Topic01 Tankers Types Trades

Topic 1: Tankers Types and TradesIntroductionThis module is mainly concerned generally with Voyage Charters of tankers and in particular with laytime and demurrage matters that are closely connected with voyage charters. However, while a legal text-book discussion can deal with laytime and demurrage it must be pointed out that these aspects can be and are often affected by practical and commercial matters and a pure legal text-book discussion may not give a student a sufficient understanding of these. This topic will briefly discuss some of these practical and commercial matters in general and, in particular, some that impact significantly on chartering of tankers and on laytime and demurrage. An example is a pumping clause in a tanker voyage charterparty. This deals with the time taken by an oil tanker to pump the cargo out of its tankers and ashore into receiving tanks. This clause and is connected with such technical and practical matters as manifolds and back pressure. Students should be able to connect these matters with commercial and legal issues surrounding operations of tankers. These practical matters include description of types of tankers and their purposes. Initially this Topic will deal with tankers that carry crude oil or petroleum products. This Topic will also discuss some issues relating to carriage of other bulk liquids such as vegetable oils, chemicals and liquefied gas. The commercial reasons for maritime transport are similar to what they have been for thousands of years. Only the means and techniques of maritime transport have changed. In this Topic we discuss very briefly some reasons for maritime transport and the development of ship types before spending a little more time on the development of ships designed to carry liquid cargoes in bulk. These are usually tankers but we must not forget that some general cargo ships carried oils in deep tanks for many years in the past and many multipurpose ships now still carry oils in specially designed tanks in the cargo spaces. Because the Module is concerned with tankers we shall not discuss non-tankers that may carry liquids in bulk. Tankers operate in a market. We shall also discuss these tanker markets.

Short glossaryWe first need to explain some general terms related to tanker voyage chartering. This is a short glossary. Topic 2 in this Module deals in a little more detail with Terms and Terminology relevant to tanker operations, chartering, laytime and demurrage. Voyage charter A voyage charter is a contract by which a person (charterer) agrees to hire a named ship from a shipowner for the purpose of loading and carrying one or more cargoes from one or more loading ports or a range of ports to one or more ports or a range of ports where the cargo or cargoes will be discharged. The charterer agrees to pay the shipowner freight which is the cost of this service. The shipowner is responsible for all the costs of the voyage including fuel, canal dues, port costs and also, in the case of tankers, usually the costs of loading and

BIMCO Diploma Programme-Module 05 98186347

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discharging the cargo. The destination of the ship may be a port or a berth, where a ship can be moored or anchored and where, usually, cargo transfers will take place. Charterparty Laytime This is the document that contains the terms or obligations and rights of the contract. This is the period of time agreed between the charterer and shipowner during which the owner will make and keep the ship available for loading or discharging without payment additional to the freight. This is an agreed amount payable to the owner in respect of delay to the vessel beyond the laytime, for which the owner is not responsible. This is a notice to charterer or other person as specified in the charterparty that the ship has arrived at the port or berth, as the case may be, and is ready to load or discharge. This is used for a worldwide tanker nominal freight scale applying to tankers carrying oil in bulk. It is a schedule of nominal freight rates intended to be used as a reference to compare rates for all voyages and market levels. Analysts and other professionals in maritime transport use the Worldscale rates to describe the market level as percentages of the Worldscale freight rate. Worldscale rates are also used in negotiating freight rates for voyage charters of oil tankers. As an example WORLDSCALE 100 (also known as WS 100 or WORLDSCALE FLAT) means the rate as calculated and published by the Worldscale Associations in London and New York. WS 175 means 175 per cent of the published rate, and WS 75 means 75 percent of that rate. Ton miles This reflects both the volume shipped and the distance travelled and is the good indicator of the overall demand for tankers. While ships carry cargo, the product that is in demand is not the ship but the cargo it carries: there is a demand for transport of the cargo. Therefore, when we discuss maritime economics, we speak of the demand for ships derived from the demand for the goods the ship carries: a derived demand. This is the weight (or mass), in metric tons, of all that is carried on a ship and includes: cargo, ballast, fuel, fresh water, stores and similar items. The vertical distance, in metres (m), between the waterline of the water in which the tanker is floating and the lowest point of the tanker, usually its keel.

