Crude Carrier Consolidation and Capital Cost

T T Gilje, J Dinwoodie and J Challacombe

Maritime Economics & Logistics, 2002, vol. 4, issue 1, 35-54

Abstract: This paper investigates the role of consolidation strategies amongst crude carrier operators anxious to reduce costs and attract institutional capital. Could consolidation combat erratic tonnage demand, mounting regulatory pressure to provide quality service at reduced costs, rising costs of finance and unpredictable long-term returns that deter institutional capital? A questionnaire survey of capital providers' and charterers' attitudes towards consolidation found that long-term vessel employment concerned all potential capital providers, with perceptions of management experience and reputation critical to risk evaluation. Debt type providers were more supportive of consolidation practices, expecting more predictable repayment of principal and interest payments in larger companies, but equity type providers feared reduced opportunities to participate in speculative capital gains or asset play. Comparative interviews with two major crude carrier operators revealed contrasting strategies. One concentrated on pursuing short-term wealth maximisation through ensuring operational autonomy and asset flexibility and another on long-term wealth creation based on ballast minimisation and tactical capacity expansion. Long-term, a trend towards oligopoly is expected in crude tanker carriage, with competitive strategies likely to focus increasingly on differentiation as the potential for operational cost-reduction fades.International Journal of Maritime Economics (2002) 4, 35–54 doi: 10.1057/palgrave.ijme.9100032

Date: 2002
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