Stolt-Nielsen Buffeted in Turbulent Shipping Market

Oil rigs near Singapore on September 22, 2014 (UpstartCity/Mike Juang)

Ocean shipping company Stolt-Nielsen Ltd reported “mixed” results at the end of Q3 2016 due to excess capacity in the shipping market and low energy prices amidst a continued squeeze in shipping. The Norwegian conglomerate, which specializes in moving liquid products like edible oils and gas across oceans, earned a 12 percent lower profit this term compared to the last quarter.

“The biggest highlight I would say, is the downturn that we saw in tankers,” said director Niels Stolt-Nielsen, referring to tanker ships, specialized vessels designed to transport liquids. Tanker ship operations in the company noted a downturn in operating profit from $113,146 to $99,990.

The market for deep sea freight transportation, which includes container shipping, terminal operations and logistics, oil tankers and Liquefied Natural Gas shipping, has recently been bruised by a worldwide drop in energy prices. These woes are exacerbated by continued market overcapacity, in which there are more carriers than shippers. The dynamic is comparable to the deep cuts airlines make to seats when a flight operates under capacity.

The effects of these dual forces have been widespread. In late September this year, industry leader AP Møller-Maersk recently broke into two units: One half of the Danish conglomerate will focus on shipping logistics, while the other half will be spun off as a vertically integrated energy production and delivery unit. South Korean containership giant Hanjin Shipping recently filed for court receivership after deciding its mounting financial woes were unsustainable.

In its earnings call last Thursday, Stolt-Nielsen said the company was protected against any potential market shocks through long-term contracts of affreightment, rather than relying on the spot market, which are short term contracts that are brokered and completed within a year. “We are not that dependent upon the spot market,” says Stolt-Nielsen, “and we can actually be more selective in the spot cargoes that we pick.”

It is unlikely that hurricanes or severe weather will affect companies like Stolt, says John Miklus, head of the American Institute of Marine Underwriters. Hurricanes “usually have only a temporary, short-term impact on operations unless the damage is severe,” says Miklus.

Natural cat’s such as a hurricane usually have only a temporary, short-term impact on operations unless the damage is severe (e.g. pipelines damaged in Gulf of Mexico from hurricane Ike in 2008)

The company also took delivery of a newly built ship, the Stolt Pride, during the quarter, increasing the value of its assets but decreasing the amount of cash available, according to balance sheets published alongside the earnings report.