Demurrage

Notice of Readiness Worldscale

Derived demand

Deadweight (dwt) Draft


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Barrels (bbls)

From 1859 when the first oil well was drilled in United States, the iron-hooped, wooden barrel was the only means of transporting the petroleum from the oil fields inland to the East Coast of the USA where the oil was demanded. The photographs below show some of these barrels. It is remarkable that even today, although barrels are not used to carry oil, the word is used, sometimes in contracts connected with the USA, to indicate the quantity of oil shipped on a tanker and to indicate the quantity of oil that is taken from the ground and also to describe oil pollution! For example, oil production of an oil-well can be described as 20,000 barrels per day.... Also as occurred in April 2010 with the BP casualty off Louisiana in the USA, media reported On July 15, 2010 the leak was stopped by capping the gushing wellhead after it had released about 4.9 million barrels of crude oil. It was estimated that 53,000 barrels per day were escaping from the well just before it was capped... A tanker may load about 150,000 metric tons of crude oil and the shipping documents may show this quantity and also 1,071,000 barrels. A barrel is a measure of volume, not weight, and, 1 bbl = 42 US gallons or 159 litres.

Wooden barrels near an oil field where oil was first drilled in the USA(Full acknowledgement given to Drake Well Museum)

This old photograph shows barrels which could have been filled with oil and carried on the small sailing ships in the 19th century(Full acknowledgement given to Drake Well Museum)

MARPOL 73/78 This is the International Convention for the Prevention of Pollution From Ships, 1973 as modified by the Protocol of 1978. Annex I of this Convention concerns the carriage of petroleum (oil) cargoes and Annex II concerns the carriage of Noxious Liquid Substances which include chemicals and vegetable oils. Stripping When a cargo of bulk liquid is discharged from a tanker's tankPage 3 of 13


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by use of a main cargo pump (MCP), it may be that the liquid level may be so low that the pump's suction cannot draw the liquid through the pump and discharge it ashore. Either another pump or a special procedure used for the MCP to strip out the remaining cargo.

Development of maritime transportThe sea is vast water covers more than 70% of the earths surface and any discussion of the development of maritime transport must take into account this vastness and how and why humans, coming from land, have used the ocean surfaces. It has been written1 that one can be on a ship in the ocean more than 1500 miles from the nearest land and, in the middle of the Pacific Ocean, one can be more than 3500 miles from any continent. We live on the Earth and can visualise and understand and be awed how big some land features can be: We know that Mount Everest is 8,850 m high or 8,850 m above sea level. However, if the mountain was dropped into the Challenger Deep in the Marianas Trench in the Pacific Ocean, north of Indonesia, it would sink. The depth of water there is 11,000 m. The land surface is only about 30% of the total earths surface but for thousands of years humans from the land have been travelling greater distances and with greater loads on the surface of the seas much earlier than they have been travelling on land. The water craft they have used have changed in the millennia. Trade and transport of cargoes by ships and the necessary development of the infrastructure including ports and networks of agents in these ports was central to the commercial and economic development of many countries. This was especially true when ships were needed to carry the new cargoes needed by the industrialising countries, especially in Europe. One of the new cargoes was oil that these countries needed as lubricants for the machinery and eventually as fuel. The industrial revolution and human ingenuity led to changes in ship types to meet the derived demand for transport of changing cargoes for a changing world. Not only did ship types and sizes change but did the means of propulsion and methods of cargo handling. The change of propulsion from sail to coal-fired steam engines to oil-fired steam to oil-fuelled internal combustion engines was in step with the industrial revolution mainly in Europe but which also spread across the Atlantic and eventually East of Suez in the 19th century. As more oil was discovered new international trade routes and the infrastructure developed and this also had a large influence on the development of ship types. In this session we shall concentrate on the development of tankers and the trade routes and markets they serve.

