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Annual Report 2012

Annual Report 2012

Freight rate

Freight rate developmentChemical market – tonnage demandDemand for chemical tankers is influenced by many variables as a vast number of commodities are involved inthe seaborne chemical trade. World GDP growth and world industrial production is one of the main drivers fordemand for chemicals and is therefore often considered to be one of the main indicators for chemical tankerdemand. Although, there is some uncertainties with regards to the macroeconomic indicators following theEuropean sovereign debt crisis, world GDP figures are anticipated to grow, according to the IMF 1 , by 3.5 percent in 2013 and 4.1 per cent in 2014 and historically the demand for chemical tanker transportation has beengrowing at a factor of approximately 1.5.The world’s chemical production capacity has been growing steadily during the last decade, partly influencedby increasing consumption as a result of a growing world population. Traditionally, the key areas forproduction and consumption of chemicals have been the main traditional industrial areas in North America,Northwest Europe and Japan. Going forward a rapid build-up of new chemical plants, especially in the MiddleEast, Asia and South America is expected. The Middle East and Asia is therefore expected to become moreimportant regions for the chemical tanker industry. In recent years, China has also emerged as a significantimporter and exporter of chemicals, and this is likely to continue. The long term growth rate for globalchemicals and plastics demand has been estimated to be around five per cent. Further, the demand for marinechemical transportation, measured in tonne miles, is expected to continue exceeding the growth in demandmeasured in tonnes, as a result of the increasing industrial production and increased chemical plant andrefinery capacity in the Middle East and Asia.Freight ratesThe table on the following page sets forth the development in the Eitzen Chemical Index (ECI) since 2006, boththe actual development and the development on same-ship basis. The Eitzen Chemical Index (ECI) is based onthe Company’s sailed in time-charter equivalent (TCE) earnings per day. The TCE earnings are included withnominal values. Certain vessels in the current fleet were delivered in the period 2007-2009. The averageweighted TCE for these vessels are only included from the time of delivery.In 2009, high fleet growth coupled with reduced industrial production as a consequence of lower economicactivity and negative GDP growth in the major economies, had a negative impact on chemical tanker demandand freight rates. Industrial production has however, in most parts of the world, picked up and increaseddemand for chemicals and the seaborne transportation of same. The continuation of high bunker expensesthroughout 2012 had a negative impact on the Eitzen Chemical Tanker Index, which measures time-charterequivalent earnings, i.e. revenues after voyage related costs such as bunker costs. However, lately the markethas partly managed to absorb the increase in bunker prices with modest increases in freight rates.1 International Monetary Fund: World Economic Outlook Update, 23 January 201312

Eitzen Chemical IndexThe chemical industry is reporting improved earnings, increased sales and has a positive outlook in general.The increased production of petrochemical products in the Middle East and Asia is likely to have positiveconsequences for the tonne-mile matrix for chemical tankers. Industry sources estimate that demand forseaborne chemical transportation will increase by 4-5 per cent in 2013, and demand for tonnage expressed intonne-mile to increase even more. Furthermore, the fleet growth for chemical tankers between 3,000 and54,000 dwt is expected to be limited going forward. As a consequence, the remaining oversupply is expectedto be absorbed, giving rise to an increase in the global fleet utilization and a significant recovery in freightrates.13

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