Since the tragic invasion of Ukraine at the end of February, it has been a turbulent and shaky time in the tanker market. World leaders were quick to condemn Russia and most shipowners and operators, including Concordia Maritime, made their own decisions to exclude Russian ports and cargoes even before formal sanctions were in place.
However, a small number of shipowners chose to continue trading with Russia – which has at times been very lucrative. Russian crude oil and oil products previously exported to Europe have started to find new markets in China, India, South
America and elsewhere. In Europe, Russian deliveries have gradually been replaced by increased imports from the US and Asia. Overall, this has had a dramatic effect on cargo flows. This, combined with growing international demand for energy, OPEC’s difficulties in scaling up oil production and high refinery utilisation, has contributed to a marked increase in both tonne-miles and demand for tonnage. In the short to medium term, we believe this situation will persist.
Strong product tanker market
The impact on the product tanker market has been particu- larly strong during the second quarter, but the crude oil segment has also developed positively. According to Clark- sons, average earnings for an MR vessel on the spot market at the beginning of the quarter were around USD 19,000 per day. By the end of June, the figure had risen to around USD 43,000 per day. The time charter market also showed posi- tive development during the quarter, with average earnings for a one-year time charter increasing from USD 14,250 per day to USD 20,500.
In parallel, the persistently weak VLCC crude oil market finally took an upward turn. The market is dominated by shipments to China, which are often conducted on slightly longer contracts with fixed rates. This has had a dampening effect on the crude oil transport market.
Continued high bunker prices during the quarter have once again highlighted the difference in earning potential between vessels of new and older design. With their width and larger cargo intake, our P-MAX vessels have higher consumption compared with standard MR vessels.
Positive result due to profit-sharing and vessel sale Our own operations have progressed smoothly during the quarter and there are no accidents or incidents to report For the first six months of 2022, total profit-sharing amounted to approximately MUSD 1.9, as a result of the strong market recovery in the second quarter. The high spot market is not directly affecting profit-sharing as Stena Bulk has chosen to employ the vessels on contracts of varying lengths, some being short market-related contracts and others being medium fixed-rate time charters.
During the quarter, we decided to put the “container project” on hold. The technical study shows that it is techni- cally feasible to convert P-MAX vessels into 2,100 TEU container vessels, but the increasing economic uncertainty has made it difficult to reach an agreement with an end customer. However, we will leave no stone unturned in our efforts to increase both the return and value from our vessels wherever possible.
Increased vessel values and order book still low
The strong performance of the spot market has also resulted in a rise in vessel values. This also applies to older quality tonnage. However, ship recycling decreased during the quarter. Prices paid at recycling yards have also fallen sig- nificantly (from USD 675 to USD 560 per LDT in India).
The average recycling age for product tankers is now about
23 years.
As previously reported, the current order book for product tankers is low, at an average of approximately 4.8% of the existing fleet. Most yards are also fully booked to 2025 with new gas and container vessels. So, even with an increase in new tanker orders, delivery times would be long. Net fleet growth in the coming years is therefore expected to remain low. Overall, we have a positive view of tanker market fundamentals.
Market outlook
In the tanker market, there is much talk about two factors: “energy security” and “demand destruction”, which could have a major impact on future development.
Increased demand for energy and the absence of Russian oil has caused energy prices to soar – with growing pressure to increase energy production from both nuclear and renew- able energy sources. This may be the right way to go, but in the short term the focus will remain on achieving sufficient crude oil and gas production to ensure access to energy for businesses and households – energy security.
This could obviously have a positive effect on the tanker market. At the same time, we are likely to enter an interna- tional economic downturn. The extent to which a significant slowdown in economic growth – and high energy prices – will contribute to demand destruction in terms of energy demand and energy-related transport remains to be seen.
After the end of the second quarter, we entered into an agreement for the sale of Stena Paris to a Greek company. The primary aim of the sale was to take advantage of the increased ship valuations, but there was also an age factor. In a strong second-hand market for mature quality tonnage, we are therefore now taking the opportunity to sell our oldest vessel.
Business activities
After delivery of Stena Paris to her new owner, Concordia Maritime’s product tanker fleet will consist of seven 65,200 dwt P-MAX vessels. Six of the vessels are employed under a five-year time charter contract with Stena Bulk. The contract runs until 2026.
The seventh vessel, Stena Polaris, has been chartered out to Crowley Government Services Inc. since the beginning of 2022. The bareboat contract is for a minimum period of 12 months with annual options up to the year 2026.
