Oil Tankers

MBA
Instructor: Pr. George Georgiades

Students:
Eno Henry Eshiet (K20131315)
Demetris Demetriou (S20121208)
Introduction
The purpose of this project is to give an overview of the major factors affecting the oil tankers. The
project is split up in 4 parts each one giving its own point of view. Although the ideas are unique they
are also interrelated. World Scale will focus on how the prices are decided on oil transportation via
tankers. The part on the Design and Construction will focus on how modern oil tankers are designed and
their specifications. The part on Contracts will give an overview on the different types of contracts used.
Finally we will have a look on how oil tankers affected and are affecting the environment. At the
conclusion of the project the major points from each part will be brought together and show how the
different parts are interrelated and discussed the effectiveness of oil tankers.
World Scale (WS)
World Scale System is a way to establish annual fixed rates for the oil tankers routes globally. It is split
up in 2 categories, the WS New York & WS London. WS New York is responsible for North, Central and
South America, Caribbean Islands, Bermuda, Greenland and Hawaii, whereas WS London is responsible
for the rest of the world. WS Organizations are non-profit and aim to provide an independent price not
affected by external factors. WSO are financed through subscription but the subscribers do not have any
voting in the WS process & decisions.

The companies that make the World Scale London are:

Simpson, Spence & Young Limited

H. Clarkson & Company Limited
Galbraith’s Limited
E.A. Gibson Shipbrokers Limited
Braemar Seascope Limited
ACM Shipping Limited

The companies that make the World Scale NYC are:

McQuilling Brokerage Partners Inc

Mallory Jones Flynch & Associates Inc
Odin Marine
Poten & Partners
Charles R. Weber Company
Dietz & Associates Inc

The calculation for the costs is based on the assumptions, which are the fixed costs and the variable
costs. The prices decided by the WS can change based on the variable costs. The variable costs are the
bunker prices, port costs & the canal transits. The variable costs can affect the price of the WS price
annually.

The costs taken into account during the calculation process are the following:

Standard Vessel size – 75000 tones

Average speed – 14.5 knots
Fuel consumption, which includes 55tones/day at sea; plus 100tones/voyage; 5 tones/day in port
Port time – 4 per voyage & 0.5 day per additional port
Fixed hired rate -12000 USD/day

Since Fuel Consumption is by itself a petroleum product. The bunker price each year is calculated by the
mean of October 1-September 30 of the previous year. Also since port costs and canal transits might
change during different scenarios and they are included in the flat rate calculation process, they are
taken into account as variable costs. Then the prices for each route are calculated separately for each
tanker and its route.
The basis of the calculation of the base amount is that the earned amount for the daily usage of the
tanker would be the same as if the owner would [(voyage revenue)-(voyage costs)] / (voyage time). Via
re-arrangement of the variables we end up to the below calculation. Since all of the factors of the
equation are known either as constant or annual variables the WS100 is calculated. Under each annual
publication World Scale explains the reasoning behind each cost amendment.

http://www.balticexchange.com/dyn/_assets/_pdfs/media/New_York_2008/McQ%20Worldscale.pdf

The price calculated is known as the WS 100, and the market price agreed between the parties is the
percentage. A percentage of WS100 might be used because of external conditions such as, an increase
in the bunker price. For example if they agree WS60 for a specific route then the price would be the 60%
of the published price.
Design and Construction of Oil Tankers

The aim of the oil tankers is to transfer crude oil or petroleum products. Different fleets get to transfer
either crude oil or petroleum products. The oil tanker fleet is separated on categories based on the
amount of DWT which can transfer. DWT is the Dead Weight Tonnage which indicates the maximum
weight a ship can carry safely. The oil tankers fleet can be split up to:

Fleet DWT
Panamax 70,000 & less
Aframax 70,000-120,000
Suezmax 120,000-200,000
VLCC 200,000 & more

After the Exxon Valdex accident, IMO (International Marine Organization) has worked with the
classification societies SOLAS & MARPOL to the implementation of the standards for the construction of
the oil tankers. A certificate of class is a requirement for an oil tanker to obtain insurance. Classification
societies follow the construction procedures of the oil tankers from the CSR (Common Structural Rules)
established from IACS, which created a set of standards by bringing together 3 leading classification
societies and taking the best from each. The CSR applies to all oil tankers built on after 1 April 2006.