Development of the tanker typeThe largest man made object in the world was a crude oil tanker: the Jahre Viking, also known as the Sea Giant, Happy Giant and Knock Nevis. The deadweight of this vessel was 564,763 metric tons. It had a length of 458 metres, a beam (breadth) of 69 m and draft of 24.6 m. It was sold for scrap in India as the Mont.1

Maritime Transport: The Evolution of the International Marine Policy & Shipping Law, by Edgar Gold, Lexington, MA, Lexington Books, 1981, 1


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Ships such as this known as Ultra Large Crude Carriers or ULCCs are designed for carriage of one type of oil: crude oil. The vessel is a fairly generalised type if it carries only crude oil, although crude oil itself can be of different types. This vessel is very different from earlier tankers especially in size and also from other tankers that carry many types of liquid cargoes in bulk. For example, chemical tankers are very specialised and some can carry 30 or more different grades of liquid cargoes on the same voyage. Table 1 below distinguishes different types of tankers, usually classified by size but also by the type of ship and the cargoes they carry. Table 1 Crude carriers ULCC (Ultra Large Crude Carrier): 300K to 550 k VLCC (Very Large Crude Carrier): 150 k to 320 k Malaccamax: About 300,000 mt deadweight and draft of just under 21 m to be able to transit the Malacca Strait Medium-size: 70,000 to 150,000 mt dwt Handy-size: Less than 70,000 mt dwt Suezmax: 110,000 to 150,000 mt dwt and limited by its dimensions to pass through the Suez Canal Capesize: Usually used for dry bulk carriers but of more than 15 m draft and unable, at present, to pass through the Suez Canal fully loaded Panamax: This is a vessel of max beam about 32.2 m which is presently the limit of the locks in the Panama Canal. The term usually refers to dry bulk carriers but can also apply to tankers. Product carriers These carry products that result from refining of crude oil, including gasoline, fuel oil, gasoil, naphta, jet fuel, kerosene and other products.

Chemical This is a very specialised group of tankers. In the last 25 years there carriers has been increased demand for new types of raw materials many of which are in liquid form and can only be carried in specialised ships to protect against pollution and danger to human life. These tankers may also be called parcel tankers: they can be built with many tanks, each with a self discharging pump, and can carry numerous parcels of cargo for different users. They serve the demand for transport of chemicals and also of vegetable, animal and marine oils and also for other commodities such as wine, molasses and beer. The chemicals carried can be: organic chemicals such as ethylene, propylene, benzene, toluene, xylene and styrene. (These contain carbon and are also known as petrochemicals. They originate from crude oil, natural gas or coal.) inorganic chemicals such as acids and caustic soda. These tankers also carry vegetable oils produced from seeds or plantsBIMCO Diploma Programme-Module 05 98186347 Page 5 of 13

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and which are used for human consumption and sometimes for animal feedstock and also for industrial purposes. Other parcel cargoes can include animal oils and fats, such as tallow and marine oils, such as fish oil. Gas carriers These carry liquefied gas, either LNG or Liquefied Natural Gas or LPG or Liquefied Petroleum Gas. These ships are specially designed and constructed tankers .

Aframax another size-related tanker termThis word is derived from Average Freight Rate Assessment. It was originally a term coined for a crude oil tanker of exactly 79,999 long tons dwt being the upper limit of LR1 as defined by the London Tanker Brokers Panel in 1954 at the request of the Shell oil company. Now the term usually refers to an oil tanker above this size: between 80,000-124,999 dwt. AFRA is not connected with Africa. The abbreviation relates to a scale of sizes of tankers, the AFRA scale which is a division of tankers by the capacity range that is used to average world freight rates. The scale is: General Purpose (GP, below 25,000 dwt) Medium Range (MR, below 50,000 dwt) Large range -1 (LR-1, below 80,000 dwt) Large range - 2 (LR-2, below 160,000 dwt) Very Large Crude Carrier (VLCC, below 320,000 dwt) Ultra Large Crude Carrier (ULCC, below 550,000 dwt).

