Stolt-Nielsen boss Niels Stolt-Nielsen has made an astonishing address direct to his customers during the chemical tanker group’s first-quarter conference call.
The chief executive explained exactly why there is a shortage of ships and told cargo owners that shipowners would not build the new vessels clients need unless rates rise even further.
Stolt-Nielsen said returns from operating chemical carriers have been unsustainable over the past two decades.
He said the return on capital employed (ROCE) for the last 20 years has been 5.8%, lower than the cost of that capital.
“If we are going to continue to build the ships that you need to deliver your service, it is in your interest that this market is as strong as it is now because we cannot justify, talking to our stakeholders, to continue to build ships that give us a return lower than the cost of capital,” Stolt-Nielsen told the call.
He said an ROCE level at 20% over five years still only gives a return of 8% over 20 years.
“And we’re not there yet,” Stolt-Nielsen warned.
He said earnings have been approaching $30,000 per day on ships that cost between $60m and $70m.
“We have delivered that service ... in good times and bad,” he said. “This is in your interest. Unless we can get these types of rates and these types of returns ... there is a reason why there is a shortage of ships — because nobody has been making money on them.”
Stolt-Nielsen then quoted a phrase someone used in conversation with him recently, which he said he loves: “Our time has come and the market owes us a lot of money.”
‘Bent over backwards’
“And for us to be able to go to our shareholders to build new ships, these are the rates that we require.
“We are not being arrogant, you should never be arrogant. We’ve never said take it or leave, we are always willing.
“But we’ve bent over backwards to provide you a service with the reliability we are known for, but we need higher rates,” he said.
The company has been driving a hard bargain on contract renewals, with rates rising 50% from previous levels in the first quarter.
A total of 55% of the group’s contracts of affreightment were up for renewal over the last six months.
Stolt-Nielsen concluded 26 deals and added one new one. But 21 are still under negotiation.
The company lost 22 contracts, but some of the volumes were recovered when the products went to the spot market instead.
