Consolidation comes to chemships

SIZE IS IMPORTANT

CONSOLIDATION • SMALL AND NIMBLE OR BIG AND POWERFUL? THERE’S ROOM FOR BOTH AS CONSOLIDATION IN THE CHEMICAL TANKER SECTOR GAINS PACE

AT A TIME of great volatility in global chemical supply chains, it is tempting to take the view that agility is the best response, allowing logistics operators to respond quickly to changes in demand patterns. But there are plenty in the chemical tanker sector who take an opposing view; after all, the demand is there, even if trade flows are changing rapidly in response to underlying product demand and supply issues, with the ripples of the ongoing Covid-19 pandemic, port constraints and weather-related disruptions all playing a part this year.

Speaking recently to investors, Bjørn Hammer, global head of tanker trading at Odfjell, noted that the past five years have witnessed a gradual increase in consolidation within the core chemical tanker fleet, a trend that he expects to continue at a time when financial investors are in divestment mode. The chemical tanker sector is highly fragmented and the spot market is competitive but, Hammer explained, consolidation is pivotal to removing that fragmentation to make the contract of affreightment (COA) market more dependable – something that will be vital to the financial health of the major players in the sector.

Therefore, developing a larger fleet helps operators to adapt to changing demand patterns, by having more ships at their disposal, and to attract more COA business by offering a reliable service. Focusing more on longer-term contracts provides a great deal of protection against volatility in the spot market, which for chemical tankers often reflects the behaviour of the clean product (CPP) trades and the volume of swing tonnage looking for easy chemical cargoes.

The chemical tanker sector is also currently enjoying the fruits of an historically low orderbook, which stands at under 5 per cent of the existing fleet. Consolidation helps the major owners keep a lid on speculative ordering and this is being reinforced by the position of financial investors and by the uncertainty caused by the need to address as yet loosely defined future environmental performance standards.

GREENER TOGETHER That drive for sustainability also helps explain the current trend for consolidation. Chemical tankers are expensive pieces of machinery that are designed with a long working life in

mind. Owners looking to expand or renew their fleets have to be confident that the choices they are making now will not curtail trading opportunities in the future. There are plenty of examples over the past year of shipowners investing in alternative fuelling and propulsion systems but they come at a cost. Being able to share that cost, through joint ventures, vessel pooling arrangements or other measures, helps to spread the risk.

A prime example of that is a recent announcement by Tufton Investment and Stolt Tankers, under which Tufton will enter seven ‘J19’ chemical tankers in the 19,000 to 22,000 dwt range in the Stolt Tankers Joint Service (STJS) deepsea fleet during the second and third quarters.

As part of the agreement, the two companies are also to collaborate on carbon reduction and sustainability information sharing, jointly exploring and pursuing vessel efficiency and propulsion research, environmental projects and a programme to test the use of biofuels across their combined fleets.

“The addition of Tufton’s ships to the STJS fleet demonstrates Stolt Tankers’ ability to generate customer value in a challenging market by adding tonnage from a top-tier platform to our trading network,” says Lucas Vos, president of Stolt Tankers. “We expect the added ships to improve our overall service offering by enhancing logistical flexibility and synergies while continuing to provide best-in-class environmental and safety standards. I am pleased that Stolt Tankers and Tufton have also formalised their mutual commitment to protecting the environment with the carbon reduction and sustainability information sharing agreement.”

“Tufton funds own twelve chemical tankers, a market segment with a very attractive risk-return profile, especially if operated in a well-aligned partnership like the one we have with Stolt Tankers,” adds Paulo Almeida, chief investment officer at Tufton. “We are very pleased to have grown our relationship with Stolt Tankers over the past few years, and to work with Stolt Tankers towards aligning the shipping industry with the Paris Agreement.”

EMISSIONS TARGETED The search for decarbonisation does not necessarily have to be collaborative; Stolt Tankers has recently conducted a trial voyage using marine biofuel and reports “very positive” results. The 37,000-dwt chemical tanker Stolt Inspiration bunkered the biofuel, derived from cooking oil, tallow and animal fats, in Rotterdam in April. During the crossing to Houston, a team monitored the performance of the vessel and its engines, fuel consumption and air emissions.

Stolt Tankers says the equipment performed as expected, resulting in a reduction of between 85 and 90 per cent in well-to-exhaust CO2 emissions compared to traditional fuels. This fits well with its ambition to reduce greenhouse gas emissions in line with the International Maritime Organisation’s (IMO) target of a 50 per cent reduction by 2050.

“It’s great to see the positive results of the biofuel trial,” says Vos. “We are exploring several alternative fuels for our fleet as the industry moves towards a carbon-neutral future. We are committed to working with other leaders to explore innovative technologies to reduce our environmental footprint, while continuing to provide customers with the highest levels of quality and safety that they expect from us.”

