Why oil shippers are headed for choppy waters

The construction boom in double-hulled oil tankers means there will soon be too many ships chasing too little oil. But there's still money to be made from investing in shipping, as Jody Clarke discovers.

Sitting idle and empty in the port of Honolulu, the world's last sail-driven oil tanker faces demolition this year. It isn't the only one by 2010, 400 other tankers will also have been scrapped, due to a UN order that the current 20-30-year-old fleet be destroyed following a series of environmental catastrophes. The most infamous, the Exxon Valdez disaster in 1989, led to a policy stating that by 2010 all oil tankers must be double-hulled. The resulting fear of a ship shortgage, along with the rising volumes of oil being shipped, has led to a sharp spike in the cost of transporting oil worldwide, which in turn has boosted the share prices of a number of shipping companies.

However, that doesn't mean you should rush out and buy any of them. Soon, there will actually be too many ships fighting over too little oil. Short term, the market may look tight spot freight rates for supertankers or very large crude carriers (VLCCs) are hovering around $110,000 a day against $55,000 last year, as firms rush to scrap the single-hulled ships that caused one oil spill after another in the 1970s and 1980s. But that's led to a rush to order more new double-hulled tankers. These already account for 77% of the world's total tankers, according to Clarkson Research Services Ltd, leaving a big gap but not an insurmountable one to be filled.

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Jody Clarke

Jody studied at the University of Limerick and was a senior writer for MoneyWeek. Jody is experienced in interviewing, for example digging into the lives of an ex-M15 agent and quirky business owners who have made millions. Jody’s other areas of expertise include advice on funds, stocks and house prices.