Pools provide a homogenous and commoditised service, while giving owners regular cashflow and long-term security
Pooling is a popular form of commercial operation in the tanker sector. Tankers in pools account for 17% of the total tanker fleet by value. In the product tanker sector, 42% of LR1 vessels and 26% of both LR2 and MR vessels operate in pools.
Tanker pools are built around the notion of pooling resources and a number of factors justify their popularity, the main one being the size of customers. The main customers for tanker services are a few, very large energy providers and associated traders. Individually, some of these client’s market capitalisation alone would dwarf dozens of tanker companies – the combination of resources behind the tanker pool gives at least similar size across the negotiating table. “The big oil companies and oil traders employ relatively few people to deal with freight,” said Hafnia executive vice president Søren Steenberg Jensen. Having a tanker pool means that these people can be supported globally. If the pool is large enough, it will have a tanker available for work almost anywhere, at any time.”
A pool structure will have regional offices in Singapore, that can pass on business to a European office and later to the Americas, as the working day revolves. That level of service is difficult for an individual tanker company to achieve. “Having that size, established terms and a good working relationship, makes life much easier for the customer,” said Mr Jensen, “We (pools) are the comfortable option, providing one-stop shopping.”
Hafnia’s vice president, commercial, Peter Kolding added: “The customers are exceptionally busy, and they may have favourite owners, but they know what they are getting with pools. Everything is standardised.”
“If the pool is large enough, it will have a tanker available for work almost anywhere, at any time”
This is especially important when it comes to the contract, where familiarity means having depth of experience. An individual owner may not have worked cargo at a particular terminal before, but the pool will almost certainly have that knowledge in its system.
On the trading side, it is the availability, speed and quality of service that are the main criteria, rather than the finer details between one tanker and another.
“The customers are few and large,” said Pankaj Khanna, serial shipping entrepreneur and now owner of the tanker pooling and commercial management company, Heidmar Inc. “They do not wish to deal with hundreds of different entities. Although the tanker is controlled by an owner or group of investors, the client is dealing with one entity, the pool – in this case Heidmar,” he said.
A key issue for pools to deal with is oil major vetting and SIRE inspections. For an owner with one or two tankers it can be very difficult to persuade one of the energy majors to come onboard the ship and conduct an inspection. However, a pool has the relationships and reputation to arrange such inspections. The charterer knows what to expect from the standards set by the pool. “We actually help owners prepare for the SIRE inspections,” said Mr Khanna. Heidmar employs captains in the operations/quality control department and there is one captain in the chartering department.
One obvious benefit of pooling is the economies of scale available for purchasing. A pool is purchasing bunkers on behalf of a number of tankers. “A single shipowner buying bunkers at Singapore is going to be charged a higher amount than Heidmar,” said Mr Khanna. A pool also has the size and management control to hedge bunker costs (if needed), trade FFAs or trade carbon credits. Its uneconomical for owners of smaller fleets to set up departments to conduct such business.
Heidmar has also been proactive during the Covid-19 pandemic – pool agreements have been modified to include 48-hour windows for crew changes and arrangements made for bunkers in certain ports to facilitate crew changes.
In the pool arrangement, a distribution of income is made monthly. This is the aggregated income of the pool, distributed according to the pool’s points or distribution key, which is based on the earning capacity of the vessel. Not all of the income is distributed, but each ship could receive up to 90% of its earned income each month.
In the case of Heidmar, as with many other pools, there is an ERP system with portal access that owners and investors can use to see the progress of the pool and the vessel pool points distribution. This system has been developed in-house and was recently relaunched after a US$4 million upgrade.
The pool points system and income distribution are based on the efficiency of the individual tanker and this has an important side benefit. “Pools encourage decarbonisation,” said Mr Khanna. A less efficient, higher-fuel consumption non-eco vessel is going to score lower than a modern eco-specification vessel. “In our system, for example, we have been measuring carbon emissions,” he said. On top of that, there is 15 years of data in the system. Mr Khanna added: “The pool’s point system is a way of regulating which ships are going to survive, and which ships are penalised higher, to the point they naturally fall out of the pool.”
With regards to emissions and fuel consumption, Mr Khanna noted the weak freight market means that the tanker fleet is already steaming as slowly as engines will allow. “The pool controls the speed of the ships and we are steaming as slow as is possible to conserve fuel and maximise vessel earnings,” he said.
Shipping pools and revenue distribution
Charles Lawrie is CEO of Richardson Lawrie Associates, maritime economists and business consultants. He has spent over 30 years advising shipping pools on developing revenue distribution systems and evaluating ‘pool points’ systems.
He notes the point of an equitable revenue distribution system is to ensure that each vessel in the pool receives a level of earnings which fairly represents its performance characteristics relative to the other ships in the pool. The owner of a modern, fuel-efficient vessel would expect to achieve a higher TCE than a vessel with higher fuel consumption. Central to all revenue distribution, or ‘pool points’ systems, is the need to be able to compare the performance of vessels within the pool on an equal playing field.
‘Pool points’ are assigned to individual ships on the basis of their assessed TCE versus a common reference point. This reference point may be the TCE for a nominal ‘100 point’ ship whose characteristics do not change between updates. In other instances, the ‘100 point’ ship might be an actual vessel operating in the pool or, alternatively, 100 points might be defined as the average TCE across the whole pool.
This requires the means to accurately report vessel laden and ballast speeds and fuel consumption and to screen out anomalous data points, the time period of the data points and frequency of updates.