Welcome back to Stolten! Following the digitalisation trend, and in keeping with our increasingly digital and environmentally conscious world, the magazine will only be produced digitally. Stolten has been useful in communicating to all our stakeholders over the years and I am pleased to see its return. It takes a lot of time and effort, but based on your positive feedback, we know it is much appreciated and I hope you enjoy the new digital format.
Just as we thought life was returning to normal after two years of a pandemic, the world is now faced with a war in Europe. It is heart-breaking and downright scary to read and see what is happening in Ukraine and I sincerely hope there is a peaceful end to this conflict soon.
I hate uncertainty, and now more than ever there is huge uncertainty for all of us. I think this is caused by a combination of events that have unfolded over the last decades. Some of you may remember that I have previously expressed my frustration about the West spending beyond its means and the enormous deficits that this has caused in most of the major economies. The pandemic has further increased these deficits to now astronomical levels.
At a certain point something has to give. It was inevitable that inflation would rise. With the amount of quantitative easing the West has made since 2008, it was just a matter of time, but what has triggered the rapid rise in inflation to 7-8% (and growing) that we are now seeing in Europe and the US?
I believe it is a combination of pandemic, logistical bottlenecks, and the green transition. It has been, and still is, difficult to get people back to the office after the lockdowns. Let’s be brutally honest; overall the productivity is down when working from home. The vast amounts given by governments to support workers (rightly so) made people feel more economically secure as their spending decreased during lockdown, so they felt confident in resigning from their jobs without having new jobs to go to (the ‘Great Resignation’). To attract people back into employment, employers have been compelled to increase salaries resulting in wage inflation.
We all know, or at least should know, that we still need oil and gas to power our economy until we have developed a sustainable green alternative. It is a prosperous and growing global economy that will finance the new green technology."
Then there are the logistical issues we have experienced over the last two years. During the pandemic we went from a largely service economy to a goods economy. Instead of going out to restaurants, traveling and staying in hotels, we all stayed at home and ordered 'things’ on Amazon, which increased demand for goods transported by container lines.
At the same time, we had Covid-19 restrictions in place so the infrastructure that served the container lines was not at full capacity (for example, if one dock worker tested positive, then the whole shift had to isolate), causing huge delays. It was a similar situation for the trucking industry. With reduced capacity due to Covid-19 restrictions, logistics costs for both container lines and trucks have skyrocketed.
The West needs a wake-up call
Then we have the green energy transition: regardless of whether you believe humans can influence the change in our climate, I think we can all agree that we need to save our limited natural resources and that we should reduce pollution. The authorities (EU, US, UN) have set a target to achieve net-zero emissions by 2050 and governments have signed up to it. We really don’t have the technology today to meet this target, but there is a will (for the time being) to try. We all feel an obligation, and correctly so, but I am a little worried about the way it is being done.
The war in Ukraine is a wake-up call for those who are not fully up to speed on the consequences of our ‘net zero by 2050’ commitment. A large part of the private sector has taken it upon themselves to go beyond what the authorities are imposing. Banks, pension funds, hedge funds and others have said over the last decade that they will not invest in oil and gas. I thought it was their fiduciary responsibility to maximise shareholder returns (our pension money) within the law and regulations set by the authorities?
We all know, or at least should know, that we still need oil and gas to power our economy until we have developed a sustainable green alternative. It is a prosperous and growing global economy that will finance the new green technology.
As a result of the lack of investment by the West in the exploration and development of oil and gas, we are now faced with a situation where there is a physical shortage of oil and gas. It is not just for the oil- and gas-producing countries to pump more out of the ground. There is no excess capacity! It takes four to five years to explore and develop new oil and gas fields. So, when Russia invades Ukraine the morally correct thing to do is to stop buying oil and gas from them, but there is no excess capacity to source it from anywhere else in the next four to five years! The result is that, unfortunately, a record amount of coal is being used to replace oil and gas.
I must admit that I have said to myself several times over the last two years ’the world has gone mad’.
So how will all this influence Stolt-Nielsen?
As long as we avoid a global recession we should do quite well. In fact, so far, all cylinders are firing at the same time in 2022.
The chemical tanker market is finally turning in our favour. The order book for new stainless steel chemical tankers is at 5% and the yards are full, practically building everything but chemical tankers. So even if someone wanted to order ships today, they wouldn’t arrive until c.2026.
On the demand side, because of the war in Ukraine, the product tankers are finally leaving our segment. Nations are sourcing their refined products away from Russia causing more ton-mile demand for the product tankers. As a result, we are at last seeing a significant strengthening of the chemical tanker market.
This industry has not been financially sustainable over the last 15 years, so we have a lot of catching up to do, not only on the freight rates but also on the terms and conditions of our contracts which have made our industry so inefficient both operationally and environmentally.
Lucas Vos, President of Stolt Tankers, and his team have done a tremendous job in growing our fleet through secondhand acquisitions and partnerships. The result is a fleet of 160 ships totaling three million deadweight tonnes, so we are well positioned in the rising market; our time has finally come.
Stolt Tank Containers (STC) is celebrating its 40th anniversary this year and what a fantastic ride it has been. Besides the record results, what makes me most proud is the organisation. Yes, the market is strong, but through our platform consisting of our people, systems and assets our customers come to us because they know that our service is top quality, driven by reliability and flexibility. Over the last few years in particular, customers have come to realise the importance of reliability and, as we have always said, Stolt-Nielsen is here to serve in both good and challenging times.
Special thanks go to Mike Kramer for the work that he has done as President of STC over the last 22 years. The fruits that we are now enjoying are very much thanks to his vision and work.
When Guy Bessant, President of Stolthaven Terminals (SHVN), presented his strategy to me several years ago, he said he wanted SHVN to be the most respected terminal operator. When I challenged such a fluffy statement, he replied that we were unlikely to be the largest operator in the near future, but if we are the most respected, we would be the preferred partner in business and opportunities would come our way.
Over the last seven years, Guy and his team have upgraded and modernised our terminals while at the same time building additional capacity. The results of his strategy are that we are steadily improving safety KPIs as well as financial performance. And new opportunities are being pursued. Respect to that!
Stolt Sea Farm (SSF) had a tough time at the outbreak of the pandemic. Most of our turbot and sole was being sold to restaurants and hotels, so when they all closed, we had to freeze the fish we harvested at a big loss in 2020. It was a stressful time for Jordi Trias, President of SSF, and his team, but they rallied together, and the market has recovered. Actually, the market has never been stronger.
As a result of the lockdown and the Covid-19 restrictions, many of the fishing vessel owners in Europe went into bankruptcy, reducing wild catch. In addition, the high fuel prices we are currently experiencing mean it doesn’t make economic sense for them to fish so there is currently a significant shortage of fish in the market.
Our strategy over the last 30 years to pursue land-based farming of turbot and sole has now positioned us not only as the largest farmer of the two species, but also the leader of sustainable aquaculture farming. SSF is celebrating its 50th anniversary this year and I enjoyed attending their recent celebrations in Spain. It was great to see everyone again in person after not being able to travel for so long.
Ultimately, success is all about people. I am so tremendously grateful and proud of the people who work for our Company. This diversified team from every corner of the world is what makes us a market leader in each of the industries in which we operate.
I wish you all a wonderful summer.
Niels G. Stolt-Nielsen
London, June 2022
