Quarterly December 2007 - Odfjell

Dear Colleagues...The year 2007 is soon coming to anend, and we can already now say thatit has been another eventful year forOdfjell. On the positive side we havebenefited from quite favourable marketconditions, both for our shipsand our terminals, which have contributedto a strong result. There aremany positive developments on theterminal side, not least with the newproject in Caofeidian (China) and ouracquisition of the AVR terminal inRotterdam. We have managed tomaintain our competitive position,and survey responses from our customersindicate that they appreciateour service level. Most of our keyperformance indicators also showimprovements. All in all, the organisationappears healthy and fit to tacklefuture changes and challenges.However, not everything looks equallybright. The oil prices are extremelyhigh, resulting in unprecedented bunkerprices that really hurt our voyageearnings. We have had a few majorincidents on our ships, among whichthe engine breakdown on Bow Favourand the grounding of Bow Star arethe most serious ones. Our lost timeinjury frequency is still too high, despitestrong efforts for improvements.Consequently, we cannot rest on ourlaurels but should always strive forfurther progress. To succeed we aredependent on competitive and stablepolitical conditions for our business.The recent proposal by the Norwegiangovernment to retroactively callin eleven years of company tax is nota positive contribution in this respect.Adversity makes strong, and I am verypleased with the ability within Odfjellto take on challenges and difficultiesand to solve problems we are facingas a company; accidents, technicaldisruptions, market fluctuations,temporary manpower shortages andnot least the long-lasting anti-trustcase. Uphill battles may seem dispiriting,and therefore it is crucial that westand together in our efforts to findsolutions and to do what is right andnot what is easy. I know I have theBoard of Directors behind me in expressinggratitude and appreciationfor all the hard work that you put infor the benefit of the company.Although 2007 looks like producingfairly strong results for Odfjell, I amsomewhat more worried about theprospects for 2008. Financial turbulencein the US, as seen lately withthe so-called sub-prime loans, thealarming increase in US trade imbalanceand the rapidly dropping valueof the US dollar towards other currenciesare all factors that may threatenworld economic growth. So far thegrowth in the Far East keeps thepace, not least in China, but previousexperiences show that no economicboom lasts forever. Hence, we shouldbe prepared to manage also an economicdownturn. The extreme oil andbunker prices are a serious headachefor us, and we have to find ways todeflect the negative impact this hason our results. We cannot affect thebunker prices, but we have to consideravoiding the ultimate peaksthrough bunker hedging instrumentswhenever that is beneficial to us. Itis also important that we further optimisethe use of fuel on our ships,e.g. through slow-steaming or enhancedcargo consolidation. Stricterenvironmental regulations, not leastthe focus on low-sulphur fuel andreduced CO 2 emissions, pose anotherchallenge to us. Although we trulywelcome initiatives to protect theenvironment and reduce the adverseimpacts of ship engines, such changeshave to be implemented in a way thatis technically and economically viable.Consequently, 2008 looks like beinganother challenging but hopefullyfruitful year for us.December is usually a busy month formost of us, with lots of end-of-yeartasks and plenty of social pre-seasonsgatherings. I hope you will all findthe opportunity also to relax andspend time with your loved ones andfriends, be it a picnic at the beach onthe southern hemisphere or gatheredaround the fireplace here up north.Finally I wish you and your familiespeaceful and joyful season’s festivities,and all the best for 2008.Regards,Terje StorengPresident/CEOOdfjell Quarterly December 2007 3