An improvement in chemical tanker earnings was the primary force behind a surge in profitability for Odfjell, amid an improvement in fortune for marine transport firms despite the ongoing coronavirus pandemic and questions over how long the rally will last.
The Norway-based sector shipping and storage specialist posted its strongest tanker division operating profit since early 2016 during the quarter, with group financials as a whole swinging to a $30.9m profit compared with a $10.2m loss during the same period a year earlier.
The company, which specialises in chemical sector logistics, said it has yet to experience any strong negative impact from the coronavirus pandemic, despite the impacts to order patterns and supply chain stability that the crisis has brought on.
The damage wrought to global trade routes and the fragility of highly optimised “just in time” delivery systems by the coronavirus is thought to be accelerating an existing shift toward more regionalised and less globalised trade patterns, and current economic volatility has made demand visibility difficult, according to market sources.
Players in some chemicals markets are still reporting inventory overhangs being worked through, while others report buyer unease about building up large stocks in light of how difficult future demand is to predict.
In other cases, client purchasing has normalised but is on a hand-to-mouth basis, rather than agreeing orders at the start of the month, as buyers eye stock levels and look for bargains down the road.
Odfjell’s chemical tanker earnings surged despite the unpredictability of current market conditions, hinting that product is moving across the ocean at robust levels.
There are signs of improving current conditions for the wider shipping sector after several lean years, as lower fuel costs and increased efficiencies helped to shore up earnings. Denmark-based shipping giant Maersk reported an increase in earnings before interest, taxes, depreciation and amortisation (EBITDA) to $1.7bn for the quarter.
The rally comes despite a 6.5% year-on-year drop in revenues, driven by a volume decrease, although partly offset by lower fuel prices and higher freight rates.
Despite the limited impact of the crisis on the shipping sector so far, both Odfjell and Maersk reported issues with crew changes as a result of border controls and quarantine measures instituted by different governments on arrivals from certain countries.
“As a result of the lockdowns, closed borders and travel restrictions around the world, we experienced significant problems in relieving our seafarers when their contracts expired, a persistent issue of serious concern to us, which we are proactively addressing,” said Maersk CEO Soren Skou this week.
Maersk, one of the largest shipping firms in the world, said that future demand is difficult to gauge due to the crisis, but remained bullish enough to reinstate the full-year EBITDA guidance it had suspended earlier in the year at $6bn-7bn before restructuring costs.
The company reported full-year EBITDA of $5.7bn in 2019.
Odfjell expects results to continue positive into the third quarter but for demand to weaken from current highs due to seasonal effects, with a volume recovery in the second half of the year dependent on the recovery of the automotive and construction sectors, according to the company.
“Covid-19 continues to cast high uncertainty about the future, but we are so far not experiencing any major negative impact overall in our markets,” said Odfjell SE CEO Kristian Morch.
“We expect Q3 2020 to be impacted by usual seasonality and we therefore anticipate to report weaker, but still positive, results in the next quarter,” he added.
Source: ICIS by Tom Brown (https://www.icis.com/explore/resources/news/2020/08/20/10543340/chems-shipping-demand-buoys-odfjell-amid-sector-uptick)