Financial Risk Management and Sensitivities

The global market is Odfjell’s arena. We are therefore exposed to an infinite number of risk factors. Our financial strategy is to be sufficiently robust to withstand prolonged adverse conditions,
such as long-term down-cycles in our markets or challenging conditions in the financial markets. Odfjell has an active approach in managing risk in the financial markets. This is done through funding from diversified sources, maintaining high liquidity or loan reserves, and through a systematic monitoring and management of financial risks related to currency, interest rates and bunkers. The use of hedging instruments to reduce the Company’s exposure to fluctuations in the abovementioned financial risks, at the same time, limits Odfjell’s upside potential from favorable movements in these risk factors. The Company also closely monitors the risk
related to a market valuation of the hedging instruments and the effect it has on the equity ratio.

EARNINGS

Earnings within the chemical tanker markets are less volatile than in many other shipping segments as we operate in a niche-market with specialized tonnage. The diversity of trade lanes and the products we transport provide a partial natural hedging against the negative effects
of a general slowdown in demand. Our time charter earnings are nonetheless influenced by external factors like world economic growth, the general shipfreight market, bunker prices and factors
specifically related to the chemical tanker parcel trade, such as cargo type and cargo volume, trading pattern required by our customers, contract and spot rates and our operational efficiency. Time is of the essence; an optimal utilization of the fleet and an expedient composition of cargoes, with minimal time in port, is of vital importance so as to maximize time charter earnings.

The single largest monetary cost component affecting time charter earnings is bunkers. In 2009 it amounted to more than USD 237 million (58% of voyage cost). A change in the average bunker price of
USD 100 per ton equals about USD 60 million (or USD 2 300/day) change in time charter earnings for those ships where we have a direct economic interest. A certain portion of our bunker exposure is hedged through bunker adjustment clauses in the Contracts of Affreightment. As per 31 December 2009 we had additional hedging
of about 42% and 13% of our total 2010 and 2011 bunker exposure, through swaps and options at an average price of about USD 342 per ton for 2010 and USD 356 per ton for 2011.

Sensitivity analysis show that a change in time charter earnings of USD 1,000 perday for our parcel tankers (a roughly 4% change in freight rates) will impact the pre-tax net result by approximately USD
30 million. Currently we are not engaged in the derivative market as to Forward Freight Agreements.

The tank terminal activities have historically shown more stable earnings than our shipping activities and all of our operating result for 2009 came from the tank terminal side. A substantial part of the tank terminal costs are fixed costs and the main drivers for earnings within a tank terminal are the occupancy rate, the volume of cargoes handled through and by the terminal, and operational efficiency.

INTEREST RATES

All interest-bearing debt, except debt by tank terminals outside the US, is denominated in USD. Bonds issued in non-USD currencies are swapped to USD. Interest rates are generally based on USD LIBOR rates. A certain share of the interest on our debt is fixed, either through fixed rate loans or through long-term interest rate swaps. With our current interest rate hedging in place, about 30% of our loans are on fixed rate basis. In order to reduce volatility in the net result and cash flow related to changes in short-term interest rates, interest rate periods on floating rate debt and on liquidity are managed to be concurrent. Our interest-bearing debt as per 31 December 2009 was USD 1.6 billion, while liquid assets were USD 184 million.

CURRENCY

The Group’s revenues are primarily in US Dollars. Only tank terminals outside the US and our regional European shipping trade derive income in non-USD currencies. Our currency exposure relates to the
net result and cash flow from voyage related expenses, ship operating expenses and general and administrative expenses
denominated in non-USD currencies, primarily in NOK and EUR. We have estimated that a 10% strengthening of the USD versus the NOK and EUR will improve the pre-tax 2010 result by roughly USD 15
million, disregarding then the result of any currency hedging in place.

Our currency hedging at the end of 2009, whereby we have sold USD and purchased NOK, covers about 84% and 22% of our 2010 and 2011 NOK-exposure, respectively. Future hedging periods may vary depending on changes in market conditions. The average exchange rates for open hedging positions as of 31 December 2009 for 2010
were 6.77 and 6.39 for 2011.

FINANCING AND LIQUIDITY

Odfjell has a stable debt structure established with major international shipping banks, with which we enjoy long-standing relationships. We have a diversified debt portfolio and it is a combination of secured loans, unsecured loans, finance leases and bonds. The average maturity of the Group’s interest-bearing debt is about 5.6 years.

Odfjell’s strategy is to maintain a high level of readily available liquidity. The liquidity is invested in bank deposits and high-grade certificates and bonds with floating interest rate.

TAX

The Odfjell Group operates within a number of jurisdictions and tax systems. The shipping activities are operated in
several countries and under different tax schemes, including the Norwegian tonnage tax system, the Approved International Shipping system in Singapore, and the tonnage tax systems in the UK and Germany. In addition we operate under local tax systems in Chile, Brazil and China. Our tank terminal activities are generally subject to the ordinary corporate tax rates within the country in which the activity is located. The variation in tax systems and rates may cause tax costs to vary signifi - cantly depending on the country in which profi ts are accumulated and taxed.