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

Abstract

This paper aims to provide an understanding of the crude oil industry in relation to the VLCC user. In volume 1, the author has illustrated the potential profits that could be earned if a VLCC user has had no control (spot charter) as well as little control (time charter) of the freight element within the supply chain. In volume 2, we continue to explore what happens and what profits could be obtained and maximised if one had control of the freight element via ownership of the vessel. Concepts such as the crude oil pricing methodology, forward curve, contango and floating storage will be explored once it is accessible to the VLCC user. Calculations around the floating storage are also explored and we hope to provide an insight to the array of opportunities that arose within the industry. Finally, we explore the risk and returns of a VLCC user compared across all levels of control of the freight element. We found promising results that led us to understand that ultimately, it is up to the users of the VLCC to decide on their strategy and that if they prefer an optimal use of their capital or preferring a more return per unit of risk undertaken.