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Odfjell focuses on sustainability
SECOND OF PLEASURE
RESULTS • A GOOD SECOND QUARTER REFLECTS ODFJELL’S ABILITY TO ADAPT ITS CHEMICAL TANKER FLEET TO MEET WHAT HAVE BEEN RAPID AND EXTENSIVE CHANGES IN DEMAND PATTERNS
ODFJELL SE HAS reported very strong financial figures for the second quarter 2020, on the back of a sharp upturn in freight rates in the chemical tanker sector. Strong earnings in the clean petroleum product (CPP) and vegoil sectors pulled swing tonnage out of the chemical trades, supporting a tightening market.
Group EBITDA rose from $66.3m in the first quarter to $81.9m, a figure 44 per cent up on second quarter 2019, despite a slight slip in revenues from $259.3m in the first quarter to $252.4m. Odfjell delivered quarterly net profits of $30.9m, its first quarter in the black for some time and a significant improvement on the loss of $10.2m recorded in the same period last year.
Kristian Mørch, CEO of Odfjell, says the second quarter was good for Odfjell due to a continued firming chemical tanker market and a rising spot market. All the financial improvement posted in the period came from its chemical tanker operations, with the smaller storage terminal operation continuing its stable trajectory.
“We are happy to report positive figures in light of the unprecedented times of the global economy,” Mørch says. “This shows the agility and resilience of our global platform and business model. Covid-19 continues to cast high uncertainty about the future, but we are so far not experiencing any major negative impact overall on our market.”
However, while the health crisis has so far had little impact on Odfjell Tankers, the group expects the usual seasonal downturn in the third quarter, although it still expects to make a profit.
RATES AND EARNINGS Odfjell reports that contracts of affreightment (COAs) were being renewed at rates on average some 6 per cent higher, although its COA coverage dropped during the second quarter. This was no bad news, though, as it allowed the company to take advantage of a strong spot market, responding to regional variations in the impact of Covid-19. Odfjell also positioned its fleet opportunistically to match those variations. Furthermore, COA coverage increased towards the end of the quarter and into the third quarter, although Odfjell is firm that it will not renew COAs at unsustainable levels.
Profitability has also been helped by ongoing cost-reduction measures. Odfjell notes that it has reduced breakeven costs from $27,279 per day in 2012 to $20,226 per day in the first half of 2020, though this is expected to increase in the second half due to some scheduled drydockings. The projected breakeven figure for 2021 as a whole is $21,400 per day. As a comparison, during the second quarter, timecharter equivalent earnings (TCE), net of pool distribution, came in at $22,186 per day.
The second quarter also benefitted from lower bunker fuel costs, with Odfjell saying that the market has stabilised following the ‘IMO 2020’ transition and that price spreads have been relatively stable. As an indication, bunker costs after hedging and adjustment clauses totalled $35.6m in the second quarter, down from $50.1m in the prior period and also below the level seen through 2019.
BEYOND THE CRISIS Odfjell notes that, while a wide range of cargoes have shown resilience during the Covid-19 crisis, demand from the construction and automotive sectors has suffered; it believes that improved demand levels from these industries are crucial to supporting a sustained recovery. Odfjell notes some early signs of that, quoting a number of global chemical manufacturers that have been reporting gradual improvements across most industries.
In particular, Ineos said in late July that it was expecting the second quarter to be the low point of the crisis. “The automotive sector is still weak but is now slowly improving, and there are encouraging signs from the construction sector,” it noted. “Overall core market conditions for all of the businesses are now improving from the lows seen in the second quarter.”
The chemical tanker market is still tight and so any recovery in demand should prompt a further strengthening in freight rates. Odfjell notes that swing tonnage is still working in the CPP and vegoil markets, though this may ease, particularly in the Middle East. On the other hand, no newbuilding orders for chemical tankers were placed during the second quarter and activity has been below historical trends over the past four years; the orderbook-tofleet ratio is now at an all-time low of 4.1 per cent, Odfjell says, with uncertainty over the course of the Covid-19 pandemic and over future propulsion systems and environmental regulations keeping owners away from new contracting. This projected low supply growth over the next few years is, Odfjell says, “encouraging”.
ODFJELL’S FIRST CHIEF SUSTAINABILITY OFFICER, ØISTEIN JENSEN (ABOVE), SAYS THE COMPANY HAS ALREADY COME
A LONG WAY BUT THAT THERE IS THE POTENTIAL FOR
THE TERMINAL ZONE Odfjell Terminals posted revenues of $16.0m for the second quarter, down on the $17.5m in the prior period following the sale of the company’s interest in the Dalian terminal. EBITDA of $7.6m was also down on the first quarter, but ahead of last year’s $6.2m. The period was marked by contango in the products markets, which kept occupancy rates high, though throughput fell.
Overall tank capacity utilisation reached 97 per cent, up from 93 per cent in the first quarter, reflecting strong demand in Asia. Throughput was stable in Asia and Antwerp but declined in the US, although Odfjell says it has seen early signs of a recovery in activity in the third quarter. Nevertheless, while lower throughput affects service fees, a substantial share of revenue comes from take-or-pay contracts that are not affected by throughput volumes.
Odfjell also reports that it brought 12,700 m³ of new, fully automated storage capacity for speciality chemicals onstream in Antwerp during the second quarter.
CARE FOR THE WORLD In other news, Odfjell SE has appointed its first Chief Sustainability Officer. Øistein Jensen, formerly Chief of Staff, has taken on the role, which is an executive position, and will lead company-wide work on environmental, social and governance (ESG) matters. “Our appointment of a Chief Sustainability Officer reflects our firm commitment to ESG and the responsibility we take as a global operator,” says Mørch. “We are pleased that Øistein Jensen has accepted this challenge. Sustainability is an important focus area for Odfjell, and we have ambitious targets for the coming years.”
Odfjell launched an extensive sustainability strategy in 2018, though it says work in this area goes much further back. Its tanker fleet has already significantly reduced its environmental impact an is on course to reach the International Maritime Organisation’s (IMO) goal of achieving a 40 per cent reduction by 2030.
“I look forward to contributing to Odfjell’s many projects within the broad ESG sphere, and to work together with internal and external partners to drive positive change,” Jensen says. “Odfjell has already come a long way in this field, but still has a lot of potentials. We have to advance and keep up the focus on improving operations and searching for innovations. The bar is high, but the competence and dedication of the Odfjell organisation makes me very optimistic about what we can achieve.” www.odfjell.com