Stolt Tankers will continue to investigate the viability of biofuels, taking into account the availability of suitable material and its cost, which is typically around 10 per cent higher than traditional bunker fuels at current prices. Biofuel does have one big advantage over other non-traditional fuels, in that it is functionally identical to petroleum-derived marine fuels, meaning that no modifications to the engine or fuel infrastructure aboard the ship are required.

And Stolt Tankers has been active elsewhere in promoting consolidation in the chemical tanker market, establishing a joint venture with John T Essberger, E&S Tankers, at the start of this year. The new company has 46 stainless steel parcel tankers under its control, most rated to 1A ice class and operating in northern and Mediterranean Europe.

Vos said at the time: “E&S Tankers will provide enhanced reliability, logistical flexibility, and minimise network inefficiencies across our combined fleets. Furthermore, we expect E&S Tankers to help deliver on our sustainability commitments by reducing CO2 emissions while providing the continued best-in-class environmental and safety standards our customers expect. Most importantly, I expect the newly formed joint venture to deliver significant cost savings.”

THE MAJOR OPERATORS, SUCH AS STOLT TANKERS (OPPOSITE), HAVE EXPANDED THEIR OPERATIONS

THROUGH POOLS AND JOINT VENTURES, WHILE FAIRFIELD

LEADERS AND CHASERS Stolt Tankers’ consolidation activities have fitted alongside similar moves by its main competitors, with both Odfjell and MOL Chemical Tankers growing in recent years through the aggregation of existing tonnage rather than investing in new ships. MOL Chemical Tankers made the step up through its acquisition of Nordic Tankers in January 2019 and has also been developing relationships in bulk liquids storage and the tank container sector.

Odfjell has concentrated primarily on developing new pooling agreements, last year launching an MR pool for coated tankers, which quickly attracted six vessels from Navig8 Chemical Tankers, and following that up with a Handy pool. Transportation Recovery Fund (TRF) has placed six tankers in the Handy pool and one in the MR pool. “The establishment of these pools adds further flexibility to our operating platform and adds economies of scale by adding incremental revenues with marginal added costs,” Odfjell noted.

Those moves have propelled Odfjell out in front in the rankings of chemical tanker fleets, just ahead of MOL Chemical Tankers and Stolt Tankers, each of which have more than 75 ships at their disposal. The three are well ahead of the chasing pack, led by Hansa Tankers, Fairfield Chemical Carriers (FCC)

CONSOLIDATION IS ALSO A FEATURE OF MEDIUM-SIZED

OPERATORS, WITH AURORA RECENTLY TEAMING UP WITH

GSB TO EXPAND THE STAINLESS STEEL SEGMENT IN ASIA

and Iino Lines, although Fairfield announced in June an order for two 26,300-dwt stainless steel newbuildings at Fukuoka Shipbuilding, with options on four more. Following the decarbonisation trend, these new ships will have dual-fuel propulsion systems capable of running on LNG.

“For 25 years FCC has strived to be an industry leader and innovator,” FCC president Todd Clough said at the time. “We look forward to putting the units into service in 2023 alongside our existing young and fully stainless steel fleet. A commitment to acting quickly and meaningfully to reduce the carbon footprint of our operations in advance of reductions mandated under IMO 2030 is core to our fleet development strategy.”

Jacob de Vries, CCO, was upbeat about the cost implications of the decarbonisation strategy, saying: “Our customers are increasingly conscious of the necessity to move quickly to reduce CO2 emissions across supply chains and we have been receiving encouragement to bring these next generation ships to market as soon as practical. Of course, a greater investment in the ships is required as we add new propulsion technology, additional tanks and other operational/design improvements. LNG pricing and bunkering infrastructure on our trade lanes, increased trading flexibility from the new tank layout, cost saving benefits from the new design, and strong demand from our customers will allow FCC to trade the vessels competitively despite the additional initial cost.”

Meanwhile, in July Aurora Tankers and Golden Stena Baycrest Tankers (GSB) announced a strategic partnership designed to expand the market for stainless steel tankers in Asia. “This joint operation partnership is a step towards building our stainless steel fleet and serving customers with greater flexibility,” says Dexter Say, managing director of Aurora Tankers. “We believe the timing of the partnership is perfect, as the medium to long term outlook for the chemical tanker market is positive. We look forward to working together with GSB Tankers to achieve both companies’ goals.”

Frederik Guttormsen, managing director of IMC Shipping Group, Aurora’s owner, adds that the deal “will give us more scale, drive efficiencies and be a platform for further expansion in the stainless steel chemical tanker segment”.

GSB is a joint venture between Golden Agri-Resources, Stena Bulk and Bay Crest Management, formed at the start of 2019 and with offices in Singapore, Tokyo and Dubai.