2016 was the year the LPG market turned after a period of historically high rate levels, where 2014 and 2015 reached levels never seen before in the segment.
The very tight shipping market was mainly a result of new export volumes of LPG from USA, a product of the rapidly increasing shale gas and shale oil production in the period from 2012 up to today. In addition, price differences on LPG between regions have made extra arbitrage available, resulting in more long-haul LPG voyages from west to east.
With high expectations of a good market, which then were followed up by two years at record levels, resulted in a strong interest from existing and new players to increase their market exposure. At one stage, the order book for VLGC where over 50% of the existing global fleet. 35 ships were delivered in 2015, 44 were delivered in 2016, and another 28 are scheduled for delivery in 2017. This obviously had an impact on the VLGC market, which quickly turned downwards in the spring of 2016, where most people were expecting the market to turn after the normal summer peak-market. This was not to be, and the combination of high number of new-builds, along with no open arbitrage, resulted in an earlier and steeper than anticipated market correction.
For Solvang, much of 2016 was covered by existing contracts, but for the VLGCs on contract with floating rate, we got the market correction in step with the market decline. Also, some of our LGCs came open during 2016, and there is no doubt the new contracts were at a completely different rate level compared to what we were used to over the last couple of years. This was a sudden change for the organization, but we followed our philosophy of ensuring the ships were kept busy, and although rates in new contracts have been considerably lower, we have had little or no idle time. The focus now is to ensure we operate with a low cost base, while keeping our quality level. We will work smarter, maintain our continuous improvement program, keep our ships working and come out of the downturn in the LPG sector as an even stronger player. Solvang has every opportunity to do so. We have had a conservative philosophy, pre-paid on our debt, and can as such withstand a poor market for a long time, and at the same time be able to take opportunities for further growth that come up in the market.
In the midst of these challenging times, we can be very proud of what we have achieved. We have a very stable organization with little or no turnover onshore, an organization that is capable of handling any technical, operational or commercial issue without using external expertise. As a matter of fact, our in-house expertise is often requested by the shipping industry players in Norway to give advice and join development projects.
Throughout 2016, we delivered outstanding performance on all key success factors; HSE, customer satisfaction, quality, CSR and financial.
- We unfortunately had one LTI during 2016, a finger injury, but now stand with only 5 LTI in the past 9 years. Smaller potential incidents happen every day though, so we will never let our guard down on safety.
- We have record low number of seafarers becoming unfit for duty after medical check. Our health campaign works!
- Feedback from customers show that we are there for them, deliver our services in a safe and timely manner, have the right attitude, and they can rely on us being their long-term shipping partner.
- Our environmental footprint is improved with 6 vessels now running a full scale exhaust cleaning system, and our 4 new-builds for delivery in 2019 will all have the same exhaust cleaning system.
- Our Quality statistics / vetting results are among the best in our segment, with an average for 2016 of only 2.4 observations per OCIMF/SIRE inspection.
- We continue to support a SOS Children´s Village in the Philippines, as well as other local welfare causes. We are a supporter and member of MACN (Marine Anti-Corruption Network) and comply with the good corporate practices in the maritime industry as described in the network´s operating charter.
- We have a strong financial position and are prepared to handle the downturn, and have the ability to act on further growth opportunities where prices are attractive to do so.
In terms of new-builds, we have in 2016 had full focus on the construction of our two Panamax VLGCs, which will be delivered in 2017. These vessels represent a further development of our two existing Panamax VLGCs, with 5% bigger loading capacity and improved speed / consumption numbers. Both ships are going on a 10 year timecharter to Phillips66 and represent one of the biggest contracts Solvang has ever won. We are looking forward to the delivery in May and August 2017 and the start-up of these important contracts.
Solvang ASA has a strong position, both in the market place and financially. We believe that the future looks bright, and we continue to focus on excellence in operating our ships and in high quality service-delivery to our customers.