In the tanker market, where the age of the typical demolition candidate is lower than ever, Herbjorn Hansson is urging those involved in the debate to make the distinction between what he calls “technical” and “commercial” obsolescence before passing judgement on the best time to scrap.
“Technical obsolescence occurs when a vessel can no longer trade and is out of class,” the Nordic American Tankers CEO told TradeWinds Monday. “This often happens when the owner cannot afford to keep [a vessel] in top condition, which is required by the major oil companies.”
Hannson says blue-chip charterers are far more concerned about the quality of a vessel and was quick to point out that his own fleet of suezmaxes, which boast an average age of over ten years, actively trade with the likes of ExxonMobil and other majors that maintain strict guidelines despite their age.
“Some views have been submitted to the effect that vessels of 15 years or more should go to the scrap yard,” he continued. “This is no less than unreflected stupidity. A commercial decision whether should have a vessel or not has to do with a number of factors.”
He says “quality” and the “commercial dimensions” an owner like Nordic American considers when performing what he called an “investment calculation” can include variables like risk level, the price of capital and prospects of the world economy- not just age.
“In my book this one dimensional discussion about age is nonsense,” Hansson argued. “The question relates to quality. Our newest ships were built in 2011 and [our] first in 1997. With an average between 11 and 12 years, they are all in excellent condition-which is a requirement to survive in this business.”
The commentary follows a recent visit to the Norwegian town of Tonsberg where the executive accompanied Nordic American CFO Turid Sorensen and Frithjof Bettum, the senior vice president of technical operations, on a tour of the 157,000-dwtNordic Saturn (built 1998).
He said the vessel, which was discharging 200,000 barrels of crude at the ExxonMobil’s Slagen refinery, was in “excellent technical and operational condition”. Einar Danbolt, a senior partner at shipbroker Sealeague, snapped a series of photos that Hansson used to support his claim.
“Visiting this vessel reminded me of the question of whether a ship is ‘technically obsolete’ or ‘commercially obsolete’,” he recalled in a subsequent email about the trip. “It would indeed be a waste of resources to scrap such a ship.”
Earlier in the day, Braemar Seascope issued a note in which research director Mark Williams warned that the economic life of today’s ships are “depreciating to scrap value in their teenage years or early twenties” as a result of weak freight markets and the ongoing credit crunch.
According to the digital valuation service VesselsValue.com the Nordic Saturn,which the US-listed owner acquired as the Sabine from OMI Corp for $70m in 2005, is worth around $15.5m in the sale-and-purchase market and might fetch $9.8m if it were sold for recycling.
