The Associated Press
Robert Wright is the FT's transportation correspondent
One of the world's best-known shipping groups, BW Maritime, has underlined the grim prospects facing oil tanker owners after it became the first owner to admit having laid up a ship out of service in the face of this year's slump in vessel charter rates.
BW Maritime's chief executive, Andreas Sohmen-Pao, said the group had moored the oldest of its very large crude carriers (VLCCs), the BW Stadt, off Malaysia as a step towards addressing tanker overcapacity.
The decision marks a key turning point because it recognizes that rates - which have been near zero for parts of this year for VLCCs - will remain uneconomically low for the foreseeable future.
BW's move comes as another large tanker owner, New York-listed General Maritime, enters a crucial period in its struggle to alleviate its debt burden. A temporary waiver of the terms of some of Genmar's bank covenants expires on November 10 and the company and holders of one of its bonds have appointed rival advisers to guide them through any restructuring or insolvency.
Tanker rates are suffering from the rapid arrival on the market of vessels ordered at the height of last decade's shipping boom. According to London-based Braemar Seascope shipbrokers, the world's VLCC fleet has already grown 7 per cent this year, while the International Energy Agency forecasts annual world oil demand growth of only about 1.6 per cent.
BW, privately held by Hong Kong's Sohmen-Pao family, is one of the most conservative leading tanker owners. It had already attracted attention in July by refusing to carry cargos on two new ships at lossmaking rates. The decision to put a ship into "cold layup" - where most of the crew are taken off and vital equipment shut down - is far more drastic, however.
Mr. Sohmen-Pao said it had been a tough decision to lay the ship up, knowing it would earn nothing while idle. But layup reduced a ship's operating costs and would encourage a market recovery.
General Maritime, founded by Peter Georgiopoulos, the Greek-American tycoon, said when announcing temporary waivers of parts of its banking covenants on October 3 that it was considering a range of options to restructure its debt, including a Chapter 11 bankruptcy.