Now we are charting the way forward
The tanker and vessel markets remained strong during the first quarter of 2023. For Concordia Maritime, the early part of the year was dominated by vessel sales and a vessel delivery. The process of evaluating a number of concrete options for new business also continued.
THE PRODUCT TANKER MARKET remained strong during the quarter. A correction to earnings levels in January was followed by a recovery in February and March. The average for the quarter was USD 24,900 for an MR in the spot market, USD 28,600 for a 12-month time charter and USD 22,100 for a 3-year time charter1.
A contributing factor was the previously announced EU embargo on seaborne refined oil products from Russia which entered into force on 6 February. However, Russian exports to non-EU countries continue, but re-routing to countries such as China and India means longer distances. For the other G7 countries, imports are allowed as long as the price of the products is below certain levels. At the end of the quarter, global exports by tanker were around 41.3 million barrels per day, with Russia accounting for 3.3 million barrels per day. A year ago, total exports were 38.2 million barrels per day, with Russia accounting for 3.0 million barrels2. However, Russian exports via the Druzhba pipeline have decreased. In March, OPEC+ unexpectedly decided to reduce its production by 1.16 million barrels of oil per day and there is some nervousness about how inflation and rising interest rates will affect the demand for energy and oil.
Oil stocks have been replenished to some extent, but the US strategic stocks, often used as a reference, remain very low.
The high earnings have contributed to an increase in new orders for product tankers – 40 product tankers were ordered in Q1, compared with 10 in Q1 20223. However, the order book remains low at around 5.6 percent for all product tankers4. The number of vessels going for recycling/scrapping remains very low.
Concordia Maritime’s result
In January, the previously sold vessel Stena Provence was delivered to her new owner. The vessel will be 17 years old this year and thanks to the market situation, we managed to get a very good price for her and her sister vessels Stena Primorsk and Stena Performance, which were delivered in 2022. The sale of Stena Provence had a liquidity effect of approximately SEK 52 million after repayment of the outstanding bank debt to the majority of the lending banks.
After the transaction, the fleet consisted of four vessels during the quarter, with an average age of 13 years, three of which are employed under the five-year time charter agreement with Stena Bulk.
Average earnings, including estimated profit-sharing, for these three vessels during the quarter amounted to USD 15,900 per day, which is comparable to a three-year time-charter averaging just over USD 22,000 per day. During the quarter, there was no change to the underlying contracts that Stena Bulk has with end customers. The third vessel, Stena Polaris, has been employed on a bareboat charter to US company Crowley for some time. Converted to a time charter, earnings would correspond to approximately USD 18,000 per day.
The result for the quarter was SEK 3.0 (–30.5) million, which includes SEK 43.6 million from vessel sales. EBITDA was SEK 37.6 (29.7) million. The result has been affected by a backlog of costs for the six vessels that were sold in 2022. Another factor has been general cost increases, in particular travel costs for our crews.
After Stena Provence left the fleet, Concordia Maritime has paid off a bank loan of MSEK 156 and after that only one bank loan with a pledge on the ship remains. In a situation of rising interest rates, it is obviously positive for the Company to have significantly reduced our total debt burden. It is also worth pointing out that Concordia Maritime has maintained a very good relationship with its former lending banks.
We are pleased to note that there were zero LTIs during the quarter, which is a good reflection of the safety work on board. At the beginning of the year, there was one external vetting inspection on one of the vessels that resulted in seven observations, which is unusual. The observations have been carefully followed up since the inspection. Since the end of the quarter, two other vessels have undergone similar inspections, with two observations each, which is very good.
As previously announced, EPL (Engine Power Limitation) is being installed on the vessels during 2023 to comply with the EEXI regulations. The cost is estimated at around EUR 35,000 per vessel and will not result in any operational restrictions. During the year, the IMO's CII operational regulation will also be implemented, which over time will probably require operational and/or technical changes to the vessels as the requirements are tightened every year. At present, it is not clear how compliance will be handled.
An agreement on the sale of Stena Penguin was reached after the end of the quarter. The sale is expected to have a positive liquidity effect of approximately SEK 215 million after repayment of the remaining bank loan.
A shipping company with three vessels is obviously not the aim for Concordia Maritime. However, the Company is in much stronger financial shape than it was 1–2 years ago and we are pleased to have been able to use the cyclicality of the market in 2022 and 2023 to improve our financial situation. Virtually all shipping is cyclical and taking advantage of market fluctuations is the core business of every shipping company. Having said this, we are not averse to selling more vessels if we believe the conditions are favourable.
Work on evaluating a number of segments and concrete new business is continuing in parallel. Concordia has been active in several different segments over the years. So as we chart the way forward, we are not closing doors to any segment. The tanker market looks set to remain strong for a couple of years, but there are also other exciting opportunities where input values are lower – or where growth and demand are expected to be higher.
For example, the dry bulk freight market has lost almost 70 percent since its peak in autumn 2021, when increased demand for raw materials together with COVID delays in ports drove up both charter rates and vessel values. However, the outlook for this large segment appears good for a few years based on a relatively old fleet, a low order book and stable growth in China. Another example is offshore wind, where growth is very strong, with coastal countries now rapidly expanding offshore wind power in order to produce more renewable energy. As a direct consequence, the number of vessels involved in the shipping, installation and servicing of wind turbines is expected to multiply.
There are also other exciting segments where large industrial customers need quality-conscious counterparties to own and operate “green” tonnage with the possibility of operating with alternative fuels on charter contracts.
Charting the way forward is a gradual process. However, with a strong tanker market and good opportunities for new business, we look to the future with confidence.
Gothenburg, May 2023
Erik Lewenhaupt, CEO
1) Howard Robinson Global MR basket
2) DNB Nor