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European petroleum tanker rates rise due to geopolitical instability and marine fuel costs

Petroleum tanker rates for routes originating in Europe rose to record highs in April 2022 because of geopolitical instability related to Russia’s full-scale invasion of Ukraine and rising marine fuel prices, also known as bunker fuel. Dirty tanker rates for Aframax-sized vessels originating in the Black Sea in southeast Europe increased to $32.10 per metric ton (mt) in April 2022, more than triple the $10.11/mt price in January 2022. The tanker rates for routes originating in the Baltic Sea in northern Europe reached $41.38/mt in April 2022, up from $7.50/mt in January 2022.

Petroleum tankers are generally classified into two groups: clean tankers and dirty tankers. Clean tankers carry lower-sulfur petroleum products, including refined petroleum products such as motor gasoline, diesel fuel, jet fuel, and naphtha. Dirty tankers mostly carry crude oil, but they can also haul high-sulfur petroleum products such as residual fuel oil.

The high-cost tanker rates in the Black Sea include higher insurance risk premiums because the sea borders Ukraine and Russia. The Black Sea also borders Georgia, Turkey, Bulgaria, and Romania. One cause for the high Aframax rates at Russia’s Baltic Sea port, Primorsk, could be higher demand for the smaller Aframax ships on routes traveling from Russian ports to China. Normally, Very Large Crude Carriers (VLCCs) transport Russia’s Ural crude oil to China.

Because fewer Aframax ships are available globally, the dirty tanker rate for the Baltic-UK Continent (UKC) route increased from $8.53/mt in January 2022 to $41.38/mt in April 2022. Sanctions on Russia’s energy and maritime shipping sectors have caused crude oil buyers in Europe to purchase their crude oil imports from other markets. Weekly U.S. crude oil exports have been above the five-year range since the week of April 15.

monthly Aframax-sized dirty tanker rates from select European ports

Data source: Bloomberg L.P.

Increased bunker fuel costs affect all tanker rates. Bunker fuel powers the motor on marine vessels, and the fuel can have varying levels of sulfur content. Between January and April 2022, bunker fuel prices for high-sulfur fuel oil (HSFO) increased by 28%, and prices for very-low sulfur fuel oil (VLSFO) increased by 33%.

VLSFO is a marine fuel that meets the International Maritime Organization’s 2020 regulations (IMO2020), which limit the sulfur content in marine fuels to 0.5% by weight from the previous limit of 3.5% (established in 2012) for ocean-going vessels. If ship owners do not want to pay the price premium for VLSFO, they can choose to install a scrubber, which allows the ship to use cheaper HSFO. A scrubber can cost $2 million to $6 million to install, depending on vessel type, size, and whether it is a retrofit or new build, which can make it cost prohibitive. The current price premium of VLSFO over HSFO increased to $276/mt in March 2022—the highest monthly spread since IMO2020 was implemented in January 2020.

Leading judicial expert Sir Nigel Teare is elected new chairman of the Association of Average Adjusters
Distinguished former High Court judge Sir Nigel Teare has been elected to serve as chairman of the Association of Average Adjusters for the year 2022/2023.

He was nominated to succeed Michiel Starmans of Amsterdam-based Spliethoff Group as chairman at the annual general meeting in London of Fellows of the Association on May 11, 2022.

Sir Nigel retired from the High Court of England and Wales in 2020 and is now an arbitrator.

Mr Starmans said that Sir Nigel was the ideal candidate for the chairmanship as a recently retired senior judge who had decided several high-profile shipping cases, some of them involving General Average.

Affirming that it was “a great honour and privilege” to have been elected chairman, Sir Nigel said: “I am not and never have been an average adjuster. But throughout my time at the Bar and on the Bench, I have been concerned with the very same maritime casualties as those with which average adjusters are and have always been concerned – groundings, engine breakdowns, collisions, cargo shifts, salvage operations, port closures and delays of all sorts.

