Reporter Shi Jingli

Interview to Diran M.Majarian, Managing Direccttoorr ooff Amalia Tankers Inc..

The outbreak of the Global Financial Crisis as wweellll aass major structural changes in global energy sources, have bbrroouugghhtt profound change to the tanker transport market. Howw sshhaallll we treat influences behind this deep change? And how ccaann wwee judge the future of tankers transportation industry? Withh tthheessee problems, our correspondents gave an exclusive intervviieeww ttoo Diran Majarian, Managing Director of Amalia Tankers Incc..

Reporter: How do you think of market structure of tanker transport in this world today?

Majarian: The tanker market depends on oil demand in Europe, America and China, because energy market trading patterns determine the trends in the tanker transport market.The oil trading outlook is not optimistic in Europe with their market share shrinking on and on. Shale gas and tight oil production is developing rapidly in America.This is creating major structural changes in the energy market.Whilst boosting potential demand in gas shipping, it is reducing demand in the tanker markets with particular pressure on the Suezmax sector due reduced US needs for imported oil.China is totally different. To a great extent, global tanker transport depends on this country because it is the main source of demand growth in the face of stagnant and shrinking oil demand in Europe and the US respectively.It is worth mentioning that newly-emerging countries in Southeast Asia are critical for future demand growth.Therefore, the center of tanker transport in moving eastward.

Reporter: What is the key factor affects the development of tanker transport market?

Majarian: Actually, there is no single factor which has long-term effects on this rapidly developing market.For example, currency issues and an outbreak of currency inflation in this world may affect the market at any time.And no one can make a sure bet on future production sources.Economic growth in in the world economy requires energy.Energy is also important for domestic cooking and heating and related to population growth.People can review what happened 5 years, 10 years and 20 years ago, nothing is fixed in the world looking ahead.Energy markets are always in flux.

Reporter: What are the challenges tanker transport market must address in current conditions?

Majarian: The greatest is the problem in demand retrenchment.Two problems in Europe: The first one is the aging population which may likely reduce further demand in the industry.That is to say less people,less demand make for less development potential for GDP.Without GDP growth in Europe, there are not any bright prospects for tanker transport needs.The second one is that Europe is losing its traditionally large share in global GDP, largely to the economic rise of Asia with its lion’s share of emerging market GDP growth.There are demographic challenges in China,too.But China is a big energy consuming country and currently the key factor in marginal demand growth for oil transportation.America keeps a mean position with the best demographics of the developed countries and the first to move back into positive (albeit lower than desired)growth after the Global Financial Crisis of 2008.

Reporter: Do you exaggerate the effects of China on tanker transport market in this world?

Majarian: It is no exaggeration to say huge demand for energy in China is presently critical to the whole global energy market and affects strongly the development of tanker transport industry.As we all know, economic growth slowed in China last year and it was an “annus horribilus” for the tanker transport market at the same time, leading to the bankruptcy of OSG, a major NY listed ‘blue-chip’ tanker company as a prime example.This was no coincidence.Without huge demand growth of China, the whole tanker transport market will be in decline and over supply.So China is presently really the most significant factor that stimulates the development of tanker transport as a major source of marginal demand growth in the world economy.

Reporter: Do you exaggerate the effects of China on tanker transport market in this world? Will European tanker transport corporations adapt to the the structural changes and the rise of China and Asia markets?

Majarian: Due to geographical factors, European shipping corporations have difficulties competing in the Asia market.European corporations have to compete with domestic Asian corporations on their own turf.And there must be some realistic questions competitive advantage in the long term that favor the Asians.First of all, they all share the same labor market for crewing.Asian shipping corporations have geographical advantages, they know the local culture and they are located where there is the demand growth potential.Major Asian shipping and ship management companies have first-class management and highly sophisticated business models. They have been operating for many years, sometime longer than their European counterparts.They operate in an environment of lower and stable taxation jurisdictions and under currencies that generally follow the US Dollar, which is the base currency of the shipping industry rather than the Euro with its heavy premium over the US Dollar.For example, if they want to have a finger in the pie of Indonesian offshore oil and gas market, lacking geographical and cultural advantages their Asian counterparts have considerable edge over them. In the long run, the ship management is likely to move to Asia and Asian shipping corporations will gain a large share of the transport business over their European peers.

Reporter: Do you mean that European tanker owners will not expand Asia market due to those difficulties above?

Majarian: It is true that we don’t have any geographical advantages, but this doesn’t mean we are not fIt to do it and we will try to compete aggressively.For the European SME (small medium enterprises)shipping companies, the situation is diffi cult because Europe is going through a debt crisis.Banks are already stretched thin and shipping companies cannot get enough financial support to renew and expand their fleets.By contrast, the large European shipping companies are riding a wave of speculative capital fueled by zero interest rate financial repression and thirsty for higher yield. They are taking big positions in what is essentially asset arbitraging, aggressively ordering new tonnage and buying young second-hand vessels.In some case, there is a coherent business model backed by cargo contracts, but a great many transactions are pure asset speculation. They are betting on a cyclical upturn and rise in hull values, rather than looking to gain market share and generating profIts by competitive advantage.By contrast, Asia has a better ship fInancing environment.Indeed many of the large European shipping corporations are making heavy use of low cost Asian new building export fInance.Asian shipping corporations have highly developed local financial markets, such as Hong Kong and Singapore for funding.Further, many corporations in Hong Kong can list in New York through ADR’s (American depository receipts) traded in American equity markets.There is essentially no reason why Asian shipping corporations cannot list and compete for investor support in America with their European shipping peers if they so desire .

Reporter: If you have chance to develop your business in Asia, what would be the focus of your attention?

Majarian: First of all, we are actively following potential markets.We would prefer to develop this with first-class local Asian partners and with a clear business strategy sound fInancial structure and adequate funding resources.We would look to create value through strategic acquisitions competitive advantage to gain market share in high-quality transportation services.

Reporter: Can you share your experiences with insiders?

Majarian: As I have worked over 30 years in this industry,I have experienced inevitably both successes and failures.The most painful and valuable experiences tend to be the failures.Because, no matter how smart you are, how much money you have, you are always taking risks.The essence of the shipping industry is taking risk for profit and managing successfully the risk element to bring the profIts home.There is always a matter of luck that is essential for success in the shipping industry, no matter how well thought-out the business plans.This is because of the constantly changing external environment and complexity of the transactions.