The negative development in demand for shipping in 2020, as during the financial crisis in 2009, was in direct conflict with market expectations. Expectations for 2020 were quite optimistic in all shipping markets, and the merchant fleet was preparing for growth.
However, even though demand for tonnage fell by 1.8 per cent in 2020 due to the corona pandemic, the fleet expanded by 2.9 per cent, leading to a reduction in utilization of ship capacity from 87.8 per cent to 83.8 percent.
Total revenues for shipowners in the Norwegian Shipowners’ Association fell by eight per cent, from NOK 235 billion in 2019 to NOK 218 billion in 2020. The transport segments, including deep sea and short sea shipowners, have since the financial crisis hit the industry in 2008 gradually increased their turnover, now accounting for 59 per cent of total turnover among shipping companies.
The offshore segments have experienced very demanding times since 2014. Turnover and profitability are still far lower than before the fall in oil prices, andprices and have so far not returned to sustainable levels. In 2019, total turnover in the offshore segments accounted for about 41 per cent of total turnover among shipping companies. This is significantly lower than the peak year of 2014, when turnover in the offshore industry accounted for as much as 63 per cent of shipping companies’ total turnover.
All segments experienced reduced turnover in 2020. The short sea segment in particular saw the largest decline, but there are large differences within this segment.
Where the passenger segment saw a decline of about 46 per cent, the transport segment has increased its turnover by eight per cent. Deep sea shipping companies have experienced a reduction of about six per cent. Both offshore segments – offshore service and rig companies – experienced a reduction in turnover of five per cent in 2020.
The transport segments expect growth in 2021
Increased optimism is reported for 2021, with modest positive expectations for the year. Overall, shipowners state that they expect an increase in turnover of three per cent in 2021. There is great discrepancy between the segments, with the bulk of expectations for an increase coming from the transport segments and passenger ships.
There is great optimism among short sea shipowners. As many as four out of five expect growth in 2021, and only ten per cent expect reduced turnover. Internally in the segment, the greatest optimism is to be found among passenger ship companies, where all anticipate significant growth in 2021.
This is due to the fact that passenger shipowners were hit very hard by restrictions on activities due to the pandemic in 2020, but foresee relief over the course of 2021. The deep sea segment is more divided in its expectations for 2021. About 40 per cent of shipowners expect growth in 2021, while almost 30 per cent expect reduced turnover.
In the offshore segment, shipping companies are nearly equally divided when it comes to expectations for 2021. Among the offshore service and rig companies, about 40 per cent state that they expect growth in turnover in 2021, while approximately the same share in both segments anticipate a reduction.
If the forecast is correct, the shipowners’ total revenue will end up at around NOK 242 billion in 2021, up three per cent from 2020
Still demanding in offshore
The large drop in revenue among the offshore service and rig companies after the fall in oil prices in 2014 still affects the industry to a large extent. Globally, there has been lower activity in exploration, extraction and maintenance, combined with efficiency measures in the oil companies.
The offshore segments still face a demanding situation, with high layup figures, low rates and a short time horizon on new contracts. The situation is not sustainable, and the offshore segments may be characterized by further restructuring and refinancing again in 2021.
The rig market suffered a sharp setback in 2020. Rig companies’ revenues have been cut almost in half since 2015. In 2015, rig companies had a total turnover of NOK 67 billion. In 2020, this was down to about NOK 37 billion. For 2020 alone, the decline in turnover was almost five per cent, amounting to a decrease of about NOK 2 billion.
OPEC’s regulation of oil prices gives cause for guarded optimism. The start of 2021 has been marked by several interesting rig contracts in Norway, the UK and Brazil, while the market has high expectations for further activity in Guyana, Angola, Mozambique and Malaysia. These drilling rigs will go to assignments that were previously postponed, some of which have returned much faster than expected.
The impact of the corona pandemic on the oil market will also affect much of 2021 for offshore service, but there are some bright spots. Lorentzen & Stemoco estimates that we will see increased demand for offshore services with lower emissions in 2021, as both owners and operators must reduce their emission profiles. They also point out that the offshore wind market may see an increased need for floating housing units and «walk to work» services, which can be a bright spot especially in the supply ship market.
Offshore service shipping companies had a turnover of approximately NOK 100 billion in 2014, but in the period from 2014-2018 this was halved to NOK 52 billion. In 2019 the segment reported growth in turnover of almost 20 per cent before revenue fell again in 2020, by five per cent. For 2021, the forecast is for a further reduction of five per cent.
The transport segments expect growth in 2021
Deep sea shipping companies experienced a reduction in turnover of about six per cent in 2020. For 2021, they expect growth of four per cent. If the forecasts prove accurate, this will give them a total turnover of NOK 111 billion in 2020. This makes the deep sea shipping companies the largest single segment of the Norwegian Shipowners’ Association’s members measured in turnover, with about the same turnover as the other segments combined.
Short sea shipowners traditionally experience steady and stable growth. Annual growth in recent years has been around five per cent. The corona pandemic has hit the various parts of the short sea segment very differently. The passenger segment has had a significant decline in turnover, with a loss of about 46 per cent. This amounts to about NOK 6 billion in reduced turnover.
Conversely, the transport segment saw good growth in 2020, reporting a growth in turnover of eight per cent. This represents a growth of about NOK 1 billion.
Both the passenger and transport segments expect solid growth in 2021. The passenger segment expects growth of 73 per cent, corresponding to NOK 5 billion. However, this is not enough to make up for the total reduction experienced in 2020, which means that losses as a result of the corona pandemic will extend beyond 2021 and into 2022. The transport segments expect growth of about seven per cent. This corresponds to a growth in turnover of about NOK 1 billion.
Shipowners divided on expected profitability
There is a large gap in shipping companies’ expectations for profitability in 2021. Overall, about one in three shipowners state that they expect weaker profitability in 2021 compared with 2020. Among the offshore service and rig companies, more expect reduced profitability than those expecting increased profitability. Thirty-eight per cent of offshore service shipping companies and 36 per cent of rig companies expect reduced profitability in 2021. This indicates that the offshore segments expect a further deterioration of the market situation. This is despite the fact that these segments have operated in very weak markets since the fall in oil prices in 2014, with a number of shipping companies incurring large losses and write-offs. Increased profitability among offshore service and rig companies does not mean profit or sustainable profitability, but may mean that the deficit is being reduced somewhat.
Also in deep sea, about one in three shipowners state that they expect reduced profitability in 2021. At the same time, a larger proportion of shipowners in this segment – 42 per cent – anticipate increased profitability. The share of those expecting significantly weaker and significantly improved profitability is equally divided, at eight per cent each.
The short sea segment in particular has high expectations for 2021. Within the transport segment, 60 per cent of shipowners expect improved results in 2021, while only 10ten per cent anticipate weaker results. This may indicate that shipowners expect the strong markets they experienced toward the end of December to continue into 2021.
In the passenger segment, three out of four shipowners have expectations of increased operating profit in 2021. This is probably closely related to the fact that passenger ship operations were largely halted as a result of the corona pandemic, leading to a significant reduction in operating profit in 2020. As with offshore, it is not a given that an increase in profitability in this context means a positive operating result. In this context, it can also mean reduced negative operating profit.