“I have seen – and I must say admired — many adjustments. I have always been in awe of their comprehensive nature, their detail, and their fairness. Although, as Ernest Lindley [an average adjuster renowned in the annals of the profession] remarked in 1904 the use of average adjusters is designed to avoid ‘the expensive machinery of the law’, lawyers and adjusters have much in common. Amongst the duties of an adjuster noted by Ernest Lindley were the duties ‘to act fairly to both parties to the contract of insurance or the contract of carriage, to set down all material facts and to withhold nothing of importance.’ Those are also the duties of a judge. So, we have much in common. And many is the time that I have found that I could do no better than to quote the detailed chronology of the casualty as set out in the adjustment.”

Sir Nigel noted that from time to time the Association was prepared to countenance a judge as its chairman. “The list of former Commercial Court and Admiralty Court judges that you have honoured in this way includes many well-known names, from Gorell Barnes in 1902 to Stephen Tomlinson in 2010. I can only say that it is the greatest honour, and an even greater surprise, to be included amongst them.”

He observed: “Events of international significance which impact shipping are reflected in the work of average adjusters. This year will be no different. The war in Ukraine is affecting shipping in the Black Sea and the lockdown in Shanghai following Covid 19 is disrupting the flow of goods across the world. In addition, despite the sophisticated technology available on-board ship, shipping casualties continue to occur.” In 1869, the year when the Association was formed, the Suez Canal opened. And last year, over 150 years later, there was a serious casualty in the Canal. “I have no doubt that average adjusters will continue to adjust the financial consequences of these events as fairly and as efficiently as they always have done to the great benefit of the shipping industry.

“On rare occasions the law may intervene to resolve disputes as to the consequences of an adjustment. When I have had to resolve such disputes, I feel as if I am an amateur trespassing upon the territory of the professional. Perhaps I am, but you treat trespassers very well,” he told Association members.

Sir Nigel has had an exceptional legal career. He was called to the Bar in 1974 and practised in Admiralty and Commercial chambers from 1975 until 2006. He appeared frequently in the Admiralty Court and in the Commercial Court, where he tried many shipping cases in addition to a wide range of business disputes including those in the fields of banking, insurance, commodities and oil and gas. From 2017 until 2019 he was the Judge in charge of the Commercial Court.

In 2006 he was appointed a judge of the High Court and from 2011 until 2020 he was the Admiralty Judge. In 2011 he was elected an Honorary Fellow of the Association of Average Adjusters.

He also appeared in formal Investigations into shipping casualties. He was Junior Counsel to the Treasury in Admiralty matters from 1989 to 1991 and was appointed Queen’s Counsel in 1991. From 2000-2006 he was the Appeal Arbitrator under the Lloyd’s Open Form Salvage Agreement.

At the annual meeting of Fellows of the Association, Burkhard Fischer was elected to serve a further term as vice-chairman. Tristan Miller remains treasurer and David Clancey convenor of the Association advisory and dispute resolution panel. David Pannell is stepping down as convenor of the Association’s examining committee after 23 years’ service. Mr Pannell, who at the annual meeting of Fellows was elected an Honorary Life Fellow in recognition of his role in modernising the examination format, is succeeded as examining committee convenor by Keith Martin.

At the 153rd annual general meeting of the Association, Mr Starmans said: “It is pleasing to see so many of you here after two years of virtual meetings [because of covid restrictions] and it feels very comfortable to be back in the Old Library of Lloyd’s rather than on Zoom.”

Note to editors: The Association of Average Adjusters promotes professional principles in the adjustment of marine claims, uniformity of adjusting practice, and the maintenance of high standards of professional conduct. Irrespective of the identity of the instructing party, the average adjuster is bound to act in an impartial and independent manner. The Association plays an important part in London insurance market committees and has strong relationships with international associations and insurance markets.
Source: The Association of Average Adjusters

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