Odfjell’s Morch expects greater chemicals consolidation in 2018

More mergers may occur among owners of smaller chemical tankers as investors learn the importance of a global footprint

Odfjell chief executive Kristian Morch is expecting to see more consolidation among chemical tanker players this year.

Morch tells TradeWinds that largely financial-type investors and other owners, who are involved in fleets of five to 15 standard 20,000-dwt tonnage built in Japan, are likely to see the economic sense of combining assets in today’s market.

Morch says he believes there is little room for consolidation on the larger, advanced end of the fleet, such as among the few shipowners with “super-segregators”.

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Super-segregators are chemical tankers larger than about 35,000 dwt and with more than 20 segregations for chemical cargoes. Some of Odfjell’s most advanced ships can take 52 different cargoes, which means these units have 52 completely segregated lines, pumps and tanks.

These vessels make for much more flexible parcel-type ships, which allow for regular routes and long-charter coverage, while investors or owners with the smaller, more standard ships with fewer tanks are limited to carrying fewer larger single cargoes.

Fleets of just five to 15 vessels give too little global footprint for operators, which is a major stumbling block for setting up a flexible service in order to gain all-important contracts of affreightment (COAs), Morch says.

For Odfjell, long contract coverage is the backbone of their strategy for plying the chemical trades. It stood at about 64% coverage in the fourth quarter and is about that level for this year, he adds.

“I think the consolidation is going to come probably from the people who, over the past five years, have been investing in more standard tonnage, people who are of a more financial nature, equity funds, people who have been building a fleet of simple product tankers and chemical tankers and who have also figured out that these ships are actually much more difficult to operate than product tankers,” Morch says.

Financial players, who are driven by a purely prudent financial rationale, are likely to see the economic sense of combining these smaller fleets, he adds.

For consolidation examples, Morch cites his own company’s deal to acquire five tankers from Chemical Transportation Group (CTG), as well as the recently announced pool to take control of eight newbuildings for Sinochem.

These Sinochem ships are advanced super-segregators, which Odfjell is gaining control of with no capital expenditure because of bareboat agreements and purchase options on four ships and management of the others.

In terms of average fleet age and number of vessels in the super-segregator segment, Odfjell is roughly half the size of Stolt-Nielsen now, but the Sinochem deal will address this, Morch explains.

“By 2021 that gap will be closed,” he says. “This assumes that Stolt will sit still between now and 2021 and, if that happens, I’ll be very, very surprised. For the moment, I think we have taken great steps to close the gap strategically.”

Among other merger examples, Morch also refers to Stolt-Nielsen’s $575m takeover of Jo Tankers in 2016, as well as this year’s move by Germany’s John T Essberger to snap up 14 ships from Danish tanker owner Crystal Nordic.

“With our deals with Sinochem and CTG, and Stolt’s acquisition of Jo and, of course, also Crystal Nordic and Essberger, we think consolidation is under way,” Morch says.

“I personally think that in 2018 we will see a number of transactions within our industry. Whether Odfjell will participate or not, I don’t want to guess about that. I think we have our hands full at the moment, but never say never. But the window is open and we do think that the markets will continue to consolidate.”