Economic rent generation through control of the freight element within the supply chain – perspective of VLCC users

• Main Author: Kevin, Ramesh Gautam
• Other Authors: -
• Format: Final Year Project
• Language: English
• Published: Nanyang Technological University 2021
• Subjects: Engineering::Maritime studies
• Online Access: https://hdl.handle.net/10356/150452
• Institution: Nanyang Technological University

Crude oil tanker transportation is a highly volatile business. Large vessels such as VLCCs are often used to carry the crude oil on long journeys from the oil rich regions of the Middle East and West Africa. These vessels are subject to greater volatility in their freight rates than their smaller counterparts such as Suezmax and Aframax vessels. Although historically International Oil Companies such as BP and Shell had been dominant in the oil industry due to their superior expertise, a shift in power has occurred in the past few decades. National Oil Companies and Oil traders have gained an advantage over the traditional dominant players. In our Volume 1, we wanted to find out if by having no control (spot charter) or limited control (time-charter) of this highly volatile freight element within the supply chain, we were able to generate economic rent and gain competitive advantage. We compared the profitability and risk-adjusted returns of spot charters and time charters during the period of 2009 to 2019, on TD3 and TD3C routes. Calculations of Return on Capital Invested and Coefficient of variation aided us in this process. We found that overall, spot charters were more profitable and offered better risk-adjusted returns than time-charters.