Reason to look both backwards and forwards
The strong tanker market continued into the fourth quarter, with high rates and stable prices also in the vessel market. Looking at the year as a whole, it was a year of upheaval both for the tanker market and Concordia Maritime. Through a number of vessel sales, we have strengthened the Company’s financial position and are now ready to look at new transactions.
THE STRONG PRODUCT TANKER development continued in the fourth quarter. Average spot market earnings per day for an MR vessel fluctuated between USD 30,000 and 50,000. The trend was the same for the time charter market. Earnings per day for a one-year time charter were around USD 30,000 and for a three-year charter USD 21,000. The strong market was also reflected in continued high asset values for tankers – the highest since 2008. The market value for a new MR vessel, direct from the shipyard, was approximately USD 44 million at the end of December. The corresponding value for a 10-year-old vessel was around USD 30 million.
Concordia Maritime’s result for the quarter was SEK 142.8 (–308.2) million. EBITDA was SEK 203.7 (36.6) million. The improvement in results compared with the same quarter in the previous year is mainly a consequence of vessel sales and lower interest expenses due to the reduction in loans. Result for the year amounted to SEK 126.1 (– 658.2) million. Higher earnings and revenue from vessel sales also contributed to the result. The result for the previous year was significantly affected by an impairment loss of SEK 267.7 million recognised in Q4 221.
Sharply rising freight rates and vessel values
As we look back at the past year, we can see that, overall, 2022 was a year of strong recovery for the tanker market. After a weak first quarter, the market took a sharp upturn in spring and has remained strong throughout the year. This trend has been driven by several interacting factors. Basically, it is a question of good demand for oil and low net fleet growth. What then sent rates soaring was Russia’s shocking invasion of Ukraine and the changes in cargo flows that followed. Overall, the changes have resulted in an increased number of tonne-miles and higher capacity utilisation, with dramatic freight increases as a result.
As a direct consequence, we have also seen a significant rise in prices for both new and second-hand tonnage during the year. On average, prices for new MR vessels increased by 10 percent during the year. The price growth was even stronger for second-hand tonnage. The price of a 15-year-old MR vessel rose by around 90 percent during the year. This was because more speculators wanted to take quick advantage of the rising spot market.
A year of transformative change
In many ways, 2022 was a year of upheaval. For Concordia Maritime, it was a year of transformative change, marked by vessel transactions, a reduced fleet and a stronger financial position. During the year, the Company signed agreements for the sale of seven vessels: a suezmax tanker and the six oldest product tankers. The first vessels were sold before the market upturn and the sales were mainly made to avoid necessary but costly dry-docking. The latter sales have taken place in a strong vessel market and we have been able to obtain very good prices for our older vessels. As a result, the Company has significantly reduced its debt burden and is on a much more stable financial footing at the beginning of 2023 than a year ago.
Earnings per day for the P-MAX fleet during the year were USD 17,200, including profit-sharing, and in Q4 they were USD 20,300. We note that earnings have been higher than in the previous year, but significantly lower than the spot market average – a consequence of the 5-year charter signed in 2021. The charter agreement was absolutely necessary at the time, but is hampering the Company now that the market is strong. The reason why the strong spot market is not contributing to higher profit-sharing is that several of the freight contracts that Stena Bulk has signed for the vessels are mainly TC contracts.
Outlook for 2023
As usual, it is difficult to say with certainty how the tanker market will develop going forward. 2022 ended with slightly weaker rates and 2023 has started in the same way.
Further sanctions on Russian petroleum products suggest that the market will remain strong. In addition, the IEA predicts that demand for oil will reach record growth. On the supply side, the tanker order book remains low, which is expected to lead to continued low net growth going forward. In the MR segment, net growth in 2023 is expected to fall to 2–3 percent, which is lower than in 2022.
On the other side of the scale are weak scrapping and an increase in the average age of the fleet, possible OPEC cuts and weaker-than-forecast economic developments in China and the rest of the world, as well as an increasing rate of new orders.
To the above can also be added new and stricter environmental rules for existing vessels, which in various ways have the potential to change the market dynamics.
On the road to something new
For our part at Concordia Maritime, we will have reason to look both backwards and forwards in 2023. This year marks the 135th anniversary of the founding of Rederi AB Concordia AB, which will be celebrated in various ways. In addition, we have started evaluating new concrete business proposals. We will do so from a significantly stronger financial position and with a significantly lower cost base. As always, timing is critical in shipping, for both buying or selling. If the vessel market remains strong, we may divest more vessels – before we find the right deal, with the right timing, to grow our business again.
Gothenburg, February 2023,
Erik Lewenhaupt, CEO