Development of the petroleum (oil) transport industryTo discuss the development of oil tankers, we need also to look briefly at the development of the oil industry itself and the markets in which tankers are operated. Transport of oil in bulk today is very different from transport of oil in early days where mainly refined oil was carried in wooden barrels and also in tin cans. Many barrels and cans were originally carried in small (sailing) ships. The early demand for oil was for heating and lighting and it was common for the source of this oil to be whales and vegetables although some petroleum was obtained from hand-dug wells in some countries. Serious transport of petroleum in bulk began with the discovery of and drilling for oil in the north-east of the US in 1859. At that time oil was like liquid gold and was sold for about $20 per barrel. Little oil was carried by sea over long distances. For example, in 1847 some shale oil (from coal seams) was produced in England and carried across the Atlantic but in wooden barrels. There was no real oil industry. Only the lighter ends of oil were in demand (for example the kerosene lamp was invented in 1854 and kerosene was far better for light and heat than coal or wood). Tank wagons containing oil were carried by rail from the oil fields near Pittsburgh to ports on the Atlantic Coast of the USA from where it was exported to Europe where itBIMCO Diploma Programme-Module 05 98186347 Norman Lopez Page 6 of 13

was in high demand to fuel the industrial revolution. As production in the US increased and transport to Europe also increased, the oil trade and oil markets became clearly identifiable in their own right. In Europe ships were already being designed to carry the oil across the Atlantic in bulk. However before this, sailing and then steam ships carried the oil across in small parcels of general cargo in wooden barrels and then in tins. The ships were also quite small. The first large shipment was 1329 barrels in 1861 on a sailing ship, the Elizabeth Watts which was only about 350 dwt. The first purpose-built tanker designed to carry bulk oil within the body of the ship was built in England in 1886. This was the Gluckauf which had a single bottom under the cargo spaces and an all-aft engine space. Most tankers that followed the Gluckauf have been built on the same model. This ship had a dwt of 3,500 and could carry about 3000 tons of kerosene. The freight on these larger steam ships was much cheaper than carrying oil in smaller parcels as part of a general cargo and the advantages of bulk shipping began to be realised. Before the 1950s, world crude oil production was centred on the US as Table 2, World Oil Production, shows: Table 2: World Oil Production US 1900 1910 1920 1930 1940 43% 64% 65% 62% 63% Mexico Nil 1% 23% 3% 2% S America Nil Nil Nil 10% 9% Russia 51% 21% 4% 9% 10% Other 6% 14% 8% 16% 16%

(with acknowledgements to Ratcliffe2)

The Middle East oil fields were not developed until after the second world war and these were controlled by the British. From then, the development of the tanker in sizes and in types has developed relatively fast especially to take advantage of carrying oil from newly developed oil fields over longer distances. Now we even obtain oil from the sea-bed. After MARPOL 73/78 as amended and other Conventions, even the design of tankers is changing.

Oil TankersCrude oil tankers The cargo compartments in the hull are individual tanks separated by longitudinal and transverse bulkheads. The size and location of these tanks on oil tankers are governed by MARPOL which also requires double hulls to prevent oil discharge if there is a collision or the ship grounds. Each tank has a suction arrangement connected by pipelines to one or more pumps. The pumps draw the oil from the tanks and deliver the oil into pipelines that lead to the deck and to the manifolds. Hose handling cranes are fitted amidships. The machinery and accommodation are usually located aft and separated from the cargo spaces by a void space called a cofferdam.2

Liquid Gold Ships, by Mike Ratcliffe, London, Lloyds of London Press, 1985, 51 Page 7 of 13