Corrosion due to the transfer oil products is taken into account, with the new standards whereas in the
past was not taken into account. Since crude oil and its products are extracted from the earth they
include Sulphur, which becomes acidic. That acid is corrosive and in the long term it affects the structure
of the ship. CSR takes into account the Net Scantlings, which is required thickness of plate when the
corrosion allowance is deducted.

The Design process follows the CSR and engineering design principles to determine the ships scantlings.
The scantlings are specified by determining the static loads, dynamic loads, sloshing loads and impact
loads on the ship. CSR determines how loads are to be determined and the relationship between those
loads. The scantlings are then defined and are tested using finite element analysis to check that stress,
deflections and resistance are within the specified criteria. The finite element analysis involves the
modeling of the ship structure and then applies a series of static and dynamic loads to stimulate the
variety of conditions a ship might encounter. The estimated life time of an oil tanker is 25 years.

The strength of the ships in the waves is analyzed. The bending of the ship due to the downward forces
of the hull steel, machinery & cargo is not evenly distributed the ship is subject to bending. There are 3
types of bending, still-water bending moment, sagging moment and hogging moment. The still water
bending moment is when the ship is in calm waters and the distribution of weights over the length of
the ship differs from the distribution of the upward forces of the seawater. When the load is
concentrated in the middle of the ship the ship deflects down in the middle and up at the end, sagging
moment. When the contrary occurs, the load is concentrated at the ends, the ship deflects up in the
middle and down at the bottom and stern. The load changes as the ship encounters a wave and the load
of the hull girder changes. The highest the wave is the more the bending due to the wave. Depending on
the type of the wave (wave crest is amidships or wave trough is amidships) the ship bends accordingly.

IACS uses wave statistics for specific severe North Atlantic wave environment. Based on the previous
assumption and the constantly service in these extreme environments is used for designing oceangoing
ships approved for unrestricted ocean service. CSR tests the deformation and stress of the various
structural elements of the ship by. Also specifies the yielding and buckling acceptance limits with safety
margins for uncertainty and the possibility that the design loads could be exceeded. Since some lighter
main deck structure use higher strength steels CSR now tests and the load at which the collapse of the
hull girder occurs, meaning that the CSR assessment is now both elastic and inelastic. Regarding the
rogue waves the safety factors applied by CSR are varied depending on the type of load. The load can
reduce the yield stress of the steel, resulting to the ship to experience some level of permanent
deformation. North Atlantic wave environment is taken as one of the areas that has the most extreme
waves. Therefore the best way to check an oil tanker structure, to the extremes, would be to test it in a
North Atlantic virtual environment.

Today’s oil tankers are constructed using welded steel construction to achieve higher yield stress. Also in
order to achieve less weight and less construction cost higher strength steels are used such as HT32 and
HT36. Notch resistant plates can be used for thicker plates in critical regions. The use of higher strength
steel on double hull tankers ensures to a great extends the structural integrity. Double hull minimizes
the risk of oil spillage in case of fractures.

Most of the today’s tankers are double-hull so that in case of accident, the oil spillage will be avoided.
Another technique used is to use replace single cargo tanks arrangement with double & triple across
cargo tanks arrangement. That is so that in case of oil spillage the spillage will be limited and controlled.
Panamax, Aframax and Suezmax have 2 cargo tanks arrangement. Most VLCCs have triple cargo tank
arrangements.