Crowley has in turn chartered the vessel to US Military Sealift Command.
The base rate for the P-MAX vessels out on time charters with Stena Bulk during the quarter was USD 15,500 per day. Earnings for Stena Polaris correspond to a time charter contract of approximately USD 18,000 per day.
Profit-sharing
As a result of the strong product tanker market in the second quarter, profit-sharing was applicable for the vessels under the Stena Bulk contract. The profit-sharing is based on average earnings during the period 1 January–30 June 2022 that exceed the base rate of USD 15,500 per day.
The surplus is shared equally with the time charter partner Stena Bulk. Total profit-sharing amounted to SEK 18.1 million. Including profit-sharing, average earnings for the vessels contracted out to Stena Bulk during the quarter amounted to the equivalent of USD 18,500 per day. Average earnings for the first half of the year were USD 16,900.
Stena Bulk’s employment of the vessels during the quarter was a combination of time charter and spot. More information about vessel employment can be found page 20. Further information about the agreement with Stena Bulk is available at .
Suezmax fleet
During the quarter, the Suezmax fleet consisted of the Suezmax tanker Stena Supreme (158,000 dwt), which is on a long-term charter. The vessel was employed on the spot market via Stena Sonangol Suezmax Pool. The vessel was sold in May 2022 and delivered to the customer at the end of June 2022.
Average earnings per day for Stena Supreme during the quarter were USD 24,600 (12,100). The sale has generated a positive liquidity effect of approximately USD 4 million. Unlike the P-MAX vessels, the transaction and proceeds from the sale of Stena Supreme are not subject to any special conditions from the lending banks. The surplus will therefore strengthen Concordia Maritime’s cash position.
Repairs and drydock
There were no scheduled drydock inspections and no repairs in drydock during the quarter.
Operational challenges
Covid-19 continues to present some challenges in terms of crew changes. Restrictions have been eased in many places during the quarter and, with the exception of China, there are now well-functioning procedures for crew changes.
The war in Ukraine is affecting the Company’s operations in several ways. These include payments to Russian officers. However, the manning company Northern Marine Manage- ment has found temporary solutions for the Russian officers ( just over 70 in number) who work on Concordia Maritime’s vessels.
Changes in translation and hedging reserves
The Parent Company’s functional currency is SEK, but the majority of the transactions in the Group are in USD. The Group’s result is generated in USD, which means the result in SEK is a direct function of the /USD exchange rate trend.
The closing amount in the hedging reserve at the end of the quarter was SEK 0.6 (–17.8) million. The closing balance for the translation reserve in equity amounted to SEK 502.8 (434.6) million at the reporting date. The changes are recog- nised in equity through OCI.
Investments and deposits
Investments in property, plant and equipment during the quarter amounted to SEK 0.8 (39.8) million. During the quarter, Concordia Maritime did not buy or sell any assets classified as short-term investments in the Company’s balance sheet.
Liquidity and financial position
During the second quarter, Concordia Maritime’s available liquidity increased in connection with the sale of Stena Supreme. The sale had a positive liquidity effect of approxi- mately USD 4 million, strengthening the Company’s avail- able liquid funds.
The Annual General Meeting on 5 May 2022 voted to reduce the Company’s share capital by SEK 194,338,384, in accordance with the Board’s proposal, in order to cover the Company’s accumulated loss for accounting purposes while better aligning the size of the share capital with the Company’s operations.
Repayments of bank loans of SEK 252.0 (63.3) million have been made during the first half of the year, including SEK 198.5 (0.0) million related to the sale of vessels.
Valuation of the fleet
After the sale of Stena Supreme, the fleet is defined as one cash-generating unit. An impairment /write-up is recognised when the carrying amount of an asset or cash- generating unit /falls below its recoverable amount. The recoverable amount is the higher of fair value (external valuations) and value in use (future discounted cash flows). In general, we have seen a market appreciation in asset values of between 10–15% in the first half of the year. At the end of the first half of 2022, the cash-generating unit’s carrying amount did not exceed its recoverable amount and there was therefore no impairment.
Employees
The number of employees in the Group on 30 June 2022 was 3 (3). The Group employed 429 (596) temporary seagoing employees through Stena Sphere’s manning company, Northern Marine Management.
