President Torben Janholt
In 2006, EBITDA for JL’s combined reefer activities was USD (0.2)m down from USD 24.5m in 2005. The decline in earnings was mainly due to the sale of tonnage in 2005 and 2006 and reduced margins on time-chartered tonnage.
Profits before tax were USD 13.2m compared to USD 36.0m in 2005. This included USD 8.3m gains from the sale of vessels compared to USD 19.7m in 2005. Results are considered satisfactory.
JL’s reefer activities
During the year, JL’s reefer activities comprised Lauritzen Reefers A/S (ship-owning) and the 50% shareholding in NYKLauritzenCool AB (operations).
JL’s revenues derive exclusively from earnings from its owned, bareboat chartered and time-chartered reefer vessels commercially operated by NYKLauritzenCool. JL’s share of the net results of NYKLauritzenCool is included in the figures for the results from associated companies.
At the end of 2006 Lauritzen Reefers controlled a fleet of 18 bareboat chartered and time-chartered reefer vessels, all commercially operated by NYKLauritzenCool AB.
During the year, one medium sized reefer vessel was acquired and one was sold and the charter parties of some time-chartered vessels were extended.
NYKLauritzenCool is one of the world’s largest operators of specialized reefer vessels. The company employs around 60 specialized reefer vessels ranging from 300,000-760,000 ft3 with additional capacity for reefer containers on deck, equivalent to about 20% of the under deck capacity. All vessels are employed in the Leonina system to which JL and NYK Reefers each contribute about 35% of the total fleet capacity.
LauritzenCool Logistics (LCL), the reefer logistics service of NYKLauritzenCool, continued its growth during 2006 with an increase in excess of 50% of cargo volumes handled. LCL now operates from 35 offices in 21 countries world-wide serving increased demand for specialized perishable logistics services, connecting producers and retailers in a seamless operation.
Spot market rates did not live up to expectations during the first half of 2006 as the depressed freight levels from the 2005 off-season continued into 2006. During the second half of the year the market strengthened considerably and was sufficiently strong to take the average annual spot rate for a large reefer vessel 2-3% higher than in 2005, cf. Figure 12.
Demand for specialized reefer vessels
Demand for specialized reefer vessels was fairly modest in the first half of 2006 but increased significantly during the second half of the year. At the beginning of the year, Caribbean/Central American banana production was down due to tropical storms in 2005 and harsh weather conditions. Further, a late start to the Chilean season, an initial shortage of grape volumes in South Africa and the ban on Brazilian beef in major importing countries all contributed to a weaker peak season than in 2005.
After a slow summer, banana markets finally started firming up. At the same time, the South African citrus season ended more favourably than it began. On the meat exporting side, some restrictions were lifted on Brazilian and Argentinean meat and trade could be resumed while the US poultry industry saw strong demand for its products.
The year ended on an impressively high note. Many factors contributed at the end of 2006: the strong Moroccan and Chilean export seasons started early, there were many fish and poultry shipments and banana production kept up and was not interrupted due to the mild hurricane season.
The spot market improvement noted during the autumn had a positive impact on contract rates for 2007. Increases fixed at 5-7% confirmed on-going demand for versatile, modern reefer vessels.
At year-end 2006, the global fleet of specialized reefer vessels in the segment above 250,000 ft3 amounted to about 520 units with total capacity of approximately 225m ft3 down by around 1% from 2005.
Only two 585,000 ft3 capacity newbuildings entered the market in 2006. Scrapping remained low as only eight units with a capacity of 3m ft3 were deleted from the fleet.
The sales and purchase market for reefer vessels in 2006 was not quite as intense as in 2005 but there was still a lot of activity as almost 40 vessels changed owners at high average prices.
Events after year-end
At the beginning of January 2007, a 378,000 ft3 reefer vessel was sold with prompt delivery, leaving the Lauritzen Reefers’ fleet solely consisting of bare-boat and time-chartered tonnage.
Outlook for 2007
The tight supply of modern reefer tonnage is expected to continue to lead to occasional periods of very high freight rates in response to spikes in demand.
However, the continued influx of container vessels with large reefer plug capacities and the growing presence of container lines in traditional reefer trades is increasing competition in the market for transportation of all cargoes requiring temperature control.
Production forecasts in exporting regions are positive although there is a risk that El Niño and other weather phenomena may have a negative impact on export volumes.
Reefer activities are expected to generate satisfactory results although gains from tonnage sales will be considerably lower than in 2006. Profits before tax are forecast at about USD 7m in 2007.
Figure 12: Spot market freight rates for reefer vessels (US cents per ft3 per 30 days)
Source: Fearnleys weekly