The shipbuilding process today is automated and the time needed to build a ship is less. Also double hull
tankers increases productivity. The modules and equipment are assembled in the drydock. The oil
tanker is then brought into the sea where is floated for the final steps. The less time in drydock the more
throughputs. The use of larger blocks and use of large floating cranes (methodology created by Samsung
Heavy Industries) has reduced the drydock time to as little as 6 weeks.

The aim of the oil tankers is to transfer crude oil or petroleum products, in a way that is secure for the
environment. As discussed above the process deviates from the normal process building a normal ship
since the damage to the marine life that they can cause in case of accident is huge. The way to achieve
the standards is the use of specific methodologies/techniques, but the cost increases as the number of
parties involved increases. Oil tank construction is an enhancement of the normal ship construction.
Oil Contracts
Shipping Companies enter into a highly detailed contractual agreement before a cargo of oil tanker is
allowed to carry out a single trip. This agreement is called a Charter. The tanker team is the group
responsible for carrying out the chartering of all ocean-going tanker sizes.

Several types of charter exist in oil tanker agreements ranging from:

1. Bareboat Agreement: This involves the payment of all expenses of the ship within a specified
period by the company that wants to use the ship. The tenor is usually for 1 year.
2. Spot Charter: A contractual agreement in which the ship is contracted to deliver a specific
amount of cargo between one port and another within an agreed time frame.
3. Time Charter: A type of agreement in which a party pays the ship owner to use the ship for a
specified period.
Overall, the type of charter used depends on the agreement and the strength of the parties to
oblige.
Over 2.4 million tons of crude oil and oil products are transported quietly and safely around the
world by sea (IMO report 2005). However, due to certain eventualities, cargo operations may
result in accidents thus the content particularly oil product spills.

OIL POLLUTION
This means the contaminations caused by spillages as a result of cargo accidents. In 1990, the Oil
pollution Act was passed to mitigate and prevent civil liability from the future of oil spill. It specified that
oil companies must have plans to prevent spills with detailed containment and cleanup plans for the
spills. This Act forms part of oil spill governance in the United States today. (Aspen Oil Spill Intelligence
Report. 2011).

OIL TANKER POLLUTION REGULATION

There are various tanker pollution regulations but for the purpose of this work the most important
regulation for oil tanker users is contained in Annex 1 of the International Convention for the Prevention
of Pollutions from ship held in 1973 which specified how oil tankers should be constructed and operated
to prevent or reduce spillage in the event of accident.
This law was modified in 1978 to include the special requirement of safety of life at sea. Since the 1970s
major and medium sized spills have shown a significant downward trend as only 33 major incidents
were reported by International Tanker Owners Pollution Federation (ITOPF Report, 2011).
Apart from pollution resulting from oil spillage, there are other types of pollutions such as chemical,
garbage, sewage and air. For the purpose of this work, we will focus on the Oil Pollution.
ENVIRONMENTAL ISSUES
Basically, the environmental impact of shipping is the greenhouse gas emissions and oil pollution apart
from acoustics. The International Maritime Organization (IMO) 2005 report stated that carbon emissions
from ship is 3.3% of the global human made emissions and expects a rise to as much as 72% in 2020.
Most commonly associated with ship pollution is oil spill with devastating effects. While being harmful
to marine life, polycyclic aromatic hydrocarbons (PAHS) the component in crude oil is very difficult to
clean and the sediment may last for many years in the marine environment. This occurrence may expose
marine species to be susceptible to diseases and abnormal reproductive cycles as recorded in the Exxon
Valdez incident at Alaska in 1989 where 400,000 sea birds were killed (Google Cruise Ship Report 1990).
There is a long list of environmental eventual occurrences or accidents that results in oil spillage during
the process of tanker trips.
This includes:
1. Ballast water: Oil tankers use a huge amount of ballast water from coastal water accumulation
and as they voyage from one port to another there are discharges of biological materials like
virus and bacteria that are harmful. Often the content also has other exotic species that could
cause extensive ecological and economic damage to aquatic eco system and humans (Environ
Journal. 2011).
2. Sound Pollution: The noise caused by ships may travel long distance and marine species that
probably use sound to communicate can be harmed by this pollution.
3. Exhaust emissions: Exhaust from ships carry nitrogen and sulfur oxide pollutions thus resulting
to damages on crops and buildings in the surrounding areas. The risk associated with such
occurrence is the effect on human respiratory system.
4. Sea Level Rise: It is on record that about 3.5% weather or climate change conditions are being
caused by ship emissions.
5. Air Pollutions: Diesel engines that burns sulfur content fuel oil generates air pollution which
affects the ozone layer from cruise ships.
6. Water depletion: Anoxic waters, Aral sea, lake Chad and dead sea have experienced different
levels of depletion crises as a result of cargo voyages (Environmental Portal 2011).
The impact of these environmental issues is seen in recorded history where 36% deaths among whales
were attributed to collision of cargos (Aspen 2011).
Oil tanker Spillage as seen above constitutes a menace to the environment due to the solvent in crude.
In view of this, oil washing or cleansing need to be carried out to prevent some level of pollution.

