Trafigura’s Andrea Olivi on expanding container business, going big on VLCCs and shipowning strategy 

Trafigura global head of shipping Andrea Olivi spoke with Riviera about the company’s ambitions as a shipowner, how the Sinokor-MSC alliance could prompt additional major liner operators to enter the VLCC market, the risks surrounding the Strait of Hormuz, and how a global FuelEU Maritime-style measure could incentivise the transition towards net zero. 

The company recently celebrated reaching a fleet of 500 vessels, the majority of which are employed on time charters, while also expanding its shipowning activities. 

“Our focus is not being shipowners for its own sake. What we want is to be able to operate vessels in the most cost-effective way,” Mr Olivi said. 

Mr Olivi added that in certain shipping segments, the most cost-effective approach today is to own vessels. 

He added that demand for vessels is growing dramatically. “This does not just come from internal cargo flows; the most meaningful increase is coming from our third-party business,” he explained. 

This growth applies across Trafigura’s core crude oil, oil products and dry bulk markets, but more recently also to the container sector. 

One of the company’s recent moves has therefore been to reorganise its container activities, with container bookings now coming under the chartering division and being treated as a commercial activity rather than simply an operational one. 

“Our focus is to grow in the container space as well, and that’s the first step,” Mr Olivi noted, while adding that Trafigura remains far from ordering container vessels. 

Going big on VLCCs 

Trafigura’s major shipowning push is clearly focused on VLCCs, with the company making significant investments in both newbuildings and secondhand tonnage. Mr Olivi said the segment is currently in a very strong position. 

“We like VLCCs a lot,” he said, highlighting that the key word in the market is “distance”. “We’re seeing oil travelling further and further, and we believe this is likely to continue.” 

He pointed to growing supply from Argentina, Guyana, the US and West Africa, as well as the increasing distances required to meet global demand. When it comes to tonne-miles, he said, economies of scale become increasingly important. 

“VLCCs are the best bet when it comes to economies of scale, and it’s not just crude,” Mr Olivi said. 

He expects a significant portion of VLCCs delivered over the next one to three years to initially trade in clean products before later transitioning into crude oil transportation. 

Refiners are seeking to optimise operations and improve economies of scale. For example, instead of moving three LR2 tankers from Korea to Northwest Europe, they are looking at whether cargoes can be transported using a single VLCC, he said. 

This is not the only factor supporting the VLCC outlook. Mr Olivi also pointed to the shadow fleet and the ageing profile of the global tanker fleet. 

That is why he is not concerned about the growing orderbook in the segment. “If we continue to see another several months of strong ordering, then I think there would be some questions to address. But the reality is that when you look at the fleet, it is incredibly old.” 

Sinokor-MSC changing market dynamics 

The outlook becomes even tighter when considering the Sinokor-MSC alliance. 

“It has been incredibly successful and, at the same time, positive for the market,” Mr Olivi said. 

If 12 months ago the value of a VLCC was determined by its net price and the value of its future earnings, today that calculation also includes a strategic premium. 

This is because the number of available VLCCs in the spot market, once Sinokor-MSC vessels are excluded, is becoming a concern for some companies with large cargo programmes. 

“This consolidation has really changed the dynamics,” Mr Olivi said, adding that more container companies could potentially move into the VLCC segment. 

“When you see your competitor do something new which is successful; you have some tough decisions to make,” he explained. If more liners were to enter the VLCC space, asset values could continue moving higher. 

“We are quite constructive on what is happening right now in the VLCC market,” Mr Olivi concluded. 

Three weeks critical for Hormuz outlook 

The theme of the past four months has been disruption around the Strait of Hormuz, with hopes of a return to normal traffic increasing after the US and Iran agreed to end their months-long conflict. 

Mr Olivi said the next three weeks would be critical in determining what happens next, expecting only a portion of the tanker fleet to initially resume transiting the strait. 

Taking VLCCs, for example, they are expensive assets earning good money right now. If you sail through Hormuz and something happens, you could miss out on four or five months of a very strong market. 

This risk is likely to be reflected in the freight rates owners demand from charterers. Mr Olivi expects Gulf-centric routes to command significant premiums for some months before eventual normalisation. 

Asked whether normalisation could put downward pressure on tanker rates over the longer term, he said much would depend on the reaction of crude oil prices. 

A scenario in which Middle Eastern producers discount crude because they need to maintain sales could push prices low enough for China and other buyers to replenish strategic petroleum reserves. This could lead to a meaningful increase in tonne-miles, supporting tanker rates globally across both clean and dirty markets. 

Another consequence could be an acceleration in the diversification of oil imports, as countries may seek to reduce their reliance on the Strait of Hormuz following the latest crisis.

Using India as an example, Mr Olivi said that if the country decided to diversify even 10 or 20% of its Middle Eastern purchases, the replacement barrels would likely come from the US, Venezuela, West Africa and other more distant sources. 

“It is a great tonne-mile story overall,” he noted. 

FuelEU Maritime on a global scale 

The final part of the discussion focused on whether the industry can achieve consensus around a global emissions framework. 

“The challenge comes from the fact that you have a lot of owners betting on different alternative propulsion technologies, sometimes ahead of regulation,” Mr Olivi said. 

He believes achieving consensus will be difficult and pointed to a framework similar to FuelEU Maritime implemented on a global scale. 

“This would ensure that all green fuels have a feebate system and would be the easiest way to make the transition towards net zero in the future,” he explained. 

Mr Olivi noted that what the industry does not want is the implementation of regional measures that are sometimes in conflict with each other.