03.04.2008 - Tanker trades the next frontier

Refinery developments in the Middle East and the phase-out of single-skins has one player moving deeper into tankers.

Korea Line Corp (KLC) is ready to make a big push into the tanker trades.

Although the company operates some 200 bulkers, plus gas carriers, and has been in the bulker trades for 40 years, it sees energy transport as a key element to its future development.

The shipping giant, which has one handymax products tanker, one aframax tanker and two VLCCs in the water, is planning to more than triple its tonnage when it takes delivery of its owned and chartered-in newbuildings by the end of 2011.

KLC says its expansion into tankers is driven by the future construction of new refineries in the Middle East, which may lead to demand for products tankers, and the phase-out of single-hullers.

KLC president and chief executive Kim Chang-Shik says the company sees a need to diversify into tankers.

Wet cargoes currently account for 10% of shipments carried by KLC but Kim wants to increase this to 30% by 2010.

KLC says it has not picked up any firm cargo contracts for the additional tankers and agrees that the fleet increase is in some way speculative.

Meanwhile, a market observer say he is not surprised with KLC's plans and describes the move as similar to that of Taiwanese shipping company Taiwan Maritime Transport (TMT).

He says KLC has made huge revenues from the dry-bulk sector and is injecting its earnings into its tanker fleet, which will be tax exempted.

He adds that these days there is strong interest from bulker companies to enter the tanker market.

KLC has recently ordered five vessels from three domestic shipyards for delivery in 2010 and 2011. The company has not disclosed the identities of the shipbuilders but market sources say it has awarded two ships each to Daewoo Shipbuilding&Marine Engineering and Hyundai Heavy Industries and contracted one vessel at STX Shipbuilding. The newbuildings are estimated to cost at least $750m.

KLC's experience with VLCCs only started last year, when it time chartered the 306,000-dwt double-huller Lilleborg (ex- Mike Berger , built 1993) and 299,000-dwt Hyundai Sun (built 1998) for seven years each.

The Hyundai Sun was co-chartered with Japanese tanker player Sanko Steamship.

"We have partnered Sanko in chartering the Hyundai Sun because it has more experience in the VLCC trades than we do," said Kim. "We have also previously done some business with Sanko on the dry-bulk side. We are expecting further co-operation [with Sanko] on VLCCs and other tanker types such as aframax."

KLC has already taken delivery of a pair of chartered VLCCs, which it has placed in the Tankers International (TI) VLCC pool.

KLC's experience with tankers started some five years ago, when it acquired a resale medium-range (MR) newbuilding from an Italian company and chartered it back to the seller. However, before the tanker was delivered, KLC sold it back to the Italians and made a minor profit.

KLC was then absent from the wet trades for a short while. In 2005, it started rebuilding its tanker fleet by ordering four MR tankers and two aframaxes at STX and Namura Shipyard, respectively. They are are slated for delivery in 2007 to 2009.

KLC describes its growth on the tanker side as slow but says this is due to the little experience it has in operating the ships.

However, the company is set to move into the fast lane. It has made another bold move recently into the products-tanker business by chartering panamaxes.

Kim says KLC has fixed in six 76,000-dwt long-range-one (LR1) tanker newbuildings from Cido Shipping for seven years. The charter rates have not been disclosed.

KLC says SungDong Shipbuilding will deliver the tankers in 2011.

KLC has yet to decide on how it will deploy the vessels. "We may put them in a pool or relet them out or even operate them," it said.

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