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A tanker will normally be loaded by shore equipment, but will use its own powerful pumps to discharge. There is often a pumping clause in charterparties. This usually requires the tanker to pump the cargo out either within 24 hours or maintaining an average back pressure at the manifold of 100 pounds per square inch (about 7 kg/cm2). If this cannot be maintained the charterer may bring a claim against the tanker operator. Crude oil tankers have an Inert Gas System (IGS) to blanket the cargo to prevent escape of flammable and explosive gases to the atmosphere. They also have a system which allows them to spray the tanks at high pressure with the crude oil as it is being discharged. This is Crude Oil Washing (COW) and is used to reduce residues and clingage and improve outturn. Clingage occurs when cargo clings to the tank sides during discharge. Because crude oils are different and many require heating so that they can be pumped, most tankers have heating coils in the tanks. Some tankers may have heat exchangers on deck but these are not usually found on crude oil tankers. Between discharge and the next loading port, the tanks may need to be washed. Tankers may have fixed tank cleaning, rotating nozzle arrangements, bolted to the deck. This tank cleaning system may be known as butterworthing from the early design of tank cleaning machines. The washings, residues, are pumped into slop tanks. Either the slops are pumped ashore at the next load port or the next voyage charterer may decide to Load on Top of the slops. Claims against crude oil tankers are made about short delivery, delays with pumping and, of course, for oil pollution. Product tankers These are also strictly controlled by MARPOL requirements including cargo tank arrangements . They carry the refined products from oil refineries. Individual parcels may be carried which requires separate pumping and pipeline systems to avoid contamination. The cargo tank surfaces may be coated to prevent contamination and tank cleaning between parcels is very careful. Product tankers may also be called parcel tankers and are generally smaller than crude oil tankers.

Chemical tankersChemical tankers are of complex design and need mariners with special qualifications, as of course, do gas tankers and oil tankers. Governments and the International Maritime Organisation (IMO) have adopted the most stringent regulations for chemical tankers to control safety and pollution prevention. While crude oil is carried in very large quantities on large ships usually one or two or three grades, chemicals are carried in smaller parcels on much smaller ships and comprise many products. The chemical tanker has developed over the last forty years from the development of the chemical industry in the USA after World War 2. Originally chemical tankers were converted from product oil tankers but now we see almost all chemical tankers of very special designs and different tank coatings and construction for different purposes. Double hulls are and have been the norm for chemical tankers. The ships must comply not only with Annex II of MARPOL 73/78 (Regulations for the Control of Pollution by Noxious Liquid Substances in Bulk) but also with the International Code for theBIMCO Diploma Programme-Module 05 98186347 Page 8 of 13

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Construction and Equipment of Ships carrying Dangerous Chemicals in Bulk (the IBC Code). The greatest advances made in the chemical industry have been made in the last 25 years and one result has been a rise in the demand for raw materials. This in turn has led to a great increase in the maritime transportation of chemicals and the development of specialized ships in which to carry them. The ships that have been built in response to this demand are among the most complex ever constructed. The cargoes they carry often present tremendous challenges and difficulties from a safety point of view and many chemicals are also a far greater pollution threat than crude oil. In particular, carriage of these cargoes are covered in MARPOL Annex II - Regulations for the Control of Pollution by Noxious Liquid Substances in Bulk. Chemical tankers built after 01 July 1986 must comply with the International Bulk Chemical Code (IBC). This prescribes construction and design standards and equipment such ships should carry. The basic philosophy is one of ship types related to the hazards of the products covered by the Codes. Each of the products may have one or more hazard properties which include flammability, toxicity, corrosive affects and reactivity. The IBC Code lists chemicals and their hazards and gives both the ship type required to carry that product as well as the environmental hazard rating. The categories are: Category X: Category Y: Category Z: Major Hazard No discharge allowed into the sea Some hazard Discharge limited Minor hazard Less stringent restrictions on discharge No hazard No restrictions on discharge

Other substances:

Chemical tankers constructed before 1 July 1986 should comply with the requirements of the Code for the Construction and Equipment of Ships Carrying Dangerous Chemicals in Bulk (BCH Code) the predecessor of the IBC Code. Annex II also includes a number of other requirements reflecting modern stripping techniques, which specify discharge levels of products which have been incorporated into Annex II. For ships constructed on or after 1 January 2007 the maximum permitted residue in the tank and its associated piping left after discharge is set at a maximum of 75 litres for products in categories X, Y and Z (compared with previous limits which set a maximum of 100 or 300 litres, depending on the product category). (Stripping is a process where after the bulk of the liquid cargo has been discharged by the main cargo pumps which may not be able to drain the tank completely. Other (smaller) pumps or other equipment or procedures are used to remove the last amount of liquids.) As a result of the hazard evaluation process and the categorization system, vegetable oils which were previously categorized as being unrestricted are now required to be carried in chemical tankers. The hulls of chemical tankers are regulated strictly. There are three Types of these tankers. A Type 1 ship is a chemical tanker intended to carry products considered to present the greatest overall hazard and Type 2 and Type 3 for products of progressively lesser hazards.


