Stormy weather

In retrospect 2009 started off relatively well. We knew it would be a difficult year but thought in the beginning that we would be able to carry on without too much suffering. However, the recession and downturn of our markets proved much more dramatic than anticipated, and affected us harder than expected.

According to analysts, the volume typically shipped by chemical tankers remained at the same level in 2009 as in 2008. This signifies a downward break in the average annual growth of 4.4% over the period 2004-2008, and deviates markedly from the fleet growth last year. Also the trade in clean petroleum products had a disappointing development. With the benefit of hindsight it is obvious that we would have stood to gain from an earlier out-phasing of some of our 80´s-built ships. Furthermore, we should probably have been more aggressive in terms of securing additional contracts of affreighments. In summary therefore, we entered the year long on tonnage and too exposed to the spot markets, which in our case meant an unfavourable dependence on the carriage of clean petroleum products.

As we are on to a new year, the depth of the recession seems to have come to an end. We are still far from witnessing anything close to a clear recovery. But it seems now that the fourth quarter of 2009 might well have represented the bottom of the market cycle. That being the case, we still expect the next couple of years to remain tough and uncertain.

In the meantime, we have taken actions and continue to prepare ourselves for a prolongation of poor markets. During recent months therefore, we have sold four ships for recycling and have a few more candidates in the “pipeline” for that same destiny. We have increased our contract cover to around 60% and continue to implement measures to reduce our operating and administrative expenses.

But that is our shipping business. Our terminals on the other hand, had a record year in 2009, and seem likely to end up even better in 2010. The good results have to do with the continued capacity expansions at our existing terminals, but also reflect strong demand, high utilization and generally good management and operating performance. During recent years therefore, our terminal business has become exactly what we have hoped for and indeed expected; namely a long-term profitable and stabilizing contributor to our overall net bottom line.

Although we have made a lot of progress in terms of consolidation, and that of taking out synergy between our two business segments, there is still an untapped potential for improved co-ordination; to the benefit of our customers primarily, but also to ensure better utilization of our state-of-the-art and very expensive ships. The effort to make further progress in this context, including a continued development of our terminalling business and a strengthening of our transhipment/barging capabilities, remain thus our main business goal for the years to come.

We are well positioned and ready to bring this our vision to reality, but must admit that our fleet development programme has been subject to a temporary setback. The failure of Sevmash to build and deliver the 12 high-spec 45,000 DWT coated vessels to us obviously has affected us negatively. We are pleased to have won our main legal point and having been awarded a compensation. The USD 43 million however, which was the outcome of the arbitration, do not cover but a small portion of our trading losses and disadvantages in terms of fleet composition. Nevertheless, through this award and more importantly, the recent verdict by the Norwegian Supreme Court deciding the retroactive tax unconstitutional, which in our case represents as much as USD 110 million, we got some “welcome oxygen” and may now therefore better start planning for the future; not least when it comes to fleet renewal.

Still however, our markets suffer from too much capacity wherefore we have to be prudent when it comes to the type and number of ships that we may decide to go for. Also as always, the timing will be essential. Newbuilding prices have come down some 20-25% since the peak in 2007, but with the current uncertainty and the possibility of a new set-back of the global economy and thus trading activities, it may well be wise to hold off for still some time.

In the meantime our focus shall continue to be on safety, quality, efficiency and cost effectiveness within our core business segments, always taking into consideration our social and environmental responsibilities.