every day, they dependably and affordably deliver the products Americans need to keep moving forward.

The smaller vessels on the AFRA scale, the General Purpose (GP) and Medium Range (MR) tankers, are commonly used to transport cargos of refined petroleum products over relatively shorter distances, such as from Europe to the U.S. East Coast. Their smaller size allows them to access most ports across the globe. A GP tanker can carry between 70,000 barrels and 190,000 barrels of motor gasoline (3.2-8 million gallons) and an MR tanker can carry between 190,000 barrels and 345,000 barrels (8-14.5 million gallons).

Long Range (LR) class ships are the most common in the global tanker fleet, as they are used to carry both refined products and crude oil. These ships can access most large ports that ship crude oil and petroleum products. An LR1 tanker can carry between 345,000 barrels and 615,000 barrels of gasoline (14.5-25.8 million gallons) or between 310,000 barrels and 550,000 barrels of light sweet crude oil. A classification used to describe a large portion of the global tanker fleet is AFRAMAX. AFRAMAX vessels refer to ships between 80,000 and 125,000 deadweight tons. This ship size is popular with oil

companies for logistical purposes, and, therefore, many ships have been built within these specifications. Because the AFRAMAX range exists somewhere between the LR1 and LR2 AFRA scales, the LTBP does not publish a freight assessment specifically for AFRAMAX vessels. Over the history of AFRA, vessels grew in size and newer classifications were added. The Very Large Crude Carrier (VLCC) and Ultra-Large Crude Carrier (ULCC) were added as the global oil trade expanded and larger vessels provided better economics for crude shipments. VLCCs are responsible for most crude oil shipments around the globe, including in the North Sea, home of the crude oil price benchmark Brent. A VLCC can carry between 1.9 million and 2.2 million barrels of a WTI type crude oil.

With current WTI prices near $ 56.00 per barrel, 2 fully loaded VLCC’s would be needed to carry over $ 200 million worth of crude oil.

There are a small number of ULCC vessels currently in use, as their size requires special facilities limiting the number of places where these vessels can load and offload. These massive vessels can carry around 2 million barrels to 3.7 million barrels of crude oil. The only U.S. port that can handle such large vessels while fully loaded is the Louisiana Offshore Oil Port (LOOP).

Oil Tanker Design and Equipment

Oil tankers can be divided into several parts including the tank area and after-parts that must be provided to keep spills away. These tanker parts contribute to the protection of the marine environment. There are other requirements with respect to the number and minimum capacity of slop tanks. An oil tanker’s cargo system, the stripping system that not all tankers have. The carriage of oil product cargoes is dealt with first, then chemical cargoes and liquefied gas cargoes are considered. Oil is carried in bulk by specially designed ships. A large proportion of this trade consists of the transportation of crude oil, but refined products are also carried in considerable quantities and include fuel oil, diesel oil, gas oil, kerosene, gasoline and lubricating oils.

The design of a tanker must account for the particular trade for which it is intended. A high rate of loading and discharging is desirable; pumping capacity and size of pipelines being important in this respect. The safety factor must be borne in mind with the provision of a fire smothering installation and the provision of cofferdams at the ends of cargo spaces, ventilating pipes to tanks, etc. Ships intended for the carriage of heavy oils would have steam heating coils fitted in tanks. The cargo space is generally divided into three sections athwartships by means of two longitudinal bulkheads and into individual tanks by transverse bulkheads. The maximum length of an oil tank is 20%L (L is length of vessel), and there is at least one wash bulkhead if the length of the tank exceeds 10%L or 15 m.

Tanks are generally numbered from forward, each number having port, center and starboard compartments. Pump rooms are often located aft so that power may easily be supplied to the pumps from the engine room, but ships designed to carry many grades of oil at once may he fitted with two pump rooms placed so as to divide the cargo space into three sections. The system of pipelines used in a tanker is such that great flexibility is possible in the method of loading or discharging, and different