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Type 1 Intended to transport products with very severe environmental and safety hazards which require maximum preventive measures to preclude an escape of such cargo. These must have totally double hulls with large separation of the liquid from the sea. A Type 1 ship must survive the most severe standard of damage and its cargo tanks shall be located at the maximum prescribed distance inboard from the shell plating. Type 2 Intended to transport products with appreciably severe environmental and safety hazards which require significant preventive measures to preclude an escape of such cargo.

Type 3 Intended to transport products with sufficiently severe environmental and safety hazards which require a moderate degree of containment to increase survival capability in a damaged condition.

Gas tankersGas cargoes carried in bulk by sea are either Liquefied Petroleum Gas (LPG) or Liquefied Natural Gas (LNG). Each requires specially designed ships. All gas cargoes are transported in liquid form (ie they are not carried as a gas in its vapour form) and, because of their physical and chemical properties, they are carried either at: ambient temperature under pressure greater than atmospheric temperatures below ambient (liquefaction temperatures) in insulated tanks at atmospheric pressure a combination at temperatures below ambient (liquefaction temperatures) in tanks under pressure. Fully pressurisedPage 10 of 13

Gas carriers can be classified as:


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Semi pressurised and semi-refrigerated Fully refrigerated Type 1G, designed to carry the most hazardous cargoes Type 2G and 2PG, designed to carry cargoes having a lesser degree of hazard , and, Type 3G, designed to carry cargoes of the least hazardous nature. On the gas carriers, tank types are:

They are also classified according to the hazardous nature of the cargo they may carry:

Type A: Constructed of plain, flat surfaces (prismatic tanks)

Type B: Spheres

Type C: Cylindrical pressure vessels

For LPG the gas is liquefied ashore by a reduction of temperature before loading to the ship. The ship is able to maintain low temperatures (-50oC) with a refrigeration plant. Any gas escaping is re-liquefied using a plant on the ship and returned to the cargo tank. The cargo is carried fully refrigerated and non-pressurised usually in Type A tanks. Fully refrigerated LPG carriers have capacities of 15,000 to 85,000 m3. LPG carriers > 80,000 m3 are known as Very Large Gas Carriers or VLGCs.BIMCO Diploma Programme-Module 05 98186347 Norman Lopez Page 11 of 13

LNG cannot be liquefied only by pressure. This is carried at very low temperatures (104oC for Ethane and -176oC for Methane), at atmospheric pressure. The cargo is liquefied by refrigeration ashore before loading to -162oC (the boiling point of LNG at atmospheric pressure). The carriers are dedicated to a specific trade and can range in capacity from 80,000 to more than 250,000 m3. These ships are fully insulated and any boil-off vapours from the cargo are burned as fuel for the engine. LNG is usually carried in one of two types of containment systems: the membrane system (Gaz Transport or Technigaz) or the Type B (Moss Rosenberg) system. All gas carriers have double hulls.

The tanker marketTo discuss in depth the tanker market we would need many more hours than is planned for this Topic. We can only touch upon a few issues bearing in mind the fundamentals of any market: supply, demand and price. We can also try to analyse what specialists, such as P F Bassoe Shipbrokers and Poten and Partners, which can be accessed on the Internet, tell us.

In 1986, 89% of the 376 reported spot fixtures for VLCCs were ex-MEG.


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In 2007, 72% of the reported 1,824 spot fixtures were ex-MEG. However the trading patterns are more diverse.(Full acknowledgements to Poten and Partners)

(Full acknowledgements to Poten and Partners)


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Topic01 Tankers Types Trades