Stolt Nielsen’s results highlight the value of flexibility

The vivid contrast between shipping and other areas of the logistics industry is illustrated by the latest half-yearly results of chemical logistics provider Stolt-Nielsen.

The company’s tanker division, which was the original core of the business, continues to scrape-by, with a $2.2m profit for the half-year on an operating revenue of $634m. Both performance indicators are down markedly, with the same period of 2012 seeing an operating profit of $20.4m. Demand for its services was mixed throughout the period; while it was strong from the US to Asia, it was weak in the other direction. In addition, contract rates strengthened over the period, but spot-rates weakened.

Although the chemical tanker market is quite concentrated in terms of ownership, the demand and supply balance remains problematic, with new ships still being delivered into a market which is only growing modestly.

In contrast, Stolt-Nielsen’s tank-container business saw demand climb strongly, with shipments in the second quarter increasing by 8.5% year-on-year, whilst overall the first six months saw a 2.6% rise year-on-year. Admittedly, profits fell due to a tougher first quarter, but even slightly depressed margins were 13.3%, whilst the second quarter pointed to a strong recovery.

The “highly competitive” nature of the tank container business reflects the fragmentation of a sector which, although Stolt-Nielsen has a leading position in, has numerous medium and small-sized operators who are not slow to expand their fleets. Despite this, the sector offers both opportunities for growth and highly respectable margins.

Why are the two businesses so different? Part of the explanation is that tank containers are the right solution for the market’s current needs. Flexible and quick to adapt to changes in trade patterns, they continue to gain market share. However, they also are able to tap into the economies of scale offered by container shipping, which means the capital requirements are lower and they can exploit the frequently low freight-rates.

In contrast, the tanker market suffers from the familiar problem of the tendency of its participants to build too many ships. This is driven by a fear of losing market share, despite chemical tankers being a highly specialised ‘exotic trade’ which is hard to enter and dominated by a handful of players.