Stolt shores up chem fleet with JO Tankers deal

London-based Stolt-Nielsen plans to increase its fleet by 21 vessels, offering $575m for the Norwegian shipper’s operations in an acquisition announced on Monday. Above, the JO Kashi, built in 2003, navigates southbound into Galveston Bay from the Houston Ship Channel on 15 March 2012. (Roy Luck/Wikimedia)

Focus article by Lane Kelley

HOUSTON (ICIS)–In the world of chemical shipping it seems there are always too many ships chasing too few cargoes, but a deal announced this week means there soon could be one less shipper.

London-based Stolt-Nielsen plans to buy the chemical tanker operations of Norwegian shipper JO Tankers for $575m, increasing Stolt’s already huge fleet by 21 vessels.

A Houston shipping source said the deal stems from a combination of a “systemically tough market” and JO’s own specific challenges.

“The only surprise is that it didn’t happen sooner,” the source said. 

JO has almost a century of shipping history and operated the world’s third largest chemical tanker fleet in the 1980s and early 1990s. The “O” in JO Tankers stands for Odfjell (pronounced odd-fell), a link to a separate company that is one of Stolt’s largest competitors.

The two initials stand for Johan Odfjell, an ancestor of JO’s current owner, Johan Odvar Odfjell, who noted in a news release on the deal that the company’s history includes four generations of shipping and three generations of chemical tankers.

Another Houston shipping source said JO became less and less relevant in the past few decades, unable to add vessels on the order of Stolt and Odfjell and newcomer Navig8, which represent the top three chemical shippers now.

JO remains a player on the important transatlantic route between the US and Europe, and also is the dominant shipper on the Europe-South Africa trade lane, which apparently was a key factor in Stolt’s acquisition.

Ironically, Odfjell was one of four bidders for JO but Stolt’s offer won, the second source said.

JO’s chief executive, Nils-Petter Sivertsen, described the shipper’s problem in a statement on the deal as being a regional player in a global business requiring economies of scale and increased service flexibility.

“In each of these areas JO Tankers has reached the limit of our capabilities,” Sivertsen said.

Stolt could fund the deal with four to five years of earnings based on the shipper’s 2015 profit of $133m, which is close to its interest in the eight new vessels JO has on order.

The cost of those new vessels in late 2013, when JO announced the order, was estimated at $320m, which would put Stolt’s 50% interest at $160m.

Stolt said funding for the purchase will be supplied through financing by some of its main banks, secured term loans and available corporate funds. The transaction is subject to regulatory approval, which Stolt expects before the end of September.

A Houston shipping broker called the deal a good move for Stolt.

“They (Stolt) already had four to six of the JO ships on long-term time charter and also have a few older ships which need to go to the scrap yard, so all in all it shores them up,” the broker said.

Stolt also gets a few more ships to grow its business, plus entry into West African markets where it was not operating, the broker added.

A statement on the deal from Stolt CEO Niels G Stolt-Nielsen referred to some of those factors, saying that the JO acquisition “covers the tonnage replacement needs of our current chemical tanker fleet for the next several years”.

Replacing old ships is necessary, but earlier this month Stolt-Nielsen described another necessity during an earnings conference call.

The Stolt CEO said that, while there are bright spots in the global market for chemical tankers, even those areas have problems.

“The Gulf of Mexico to the Middle East is by far the strongest market that we see, but the other markets are suffering,” Stolt-Nielsen said, adding that those other markets include weak areas in Europe, the Middle East and Asia.

“So even though we are able to get our ships out from the Gulf of Mexico to the Middle East, it is a dog fight to get them back with cargo,” said Stolt-Nielsen.

The Stolt Egret chemical tanker is shown in the wintry Port of Hamburg, Germany, in 2012. (Christian Ohde / imageBROKER/REX/Shutterstock)