Crude Oil washing

In the 1950s, cleaning of oil tankers was a difficult task to undertake. The OILPOL Convention of 1954
alleviated the situation by prohibiting the discharge of oil and oily mixtures within 50 and 100 kilometers
of land in endangered locations.
It was also a common practice to clean using jets but when it was observed that the process led to large
quantity of oil residue getting into the sea and contaminating the ballast water the more, then the
practice was discouraged.
Other strategies like the introduction of ‘load on top’ in 1970 created little remedy.
 The final solution was in 1978 when the resolution in MARPOL Convention specified that all tankers of
20,000 deadweight should have inbuilt cargo tank cleansing system thus oil washing became a better
alternative (IMO; 2005).
Crude Oil Washing is a system where oil tanks on a tanker are cleaned between voyages. The process of
cleaning is not with water but with crude oil as the solvent content makes it easier and far more
effective than water. However, the rinsing may involve low water content. This system helps prevent
pollution of the seas from operational measures (IMO Report, 2005). Crude oil washing is mandatory for
all new oil tankers under the International Convention for the prevention of pollution by ships (MARPOL
Report 2007).

Conclusion
The base price to be used is defined from the World Scale. Having a central regulatory authority whose
purpose is to analyze and set prices is the ideal solution, in an industry were a wide range parties are
involved. That solution helps them going straight to negotiation and the agreement is agreed at a faster
pace, without conflict. It helps the engaged parties to focus on other issues such as what to be
transferred, the volume, the type of tanker, route and other factors. Having the mind of the engaged
parties move away from the money, they can create better contracts and make better environmental
decisions such as building safer and more efficient oil tankers. Also it allows oil companies to discuss
with environmental organizations and find solutions to environmental issues. The money making for the
oil tanker transportation has been shifted to contracts. Meaning is not the one who will have the lower
cost but the one who will use of its resources in the most efficient way. Out of the whole structure of
the oil industry, companies are making profit without harming the end user or the environment.
REFERENCES
1. Aspen Oil Spill Intelligence Report; Oil Tanker Pollution: Aspen Publishers. 2011.
2. Yamadi Y: Society for Naval Architecture & Marine Engineers; Vol.118. pg309. 2010.
3. http/www.environ.shipping.com. 2007.
4. Http//www.imo.com. HGO Regulation 13. 2005.
5. http//www.homelandsecur.org
6. MARPOL Report 2007.
7. http://www.intertanko.com/upload/WorldscaleKRF.ppt
8. Lecture Notes
9. http://www.balticexchange.com/dyn/_assets/_pdfs/media/New_York_2008/McQ%20Worl
dscale.pdf
10. https://docs.neb-one.gc.ca/ll-
eng/llisapi.dll/fetch/2000/90464/90552/384192/620327/624798/833081/B83-21_-
_Attachment_12_-_Design_and_Construction_of_Oil_Tankers_-
_A2V1T5.pdf?nodeid=833002&vernum=-2