1. The State of the Tanker Industry Russian Register Quality Shipping Seminar St. Petersburg 21 October 2009 Erik.Ranheim@INTERTANKO.com Manager Research and Projects

2. The State of the Tanker Industry 2003 - 2Q09 superb market, high earnings Current situation, declining demand increasing fleet below costs freight rates Safety status Record low pollution Few serious incidents Market crises threat to safety? Will cost saving increase risk? Recruiting, the major challenge ahead?

3. Surviving in crises How to survive when freight rates do not cover costs ? How to maintain high quality shipping with a low number of incidents and few oil spills at the same time as earnings are low and pressure to reduce cost is high? How to fend off the pirates? $/day Why risk management is important !!

4. Market recovery in sight?

5. World GDP and oil demand change Source. IMF/BP / IEA

6. Source: Baltic Exchange/INTERTANKO $/day Average tanker freight rates based on the Baltic rates

7. World oil demand mbd Source. IEA Increase in Middle East, USA, China and ROW**1Q07-4Q10 mbd ROW**. Rest of World

8. Tanker deliveries, removals, max phase-out All tankers > 25,000 dwt m dwt Assumed balanced market end 2008 Deliveries and orderbook based on Clarkson World Shipyard Monitor Sept 09 6 m dwt additional annual delivers 2013 -2015, and Phase out all SH by 2010, DB/DS trading until 25 years old 2 m dwt additional annual scrapping of DH 2011-2015 Fleet 527403.4 m dwt Orderb228121.8 “ 45% Not DH 626 50.2 ” 12% 2009 2% reduction demand

9. Oil demand, tonne-mile, and tanker fleet, development mbd Source: IEA, Fearnleys, INTERTANKO Tanker fleet increase 2002- 2010: 43%

10. Environmental performance improving

11. Accidental oil pollution into the sea spills per tonne-miles 1970-1980 Source: INTERTANKO/ITOPF 1000 ts spilt per bn tonne miles No major spill until Sept. 2009 Record low 2008

12. Accidental oil pollution into the sea 1970-2009 Source: INTERTANKO/ITOPF 1000 ts spilt No major spill Jan-Sept. 2009 Record low 2008 Largest spills in each year: 2004 - 2008

13. Number spills above 7-700 tonnes Source: INTERTANKO/ITOPF Number Record low 2008

14. Number spills above 700 tonnes Source: INTERTANKO/ITOPF Number Record low 2008No major spill until Aug 2009

15. Accidental oil pollution into the sea and tanker trade Source: INTERTANKO/ITOPF/Fearnleys 1000 ts spilt bntonne-miles Record low accidental pollution from tanker in 2008, no major ones so far 2009

16. Incidents attended by ITOPF over the past 5 yearsNumber Source: ITOPF

17. Tanker incidents 2009 Rate is number incidents divided by number tankers in the segment Worst incident 2009 may be collision/fire Formosa Brick collision in the Straits of Singapore Aug 2009 9 fatalities and Elli that broke in two at the entrance Suez Canal.

18. Tanker incidents and accidental pollution Number incidents ’000 ts pollution Source: INTERTANKO, based on data from LMIU, ITOPF + others 2009 a projection based on 9.7 months Record low accidental pollution from tanker in 2008, no major ones so far 2009

19. Tanker incidents by type % of total Source: INTERTANKO, based on data from LMIU, ITOPF + others 2009 a projection based on 9.7 months

20. Tanker hull & machinery incidents Number incidents Based on data from LMIU, ITOPF + others

21. Tanker hull & machinery incidents Number incidents Based on data from LMIU, ITOPF + others Year<10 years10-24 years>25 yearsTotalAverage age 200241532217.5 20033831418.4 20042731218.8 200592053417.6 2006121733214.3 2007202534813.2 20082524105915.6 20091317 83816.3 Total881333825915.8

22. Tanker incidents and rate by flag Number incidents Rate 2008 – 287 incidents Flags with more than 2 incidents Flags with more than 1 incident Rate is number of incidents divided by number of ships per flag 2009 9.7 ms – 227 incidents Canada 0.194 Cambodia 0.091 Russia 0.047

23. Tanker accidental pollution 1974 – 2009 by cause (9,368 incidents) Based on data from ITOPF

24. Tanker accidental pollution 1974 – 2009 by cause Based on data from ITOPF Tankers spills of 7 - 700 tonnes 7 - 700 tonnes Tankers spills of > 700 tonnes > 700 tonnes Tankers spills of < 7 tonnes < 7 tonnes 7817 spills 1203 spills 348 spills Operational Collision Fire & explosions Groundings Hull failures Other/unknown

25. Piracy incidents

26. Tanker piracy incidents 2008-2009 110 incident 2008 – 83 incidents 2009 By area By area By month By month By size By size By age By age

27. Maintaining quality during crises

28. Why is risk management and keeping a high performance record is important also in a crises $320 m people claims $240 m cargo claims $150 m pollution claims $140 m collision claims $130 m property claims $ 980 m total claims which shipping may need some $ 9.98 bn in freight income to cover *..and if performance record is bad: Charterer will avoid you Authorities may detain you Insurers will charge you i.e. in the end: Poor performance means reduced income and higher costs Today everybody asks for performance evidence: TMSA, port state control record, accident record,…………… An the requirements of oil majors are hard to meet The industry yearly pay approximately: ** Source :UK P&I Club

29. Risk management important during crises Involves: Identifying and understanding risks Mitigating or eliminating risks where possible Avoiding unacceptable risks Balancing risk & reward to arrive at the best business decision Goals: To protect people, the environment and property To avoid involvement in a catastrophic incident To prevent business disruptions To improve quality of available tonnage. Elli was split in half and sank near the Red Sea entrance to the Suez Canal, 80 miles east of Kairo, Egypt, Friday Aug. 28, 2009.

30. Flirting with disaster Why accidents are rarely accidental Short term thinking about money is a factor in many incidents While the most common explanation of accidents are operator error, a more frequent cause is faulty design of the socio-technical system (i.e. people and tech. in combination) in which the operator is embedded. Without an institutional recognition of risk, an emphasize on safety is unlikely, and in the absence of focus on safety, it is impossible to achieve it Disasters – uncontrollable domino effect in a interdependent system- hazards expand faster than people are able to cope - OBE* Disasters are often foreseen, and warned but not strong enough Be aware - Improving safety also encourage risk taking Book Marc Gerstein 2008 *Overtaken By Events

31. TOTS - Intertanko Initiative The Intertanko initiative is a laudable effort on part of the industry to raise bar on competence and training This is particularly applicable for effective task based and structured training for Junior officers This will assist in preparing the officers for promotion when acquiring competence in listed tasks The effectiveness of any program is in the effectiveness of implementation, resources, auditing and quality control Given the listed items for effective implementation of TOTS, would the officers achieve any tangible advantage in time vs. the present experience requirements? A good question to be answered by results Human learning is 70% based on EXPERIENCE (Skills and application of knowledge) Serious current manning flaws include, lack of experience, mixed culture/nationalities, communication (language) problems, poor knowledge

32. Conclusion A prolonged market crises will make hard demands on the industry? Quality level high Record low pollution Few serious incidents High performance pays Higher income Better flexibility in the market Reduced costs Careful risk analysis pays