Parent Company
The Parent Company’s sales for the quarter amounted to
SEK 0.0 (15.9) million, with intragroup invoicing representing
0.0 (0.0) of this amount. The Parent Company’s available liquid funds at the end of the quarter amounted to SEK 20.6 (216.1) million, which includes receivables from Group companies in the cash pool and unutilised credit facilities.
Risks and risk management
Concordia Maritime operates in an industry where demand for the Company’s services is affected by business cycles and seasonal effects, as well as factors of a more tempo- rary nature.
The main risks associated with Concordia Maritime’s operations and the industry – and which could have a sig- nificant negative impact on the Group’s operations, strategy, profitability, cash flow, shareholder value or reputation
– are divided into four categories: strategic risks, operational risks, compliance risks and financial risks. Sustainability risks are integrated into the risk categories. More informa- tion about risks and risk management can be found in Concordia Maritime’s 2021 annual report, which is available at
Environmental and safety reporting
None of Concordia Maritime’s vessels were involved in any incident that resulted in discharges of bunker oil or cargo during the quarter. There were also no workplace incidents resulting in an individual employee being unable to return to a work shift on the following day. This result is a consequence of extensive and continuous work on board the vessels.
None of Concordia Maritime’s vessels were involved in any piracy-related incidents during the quarter.
External controls
Seven vetting inspections were conducted during the quarter. There were 23 observations recorded during these inspections, resulting in an average of 3.3 observations per inspection. No port state control resulted in the detention in port of any Concordia Maritime vessel during the quarter.
Energy management
Total bunker consumption during the quarter decreased by 38% compared compared with Q2 2021. This was due to the fact that there were fewer vessels in 2022 (two vessels were sold in Q1 2022). The EEOI, which measures vessels’ energy efficiency and CO2 emissions, showed a slight deterioration for the fleet. The measure is affected by factors such as how the end customer decides to employ vessels.
Phasing out single-use plastic
Concordia Maritime’s technical partner Northern Marine Management is actively engaged in efforts to reduce all types of waste from vessels. This includes a project, which has been in progress since 2019, aimed at reducing the use of single-use plastics on board Concordia Maritime’s vessels.
New regulations
Concordia Maritime monitors developments regarding ship- ping regulations issued by the IMO, the EU and other rele- vant bodies. The IMO’s short-term greenhouse gas reduction measures are likely to require fleet adaptations in the coming years. The IMO’s EEXI and CII regulations enter into force in 2023 and an evaluation of effective technical and operational initiatives required to ensure compliance
is underway.
To comply with the EEXI regulations, EPL (Engine Power Limitation) will have to be installed on the P-MAX vessels during 2023. In short, this enables a vessel to limit its maximum engine power,which is not expected to have any negative operational impact. The investment is expected to amount to approximately USD 35,000 per vessel.
Accounting policies
This interim financial report in summary for the Group has been prepared in accordance with IAS 34 Interim Financial Reporting and relevant provisions of the Swedish Annual Accounts Act. The interim report for the Parent Company has been prepared in accordance with chapter 9 of the Swedish Annual Accounts Act.
For the Group and Parent Company, the same accounting policies have been applied as in the most recent annual report.
The Concordia Maritime Group applies International Financial Reporting Standards (IFRS) as adopted by the EU. The Group applies the same accounting policies and calculation methods in the quarterly reports as in the annual report for 2021, in addition to those described in this report.
The Group’s interim report has been prepared in accord- ance with IAS 34 and the Swedish Annual Accounts Act.
The report for the Parent Company has been prepared in accordance with the Swedish Annual Accounts Act. The Board of Directors and CEO confirm that the interim report provides a true and fair overview of the operations, financial position and performance of the Parent Company and Group, and describes material risks and uncertainties faced by the Parent Company and Group companies. This interim report has not been reviewed by the Company’s auditors
Other information
Related party transactions
Concordia Maritime has a small internal organisation, and purchases services from related-party companies in the Stena Sphere, which include Stena Bulk. The latter company conducts tanker business that coincides with Concordia Maritime in some respects.
Accordingly, there is an agreement, entered into many years ago, which regulates the relationship between the two companies with respect to purchasing or chartering of vessels. Under the terms of this agreement, Concordia Maritime has the right to opt for 0, 50 or 100 percent participation in each new transaction (with the exception of shorter transactions of less than 12 months).
At the end of Q2 2022, all P-MAX vessels apart from one were on 5-year charters to Stena Bulk.
Stena Bulk specialises in transportation of refined petroleum products and vegetable oils and has offices in five countries.
